Southern District of New York

Preet Bharara, the United States Attorney for the Southern District of New York, Aaron T. Ford, the Special Agent-in-Charge of the Newark Field Office of the Federal Bureau of Investigation (“FBI”), William Fraher, the Acting Chief of Police of the Paterson Police Department, and Gary F. Giardina, the Chief of Police of the Clifton Police Department, today announced the unsealing of a superseding indictment charging 28 members and associates of the Bloods street gang operating in Passaic County, New Jersey, principally in the city of Paterson, with distribution and possession with the intent to distribute heroin, “crack” cocaine, and powder cocaine. The indictment also charges three of the defendants with brandishing firearms in furtherance of drug trafficking activity, and with being felons unlawfully in possession of firearms.

Of the 28 defendants named in the Superseding Indictment, nine were taken into custody in a weekend sweep. Those nine defendants were presented in Manhattan federal court this afternoon before U.S. Magistrate Judge Debra Freeman and detained. Five other defendants are presently detained in state custody on unrelated charges, and will be writted into federal custody. One defendant, HAKIM LOWERY, remains at large. The other 13 defendants were arrested on earlier occasions on the underlying indictments, and all remain detained.

Manhattan U.S. Attorney Preet Bharara said: “Once again we see the convergence of drugs, guns and violence that plagues neighborhoods, threatens their inhabitants, and spreads potentially lethal narcotics from city to city and across state lines. To keep our neighborhoods free of illegal drugs and gang violence, we will continue to work closely with our local law enforcement partners to vigorously enforce federal drug and firearms laws.”

FBI Special Agent-in-Charge Aaron T. Ford said: “Dismantling violent gangs is a continuing priority for the FBI. Our efforts to address gang violence are not new, but we are working with our partners with increased manpower and increased urgency to address current circumstances. Today’s arrests and charges are the result of a successful, long term investigation conducted by the FBI, and the Paterson and Clifton Police Departments.”

Paterson Police Department Acting Chief William Fraher said: “It is critically important for cities like Paterson to leverage their existing collaborative relationships with federal and local law enforcement to reduce not only the actual violence in our communities, but also reducing the perception of fear which can be just as important.”

Clifton Police Department Chief Gary F. Giardina said: “Problems faced by law enforcement do not stop at the city borders. What is one city’s problem most likely is the next city’s and at times overlaps into the next state. It is for these reasons that it is imperative that agencies work in partnership to be successful. In this case Clifton Police worked in partnership with the Paterson Police and FBI in order to bring this investigation to a successful conclusion.”

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

Various “sets” of the Bloods, particularly the Fruit Town Brims and Sex Money Murder, among others, operated in Paterson, often coordinating, collaborating, and working together (defined in the Indictment as the “Paterson Bloods”). Ranking members of the Paterson Bloods would often meet to resolve disputes between their respective “soldier” members of the sets, and could direct punishment against non-members. Among these punishments were that individuals were to be assaulted or killed by members of the Paterson Bloods.

The Paterson Bloods operated the drug markets in certain central locations in Paterson, New Jersey, including, in particular: North Main Street from East Main Street to Jefferson Street (an area known as “The Main”); Graham Avenue/Rosa Parks Boulevard from Lyon Street to Franklin Street (“The Boulevard”); Graham Avenue/Rosa Parks Boulevard from 12th Avenue to Hamilton Avenue; 12th Avenue from East 22nd Street to East 24th Street; 10th Avenue from East 26th Street to East 30th Street; Governor Street from Graham Avenue to Summer Street (“Up the Hill”); and Park Avenue from Madison Avenue to East 16th Street. Members of the Paterson Bloods were permitted to sell heroin and “crack” cocaine in these areas. Generally, non-members, outsiders, and rival narcotics dealers were prohibited or prevented from distributing narcotics in areas controlled by the Paterson Bloods. Certain individuals – such as people who had grown up in areas controlled by the Paterson Bloods, people of neutral gang or neighborhood group affiliation, or marijuana dealers who often sold to members of the Paterson Bloods – were permitted to distribute narcotics in areas controlled by the Paterson Bloods, but did so without the protection of the members of the Paterson Bloods, and at the risk of being robbed by members of the gang. For example, on June 17, 2013, a drug dispute broke out in the area of 12th Avenue and 22nd Street, during which the defendant RACHAUN PARKER, a member of the Fruit Town Brims set of the Bloods, assisted an individual who was considered a “neutral” from his neighborhood. Members of the Fruit Town Brims, including defendants HAKIM LOWERY and JAMAR EDWARDS, violently beat PARKER for violating the rules of the set.

Members of the Paterson Bloods and their associates committed and conspired, attempted, and threatened to commit acts of violence to protect and expand their drug trafficking operations, and to protect fellow members of the gang. These acts included beatings, stabbings, and shootings intended to prevent people not affiliated with the Paterson Bloods from distributing narcotics in areas controlled by the gang, or to dissuade members of rival gangs, such as the Latin Kings, from encroaching on territory controlled by the Paterson Bloods.

Members of the charged narcotics-distribution conspiracy agreed to possess and distribute heroin, “crack” cocaine, and cocaine powder in the Bronx, Manhattan, and New Jersey. On at least two occasions, certain defendants, armed with loaded guns, delivered what they believed to be approximately one kilogram of cocaine to an address in the Bronx in return for delivery fees.

Charts identifying the defendants, the charges, and the maximum penalties they face, as well as their ages and residences, are attached to this release. The case is assigned to U.S. District Judge Laura Taylor Swain. 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 the FBI, the Paterson Police Department, and the Clifton Police Department. The investigation is a result of the Department of Justice’s Organized Crime and Drug Enforcement Task Force program, and it combined the resources and expertise of its member federal agencies in cooperation with local law enforcement.

The Office’s Violent Crimes Unit is overseeing the case. Assistant U.S. Attorneys Justina L. Geraci and Michael D. Maimin are in charge of the prosecution. Assistant U.S. Attorney Carolina A. Fornos is in charge of the asset forfeiture components of the case.

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

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U.S. v. Brandon, Fields et al. S3 Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced that MICHAEL LOCATENA was sentenced yesterday before United States District Judge Cathy Seibel in White Plains federal court to 13 years in prison for receiving and distributing child pornography.

U.S. Attorney Preet Bharara stated: “Those who receive and distribute child pornography endanger and victimize the most vulnerable in our communities. The stiff prison sentence imposed on Michael Locatena should serve to deter others who would engage in these crimes.”

According to the the Indictment and statements made during court proceedings:

LOCATENA, 46, of Chester in Orange County, New York, downloaded at least 1,400 images and videos of child pornography from the Internet using a peer-to-peer file-sharing program, and saved the child pornography on external hard drives.

Yesterday’s sentencing followed LOCATENA’s guilty plea on February 7, 2012, and a three-day sentencing hearing that began in July 2013 and continued over the last two days. At the sentencing hearing, Judge Seibel heard testimony from a minor victim concerning prior sexual abuse of the victim by LOCATENA. Judge Seibel concluded that the Government demonstrated by a preponderance of the evidence that the abuse occurred, and concluded that the conduct should be considered in determining the appropriate sentence for LOCATENA.

LOCATENA also testified at the hearing. He maintained that he did not engage in inappropriate activity with the minor victim, denied any sexual interest in children, and insisted that he had “inadvertently” downloaded all of the child pornography. In sentencing LOCATENA, Judge Seibel stated that much of LOCATENA’s testimony was “incredible” and “preposterous,” and she made a finding that he committed perjury during his testimony.

Mr. Bharara thanked the FBI, the Rockland County Computer Crimes Task Force, the New York State Police, the Orange County District Attorney’s Office, and the Orange County Child Protective Services for their work in the investigation.

In June 2011, LOCATENA was previously convicted, after a jury trial, in Orange County of Criminal Possession of a Loaded Firearm in the 2nd Degree and sentenced to 4 years’ imprisonment. That sentence will run concurrently with the sentence imposed today.

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the claims deadline for petitions for remission of forfeiture to the Madoff Victim Fund (the “MVF”) will be extended to April 30, 2014. This extension was recommended by Special Master Richard C. Breeden, who is administering the MVF on behalf of the Department of Justice.

To date, the MVF has received approximately 9,000 claims from victims of the crimes committed in connection with the fraud at Madoff Securities. Approximately 94% of claims come from individuals who either did not file a bankruptcy claim or whose claim was denied as an indirect investor. Roughly 75% of claimants have recovered nothing, or less than 10% of their losses, since Madoff Securities collapsed. Approximately 60% of claims have come from residents of the United States, with the remaining 40% of claims coming from victims of the fraud in more than 75 countries.

In announcing the extension, Manhattan U.S. Attorney Bharara said: “We are very pleased at the response the Madoff Victim Fund has received from thousands of victims of this historic fraud. The MVF is reaching a much broader universe of victims than previous efforts, including many indirect investors who have not yet recovered anything in the five years since Madoff’s arrest. The theft of these victims’ savings was every bit as real as for direct investors, and we are determined to help every genuine victim who lost money as a result of the Madoff fraud.”

Special Master Breeden noted: “Claims are pouring in to MVF from all over the world. Many of these claims are proving quite complex, often with investments that flowed through three or more intermediaries. The average claim we have received to date includes more than 75 pages of transactions and financial records. Therefore, we believe that thousands of additional claimants will benefit from having a bit more time to complete and file properly documented claims.”

Information concerning MVF and its claim process is published at www.madoffvictimfund.com. Eligibility is open to all persons who invested their own money in Madoff Securities either directly, or indirectly through feeder funds, family trusts or other pooled investment vehicles, and who lost their funds as a direct result of the collapse of the firm. Claimants must be the “ultimate investors” who lost their own funds in the collapse of the firm, not intermediaries who managed money on behalf of others or claims purchasers after the fact. Thus, banks, insurance companies, feeder funds, trust companies, hedge funds and similar entities are generally not eligible to recover from MVF, while the actual individuals whose money was lost by investing through such firms are eligible to seek a recovery. Frequently Asked Questions on the MVF’s website outline the specific criteria for eligibility and measurement of net losses. Claim forms are available for download at www.madoffvictimfund.com. All final decisions concerning claims will be made by the Department of Justice.

After reading the materials published on the website, potential claimants can email additional questions to info@madoffvictimfund.com, or call MVF’s hotline at 001 (866) 624-3670.

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.

The Madoff Securities cases are being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Matthew L. Schwartz, Randall W. Jackson, John T. Zach, Arlo Devlin-Brown, Christopher Frey, and Paul M. Monteleoni are in charge of the cases.

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 a criminal Complaint charging FRANK PERKINS HIXON, JR., a former Senior Managing Director of Evercore Group, LLC, a subsidiary of Evercore Partners Inc. (“Evercore”), with insider trading offenses. Specifically, HIXON is alleged to have used inside information to trade and cause others to trade in the securities of Evercore, Westway Group Inc. (“Westway”), and Titanium Metals Corporation (“Titanium”). HIXON is also charged with making false statements to FBI agents. The defendant was arrested on these charges this morning at his apartment in New York, New York, and presented this afternoon in Manhattan federal court.

Manhattan U.S. Attorney Preet Bharara said: “As we have often said, those like Frank Perkins Hixon, Jr., who illegally manipulate the market by allegedly trading on material non-public information exploit law-abiding investors and traders. In this case, the alleged wrongdoing was compounded, when Hixon tried to evade detection by lying to investigators and to his company.”

Assistant Director-in-Charge George Venizelos said: “This is the same old song: Another high-ranking finance official allegedly broke the law and abused his position in a thinly veiled attempt to make illegal trades. The alleged use of material information gleaned through confidential meetings at Evercore was deceptive and more importantly illegal. When Hixon was confronted about his back door trades, he allegedly doubled down and lied to the FBI agents who interviewed him. The integrity of our markets remains a paramount concern of the FBI. We’ll continue to pursue these cases until that message is crystal clear.”

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

Between April 2010 and January 2014, HIXON was a Senior Managing Director with the Mining and Metals Group of Evercore Group, LLC. 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.

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, 20,000 more shares of Titanium were purchased for Individual A’s account. Most of the logins to the account corresponding with these purchases traced back to Evercore’s Manhattan office. That same day, 15,000 shares were purchased for Individual B’s account. 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 $72,350.

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. After the partnership meeting that day, HIXON spoke to Individual B by phone. During the two days preceding the bank’s January 30, 2013, announcement, 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. Meanwhile, the day before the announcement, 10,000 shares of Evercore were purchased for Individual B’s account. After Evercore’s earnings release, Individual A and Individual B sold all of the Evercore shares the next day, and reaped a combined profit of approximately $94,700.

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 who 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 had never traded in or even accessed 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, has been charged in the Complaint with five counts of securities fraud (Counts One through Three, Five, and Six), two counts of securities fraud in connection with a tender offer (Counts Four and Seven), and one count of making a false statement (Count Eight). The securities fraud and fraud in connection with a tender offer charges each carry a maximum term of 20 years in prison, and the false statement charge carries a maximum term of five years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the 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. 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 Sarah E. McCallum 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. Frank Perkins Hixon, Jr., Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, announced that PETER J. LESNIEWSKI, a Board-certified orthopedist, was sentenced today in Manhattan federal court to eight years in prison for his role in the alleged 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 1999 and 2008, LESNIEWSKI provided fraudulent medical narratives in support of the disability applications of at least 230 LIRR employees. In all, over 98% of the more than 400 LIRR employees he supposedly treated received disability benefits after seeing LESNIEWSKI. Following a three-week jury trial, LESNIEWSKI was convicted on August 6, 2013, on all 10 counts with which he was charged, including: one count of conspiracy to commit mail fraud, wire fraud and health care fraud; one count of conspiracy to defraud the Railroad Retirement Board (“RRB”); three counts of health care fraud; and five counts of mail fraud.

Manhattan U.S. Attorney Preet Bharara said: “In perpetrating this elaborate scheme, Dr. Lesniewski compromised both his professional and his personal integrity. Regrettably, Dr. Lesniewski is one of a number of healthcare professionals whose gross misconduct has depleted the RRB’s funds and diverted benefits from the rightful beneficiaries of its disability program.”

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. LIRR workers who retired at 50 with only an LIRR pension 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 retiring 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.

LESNIEWSKI was instrumental in helping LIRR retirees receive disability benefits to which they were not entitled. As part of the massive fraud scheme, LESNIEWSKI prepared false documentation purporting to show the LIRR employees’ steady decline toward disability exactly at the time they pre-planned their retirement. He then provided to those LIRR employees a narrative for submission to the RRB that claimed they should receive a disability annuity. These medical narratives were completely fabricated or grossly exaggerated so that LESNIEWSKI could recommend a set of restrictions that, if legitimate, would render it impossible for the LIRR employees to continue performing their jobs. Many of the purportedly “objective” findings from the tests he conducted showed nothing more than normal degenerative changes one would expect to see in patients within the relevant age bracket.

LESNIEWSKI received approximately $1,000, often in cash, for these fraudulent assessments and narratives, and hundreds of thousands of dollars in additional health insurance payments for unnecessary medical treatments. In turn, the 242 patients who obtained disability benefits with LESNIEWSKI’s assistance have received approximately $70 million in RRB disability benefit payments. In sentencing LESNIEWSKI, Judge Marrero found that the total intended losses from his fraud were over $90 million, and that the actual losses suffered by the RRB and insurance companies to date total over $70 million.

In addition to his prison term, LESNIEWSKI, 63, of Rockville Centre, New York, was also sentenced to three years of supervised release. He was also ordered to forfeit $70,947,699 and pay $70,632,900 in restitution.

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 Railroad Retirement Board’s Office of the Inspector General, the FBI, and the Metro Transit Authority’s Office of the 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.

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 MARVIN JEMAL, the former Chief Executive Officer of a Manhattan-based company that designed, imported and distributed luggage, business bags, backpacks, and accessories (the “Company”), was arrested today for a fraudulent scheme to obtain millions of dollars in loans by making false statements and providing false and fraudulent documents to a commercial bank based in New York (the “Bank”). JEMAL was arrested this afternoon at John F. Kennedy International Airport in New York, and is expected to be presented later today in Manhattan federal court before United States Magistrate Judge Gabriel W. Gorenstein.

MARK BERNSTEIN, the former Chief Financial Officer of the Company, was previously arrested in August 2013 and pled guilty in October 2013 before U.S. District Judge Robert P. Patterson for his role in the scheme.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, former CEO Marvin Jemal and another executive at his luggage company set out to fleece a bank into lending their company millions of dollars by submitting documents loaded with lies and backing them up with false statements. Those millions were then allegedly funneled to Jemal’s personal accounts and used for mortgage payments and payments on a Porsche, among other things.”

FBI Assistant Director-in-Charge George Venizelos said: “As alleged in the indictment, the defendant thought he could ‘beat the bank’ with lies and misrepresentations to support a lavish lifestyle. He obtained millions of dollars in loans by submitting falsified and fraudulent documents to his commercial lender, then diverted that money to his personal accounts. Bank fraud is a serious crime that weakens the economic integrity of our financial institutions. The defendant’s arrest today should send a clear message to the public that bank fraud cases such as this one are, and will continue to be, a high priority for the FBI. Individuals who try to line their pockets by engaging in financial fraud schemes should be reminded that their criminal activity will not go undetected and they will be held accountable.”

According to the allegations contained in the Indictment unsealed today and other documents previously filed in Manhattan federal court:

From 2007 through October 2009, JEMAL and BERNSTEIN engaged in a scheme to fraudulently induce the Bank to lend millions of dollars to the Company. Among other things, JEMAL and BERNSTEIN knowingly made false representations to the Bank, concealed material facts from the Bank, and submitted false and fraudulent documents to the Bank, including fabricated invoices and shipping documents. In total, the Company obtained approximately $6.9 million in loans from the Bank and defaulted on approximately $6 million of those loans.

Further, although the loans were purportedly for the benefit of the Company’s business, in fact, JEMAL diverted approximately $3.5 million of the loan proceeds to personal bank accounts and used the money to pay for various personal expenses, including mortgage payments on properties he owned, credit card bills, and payments on his Porsche.

The Factoring Agreement

The Company obtained the loans from the Bank as part of a secured credit facility, pursuant to a factoring agreement between the Company and the Bank. Under the terms of the factoring agreement, the Company would assign and sell the Company’s interest in its accounts receivable to the Bank and, in exchange, the Company could borrow from the Bank up to 85% of the value of those receivables. In addition, the Company could borrow up to 50% of the value of its inventory. In order to draw down on its secured credit facility, however, the Company was required to provide the Bank with, among other things, an accurate listing of all accounts receivable, as well as supporting documentation, including copies of (i) relevant underlying invoices and (ii) shipping documents or other proof of delivery.

The Scheme to Fraudulently Obtain Loans

To fraudulently obtain loans from the Bank under the factoring agreement, JEMAL and BERNSTEIN made false statements and submitted false and fraudulent documents to the Bank, including the following:

• JEMAL and BERNSTEIN sent duplicate and/or fabricated invoices to the Bank that purported to reflect the sale of certain products by the Company and, thus, an outstanding receivable for the Company. In truth, however, the sales reflected on those invoices were false, as those sales either had never occurred or had already been invoiced separately.
• JEMAL and BERNSTEIN provided fraudulent shipping documents to the Bank to substantiate the purported sales of products by reflecting that those products had been shipped to customers. In truth, however, those shipping documents were false and fraudulent, as the products had not, in fact, been shipped to the customers as reflected in the shipping documents.
• JEMAL and BERNSTEIN concealed material facts from the Bank, including credits that the Company had provided to certain of its customers (which thereby reduced the total accounts receivable associated with those customers) and instances in which the Company had directly collected and deposited payments from its customers on the same invoices the Company assigned to the Bank.
• JEMAL and BERNSTEIN provided inaccurate monthly inventory spreadsheets to the Bank which overstated the Company’s existing inventory.

Further, in order to conceal the scheme, JEMAL made various oral misrepresentations to certain representatives of the Bank when those representatives confronted him about irregularities and other issues that the Bank had discovered with respect to the Company’s assignment of its accounts receivable.

The Money Laundering Scheme

Between approximately May 2007 and February 2012, after fraudulently inducing the Bank to loan millions of dollars to the Company, JEMAL and BERNSTEIN arranged to divert more than $3.5 million in loan proceeds to personal bank accounts controlled by JEMAL. To conceal that the money was being diverted to JEMAL’s personal accounts, the defendants first moved the funds through bank accounts in the name of two shell corporations that JEMAL controlled. From those accounts, the money was transferred to JEMAL’s personal accounts and used to pay for personal expenses, including, among other things, mortgage payments on properties owned by JEMAL, bills from credit cards in the name of JEMAL and his wife, and payments on a Porsche driven by JEMAL.

JEMAL, 60, of Brooklyn, New York, is charged with one count of conspiracy to commit bank fraud, one count of bank fraud, and one count of making a false statement to influence bank action, each of which carries a maximum sentence of 30 years in prison, and one count of money laundering, which carries a maximum sentence of 20 years in prison. U.S. District Judge Valerie E. Caproni is assigned to the case.

BERNSTEIN, 63, of Belle Harbor, New York, pled guilty to one count of conspiracy to commit bank fraud, one count of bank fraud, and one count of making a false statement to influence bank action, each of which carries a maximum sentence of 30 years in prison. He also pled guilty to one count of wire fraud and one count of money laundering, each of which carries a maximum sentence of 20 years in prison. BERNSTEIN awaits sentencing.

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 outstanding investigative work of the FBI.

The case is being prosecuted by the Office’s Complex Frauds Unit. Assistant U.S. Attorney Christopher D. Frey is in charge of the prosecution.

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

U.S. Marvin Jemal Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced that SCOTT ERIC SANDERS was sentenced today in Manhattan federal court to 121 months in prison for his participation in a long-running automobile insurance fraud scheme and aggravated identity theft. As part of the scheme, SANDERS, who owns fleets of commercial vehicles, systematically misled insurance companies as to where the vehicles he owned were garaged and operated, and how those vehicles were being used, so that he could obtain automobile insurance for those vehicles at substantially lower premiums. SANDERS was convicted in April 2013 of one count of conspiracy to commit mail and wire fraud, five counts of mail fraud, and one count of aggravated identity theft following a four-week jury trial before U.S. District Judge Lewis A. Kaplan, who also imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara said: “Scott Sanders was convicted of repeatedly falsifying insurance applications to save millions of dollars in premiums. He lied about where the insured vehicles were garaged and operated, as well as about what the vehicles were used for and who actually owned them. He also compounded the felony when he committed the same crime on behalf of other fleet owners. Now he will pay the consequences for his criminal conduct.”

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

In New York State, owners of fleets of commercial vehicles, including livery cars and ambulettes, are required to obtain commercial automobile liability and physical damage insurance coverage. The automobile insurance policy premiums are based, in part, on where the insured vehicles are garaged and operated as well as how the vehicles are being used. Vehicles that are principally garaged or operated in New York City are charged substantially higher insurance premiums than vehicles that are principally garaged or operated elsewhere in New York and adjoining states. In addition, vehicles that are primarily used as livery cabs are charged substantially higher insurance premiums than vehicles that are operated for many other commercial purposes. Owners of livery fleets obtain automobile insurance through the voluntary insurance market or, when they are unable to obtain insurance through the voluntary market, through the New York Automobile Insurance Plan (“NYAIP”). The NYAIP assigns policy applications to insurance carriers doing business in New York State, who are then required to provide insurance coverage to the applicant.

From at least 2005 through 2010, SANDERS controlled fleets of commercial vehicles that were garaged and operated in New York City. During that time period, SANDERS engaged in a widespread scheme to defraud automobile insurance companies in order to obtain automobile insurance for his vehicles at lower premiums by misrepresenting where the vehicles were garaged and operated, and in some instances, how those vehicles were being used. Specifically, SANDERS caused to be submitted insurance applications to both NYAIP and directly to insurance companies that claimed that SANDERS’s vehicles were garaged and operated outside New York City, when they were not. In addition, on some of those applications, SANDERS represented that SANDERS’s vehicles were being used for commercial purposes other than as livery vehicles when these vehicles were, in fact, being used as livery vehicles. In these insurance applications, SANDERS also listed the names, and in some instances the dates of birth and driver’s license numbers, of other individuals, some of whom had previously rented livery vehicles from SANDERS, as the presidents and owners of SANDERS’s companies, when those individuals were not in fact the presidents or owners of those companies. Relying on these misrepresentations, the insurance companies issued insurance policies for the vehicles controlled by SANDERS at lower premiums than those for which the vehicles would have been eligible had the insurance companies been aware of the true locations of garaging and operation, as well as the true use, of the vehicles.

In addition, as part of the same scheme, SANDERS helped other commercial fleet owners whose vehicles operated in New York City obtain insurance at lower premiums using the same misrepresentations about how those vehicles were being used and where those vehicles were being garaged and operated. Over the course of SANDERS’s scheme, insurance companies lost millions of dollars in premiums that they would have otherwise charged had they been provided accurate garaging, operating, and usage information about the vehicles.

SANDERS was convicted of one count of conspiracy to commit mail and wire fraud, five counts of mail fraud, and one count of aggravated identity theft.

In addition to prison, SANDERS, 42, of Saddle River, New Jersey, was sentenced to three years of supervised release and ordered to pay a fine of $50,000, restitution of $4,878,592.30, and forfeiture of $4,878,592.30.

Mr. Bharara praised the work of the Postal Inspectors from the United States Postal Inspection Service and investigators from the New York Automobile Insurance Plan.

This matter is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Paul Krieger and Brent Wible are in charge of the criminal case.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that BORIS SHULMAN, a former sales representative of Mission Settlement Agency (“Mission”), pled guilty to fraud charges for his role in a multimillion-dollar scheme that victimized more than 1,200 debt-ridden individuals across the country. SHULMAN, who was charged in May 2013, pled guilty today in Manhattan federal court before U.S. District Judge Paul G. Gardephe. He is the fourth defendant to plead guilty in the case.

According to the allegations contained in the Indictment against Mission, SHULMAN, and three other Mission employees, other documents filed in Manhattan federal court, and statements made at related court proceedings:

Mission offered “debt settlement” services to financially disadvantaged individuals 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.

The defendants targeted financially disadvantaged individuals known to be struggling to pay credit card debt and reached out to them 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 ability to renegotiate debt.

From 2009 through May 2013, the defendants systematically exploited and defrauded over 1,200 financially disadvantaged individuals across the country who were struggling to pay their credit card debts. They tricked people into paying Mission for purported debt settlement services by lying to prospective customers about the agency’s ability to help settle their debts, the fees that Mission charged, and its purported affiliation with the federal government. 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 and never paid a penny to the customers’ creditors.

SHULMAN served as a Mission sales representative from 2009 through 2012. In that capacity, he solicited and lied to prospective customers about the agency’s fees in order to induce them to become Mission customers.

SHULMAN, 27, of Brooklyn, New York, pled guilty to one count of conspiracy to commit mail and wire fraud, one count of mail fraud, and one count of wire fraud. He faces a maximum sentence of 60 years in prison. SHULMAN is scheduled to be sentenced by Judge Gardephe on May 30, 2014 at 2:30 p.m. As part of his guilty plea, he agreed to forfeit $2,196,522 to the United States.

Mission and six individuals – including SHULMAN and Mission’s owner, Michael Levitis – were charged in connection with the scheme. Defendant Denis Kurlyand pled guilty to the Indictment in August 2013. Defendants Felix Lemberskiy and Zakhir Shirinov pled guilty to Informations in April 2013 in connection with this case. The charges against the remaining defendants are merely allegations, and they are all presumed innocent unless and until 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. Mission Settlement Agency, et al Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, Steven G. Hughes, the Special Agent-in-Charge of the New York Office of the United States Secret Service, and George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that CALVIN DARDEN, JR., was arrested yesterday in connection with two schemes in which he defrauded victims of more than $8 million and attempted to defraud another victim of approximately $20 million. In one scheme, DARDEN tricked several lenders into providing more than $8 million in financing for the potential acquisition of Maxim Magazine and related assets. In the other scheme, DARDEN obtained $500,000 from a Taiwan-based company by falsely claiming that he was arranging for the New York Knicks to play an exhibition game in Taiwan. DARDEN surrendered yesterday to the Secret Service, and is expected to be presented later today in Manhattan federal court before U.S. Magistrate Judge Andrew J. Peck.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Calvin Darden, Jr., sought to mislead and deceive his victims at virtually every opportunity, and he used the full spectrum of fraudulent devices, including false documents, 'spoofed' emails, and outright impersonation. This Office has zero tolerance for those who allegedly engage in this type of conduct, especially when it is to the tune of millions of dollars.”

Secret Service Special Agent-in-Charge Steven Hughes said: “Partnerships fostered by the Secret Service’s Electronic Crimes Task Force have allowed our agency to focus resources and respond quickly to criminal activity such as this. The investigation and subsequent arrest in this case is another example of how the Secret Service strives to combat fraud and provide a secure cyber environment.”

FBI Assistant Director-in-Charge George Venizelos said: “Like we’ve seen time and time again, the defendant was up to the same worn-out tricks in an elaborate scheme of fake emails, fictitious bank accounts, and fabricated statements all to rip off unwitting investors. Everyone deserves the right to make an honest living, but not by lying, cheating, or at the expense of others. Today, Mr. Darden finds himself under arrest and in trouble with the law.”

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

DARDEN carried out two separate schemes in which he concocted an elaborate set of lies that included, among other things, phony emails, fabricated bank account statements, and his repeated impersonation of his father, a former corporate executive who sits on the Board of Directors of several publicly-traded corporations in the United States, during phone calls and in emails , to defraud multiple victims of more than $8 million and to attempt to defraud another victim of approximately $20 million.

The Maxim Fraud Scheme

In connection with the potential purchase of Maxim Magazine (“Maxim”) by a media company (the “Media Company”) associated with DARDEN and his father, DARDEN attempted to secure financing from various lenders, lying extensively to them to trick them into funding the Media Company’s purchase of Maxim.

As part of the scheme, in order to trick one of the lenders into believing they would receive sufficient collateral for their loan, DARDEN provided the lender with a fabricated bank account statement. The fabricated statement purported to be for an account held by his father and purported to show his father’s holdings in the stocks of at least three publicly-traded companies for which DARDEN’s father serves as a Director. His father’s alleged stock holdings in these companies were supposed to serve as collateral for the loans. In truth, however, the bank account statement was fake. In addition, DARDEN created, and sent to a lender, a phony email that purported to be from an employee of a bank verifying his father’s stock holdings.

Further, after one of the lenders put approximately $5.5 million in escrow pending the transfer of collateral, DARDEN paid a Russia-based email “spoofing” service to send an unauthorized and fraudulent email to the escrow agent to secure the release of the funds. Specifically, DARDEN had the spoofing service send an email that appeared to come from the lender’s email account and that authorized the escrow agent to release the escrow money. As DARDEN well knew, however, the lender did not send the email and did not authorize the release of the funds. Based on its receipt of the email, the escrow agent released approximately $4.9 million of the lender’s money towards the Media Company’s purchase of Maxim.

DARDEN also provided certain lenders with bogus emails purporting to be from senior executives of certain companies, including at least one publicly held corporation for which DARDEN’s father is a member of the Board of Directors. In one bogus email, the senior executive purportedly verified the stock holdings of DARDEN’s father that were supposed to be provided as collateral for the loan. Separately, when another lender conditioned its $20,000,000 loan on the creation of a cable channel based in part on Maxim, DARDEN provided the lender with a bogus email purporting to be from a senior executive of a cable television company confirming that the company was interested in creating a cable channel in connection with the Media Company’s purchase of Maxim. In fact, both emails were completely fabricated, and had not been authored or authorized by either of the executives who purportedly wrote them.

Additionally, as a part of the scheme, DARDEN repeatedly impersonated his father during phone calls and in emails, and forged his father’s signature on documents related to the potential purchase of Maxim.

The NBA Fraud Scheme

In a separate scheme, DARDEN tricked a particular company located in Taiwan into paying him $500,000 by falsely and fraudulently representing that, through a particular company purportedly operated in part by his father, he would arrange an NBA exhibition game in Asia involving the New York Knicks.

As part of that scheme, DARDEN falsely represented to the victim company that he and his father had meetings and discussions with, among others, the owners of the New York Knicks and NBA officials about an exhibition game in Asia. As he did in the Maxim fraud scheme, DARDEN also impersonated his father in multiple email communications with the victim company and forged his father’s signature on documents.

DARDEN, 39, of Staten Island, New York, is charged with two counts of wire fraud, each of which carries a maximum term of 20 years in prison.

Mr. Bharara praised the outstanding investigative work of the Secret Service and FBI.

The case is being prosecuted by the Office’s Complex Frauds Unit. Assistant U.S. Attorney James Pastore, Jr., is in charge of the prosecution. Assistant U.S. Attorney Andrew Adams is handling the forfeiture aspects of the case.

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

U.S. v. Calvin Darden Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), and William Bratton, the Police Commissioner of the City of New York (“NYPD”), announced the unsealing of a five-count Complaint yesterday charging four members of a robbery crew operating across New York, New Jersey, and Virginia with robbery conspiracy and robberies of high-end jewelry and watch stores, resulting in the theft of more than a million dollars in watches. Specifically, ALLEN WILLIAMS, 35, ROBERTO GRANT, 33, TERRELL RATLIFF, 22, and TYRONE DEHOYOS, 35, have each been charged with robbery conspiracy and one or more substantive robberies. DEHOYOS was arrested yesterday in Brooklyn, New York, and was presented before U.S. Magistrate Judge Andrew J. Peck. DEHOYOS was ordered detained pending trial. WILLIAMS, GRANT, and RATLIFF were all previously arrested by the NYPD and are expected to be transferred into federal custody to be presented on the charges contained in the Complaint.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, the defendants engaged in violent robberies of luxury jewelry stores in New York, New Jersey, and Virginia. They allegedly combined forethought with force, scouting out their targets and then terrorizing customers and employees by smashing display cases with hammers and stealing high-end timepieces. They will now face the consequences of their violent shopping spree.”

FBI Assistant Director-in-Charge George Venizelos said: “From Cartier on Manhattan’s Fifth Avenue to the Borgata Casino in Atlantic City, the defendants left no rock unturned, carrying out a series of brazen midday smash-and-grab robberies of high-end jewelers up and down the East Coast. It took sophisticated, modern crime fighting techniques to tie the heists together. Today, we see the result of diligent work by law enforcement from Virginia to New York to stop this violent, skilled crime syndicate.”

Police Commissioner William J. Bratton said: “Thanks to the collaborative efforts of investigators and prosecutors assigned to this case, four members of this smash and grab crew, which targeted businesses throughout New York City and in other states, have been shut down. Two of these criminals, Allen Williams and Roberto Grant, were quickly apprehended by members of the NYPD after they brazenly walked into a Manhattan Cartier store and stole more than $700,000 worth of watches.”

According to the allegations contained in the Complaint and statements made in court today:

Between approximately July 1, 2013, and January 30, 2014, a highly organized crew engaged in a series of violent robberies of high-end jewelry and watch stores located in three states, while customers and employees were in the stores, and stole more than a million dollars in luxury watches.

The robberies followed a simple but brazen pattern: On each occasion, three to five members of the crew entered a jewelry or watch store, began smashing glass display cases with hammers, grabbed luxury watches from those display cases, and then fled within minutes of entering the store into waiting getaway cars driven by members of the robbery crew. Each robbery occurred during business hours while store employees and customers were present. The crew used violence as necessary to carry out the scheme. For example, during one robbery in August 2013 in Richmond, Virginia, the robbers used a handheld stun gun to subdue a female store employee before fleeing with more than $100,000 in watches.

Among the stores robbed by the crew are: Cartier in Manhattan, New York; the Borgata Hotel and Casino in Atlantic City, New Jersey; Schwarzschild’s Jewelers in Richmond, Virginia; and Martin Jewelers in Cranford, New Jersey.

All four of the defendants are charged in Count One of the Complaint, conspiracy to commit robbery in interstate commerce, which carries a maximum sentence of 20 years in prison. WILLIAMS and GRANT are also charged with each of the robberies in interstate commerce in Counts Two through Five in the Complaint; RATLIFF is charged with the robbery in interstate commerce in Count Two of the Complaint; and DEHOYOS is charged with the robbery in interstate commerce in Count Four of the Complaint. Each of the substantive interstate robbery counts carries a maximum sentence of 20 years in prison.

Mr. Bharara praised the investigative work of the FBI and the NYPD. Mr. Bharara also thanked the Manhattan District Attorney’s Office, which brought charges against WILLIAMS and GRANT in connection with their participation in the January 30, 2014, robbery of Cartier. He also thanked the Richmond FBI Office and the Atlantic City Resident Agency of the Newark FBI Office, as well as the police departments of Cranford, New Jersey, Atlantic City, New Jersey, and Richmond, Virginia.

The case is being prosecuted by the Office’s General Crimes Unit. Assistant United States Attorneys Andrea Griswold and Richard Cooper are 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. Allen Williams, et al. Complaint

U.S. Attorney Also Announces Creation of Money Laundering and Asset Forfeiture Unit

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the Office obtained recoveries of more than $2.7 billion in forfeiture actions since January 2013. The Office also has collected or has entered into agreements to recover $1.06 billion in restitution, criminal fines, and special assessments, and has recovered $149.8 million from civil actions, since January 2013.

Manhattan U.S. Attorney Preet Bharara said: “Our Office’s nearly $4 billion in forfeitures, penalties, and fines since the beginning of 2013 stands for the principle that those who break the law or commit civil offenses, whether institutions or individuals, must not be allowed to profit from their misconduct. This is not only a matter of deterring bad conduct. A significant portion of the money recovered will go toward compensating victims of crime or other misconduct who suffered real financial loss. And collected assets help fund important state and local law enforcement programs. It is fair to say the taxpayers have gotten a great return on their investment – almost 8,000% – as this $4 billion represents nearly 80 times the Office’s annual budget.”

Forfeited funds are generally deposited into the Department of Justice Assets Forfeiture Fund (the “Assets Forfeiture Fund”) and the Department of Treasury Forfeiture Fund. The forfeited funds are used to restore money to crime victims and for a variety of law enforcement purposes. In 2013, the U.S. Attorney’s Office for the Southern District of New York returned more than $66 million to crime victims. Of the $2.7 billion forfeited since January 2013, in excess of $1.8 billion is expected to be restored to victims.

In recognition of the success that the Office’s Asset Forfeiture Unit has had in spearheading such record forfeitures, often by bringing some of the country’s most significant and innovative money-laundering prosecutions, the Office has renamed the unit the Money Laundering and Asset Forfeiture Unit. The change also reflects and coincides with the Office’s ongoing efforts in this area, including, among other things, the addition of a number of Special Assistant U.S. Attorneys from partner agencies to focus on anti-money laundering and asset forfeiture; the creation of a team of intelligence analysts and other professionals tasked with reviewing and analyzing Suspicious Activity Reports filed by financial institutions; and the use of more technologically sophisticated tools and software to analyze large volumes of relevant data.

The $149.8 million collected in civil actions came from a combination of cases in which the Office collected government money lost due to fraud or other misconduct, collected fines imposed on individuals and/or corporations for violations of federal health, safety, civil rights, or environmental laws, or recovered funds owed to the Internal Revenue Service.

Nationally, in Fiscal Year 2013, approximately $5.9 billion was collected by the Justice Department’s litigating divisions and the 94 U.S. Attorneys’ offices in individually and jointly handled civil actions. The Department’s litigating divisions and U.S. Attorneys’ offices also collected approximately $2.2 billion in restitution, criminal fines, and felony assessments in criminal actions in satisfaction of criminal debts owed to the U.S. and to federal crime victims.

Below are summaries of some of the cases in which the Office obtained substantial forfeitures or other recoveries since January 2013:

JPMorgan Chase

$1.7 billion forfeited

On January 7, 2014, as part of a deferred prosecution agreement, JPMorgan Chase agreed to pay a non-tax deductible penalty of $1.7 billion, in the form of a civil forfeiture for its violations of the Bank Secrecy Act committed in connection with the Bernard Madoff multi-billion dollar Ponzi scheme. These funds will be used to compensate victims of the Madoff Ponzi Scheme.

SAC Capital Advisors, L.P.

$900 million forfeiture order; $284 million to be collected; total agreed-upon penalty of $1.8 billion

In July of 2013, the Government filed a civil money laundering and forfeiture action seeking the forfeiture of all of the assets of the SAC Companies (“SAC”) on the basis that SAC engaged in money laundering by commingling the illegal profits from insider trading with other assets, using the profits to promote additional insider trading, and transferring the profits with the assistance of financial institutions. In November of 2013, the Government entered into an agreement with SAC in which SAC, among other things, agreed to forfeit $900 million to the United States, including the $616 million payment to the Securities & Exchange Commission (“SEC”). The agreement also involved a criminal fine of another $900 million, resulting in a total penalty of approximately $1.2 billion, on top of the $616 million SEC fine.

PokerStars and Related Cases

$181.4 million forfeited

In July 2012, the United States reached an agreement with the two largest online poker companies in the United States, Full Tilt Poker and PokerStars. The United States had brought a civil forfeiture and money laundering action against these companies and their assets. Under the terms of the settlement, Full Tilt forfeited essentially all of its assets to the United States. PokerStars agreed to forfeit $547 Million, to be paid in several installments, and to reimburse the approximately $184 million owed by Full Tilt to foreign players. The settlement further provides that PokerStars will acquire the Forfeited Full Tilt Assets from the Government. In 2013, $181.4 million was forfeited to the United States. To date, in excess of $406.4 million has been forfeited in the PokerStars civil forfeiture action and related cases.

Ernst and Young

$123 Million forfeited

In March 2013, as part of a non-prosecution agreement, Ernst & Young LLP (“E&Y”) forfeited $123 million in connection with the firm’s participation, from 1999 to 2004, in four tax shelters that were used by approximately 200 E&Y clients in an effort to defer, reduce, or eliminate tax liabilities of more than $2 billion.

PartyGaming

$105 million forfeited

In April 2009, PartyGaming, an Internet gambling company entered into a non-prosecution agreement, wherein, among other things, the company agreed to forfeit a total of $105 million, to be paid in several installments. The $105 million represents proceeds of PartyGaming’s United States Internet gambling operations. In 2013, $105 million was forfeited to the United States.

Lebanese Canadian Bank

$102 million forfeited

In December 2011, this Office filed an in rem forfeiture and civil money laundering action alleging that Lebanese financial institutions, including the Lebanese Canadian Bank (“LCB”) and two exchange houses linked to Hizballah, used the U.S. financial system to launder narcotics proceeds through West Africa and back into Lebanon. Part of the scheme involved wiring funds from Lebanon to buy used cars in the U.S. which were then transported to West Africa and sold. Cash from the sale of the cars, along with the proceeds of narcotics trafficking, were then funneled to Lebanon through Hizballah-controlled money laundering channels. On June 25, 2013, the Government entered into a settlement agreement with LCB in which, among other things, LCB forfeited in excess of $102 million.

Insider Trading Cases

$63 million forfeited

In addition to the SAC forfeiture, in 2013 the Office has forfeited and collected in excess of $63 million from insider trading criminal prosecution and civil forfeitures actions, including the forfeiture of $53.8 million from Raj Rajaratnam.

Wegelin & Co.

$15.8 million forfeited; total penalty, including fine and restitution, exceeding $76 million

In March 2013, Wegelin & Co., a Swiss private bank pled guilty to conspiring with U.S. taxpayers and others to hide more than $1.2 billion in secret Swiss bank accounts and the income generated in these accounts from the Internal Revenue Service. In connection with the guilty plea, Wegelin agreed to the civil forfeiture of $15.8 million, representing the gross fees earned by the bank on the undeclared accounts of U.S. taxpayers. Together with the April 2012 forfeiture of over $16.2 million from Wegelin’s correspondent bank account, this amounts to a total forfeiture of $30 million.

650 Fifth Avenue

36-story Office Tower; appraised value $525 million

In November of 2009, the Office filed an amended civil forfeiture complaint seeking the forfeiture of, among other things, a 36-story office tower located at 650 Fifth Avenue in Manhattan. The Government alleged that 40% of the office tower was owned by Bank Melli Iran, a state-owned bank, through a shell company Assa Corp. The remaining 60% was owned by Alavi Foundation, a New York-based charitable foundation, which the Government alleged provided services to Iran. On September 11, 2013, the court granted summary judgment for the Government, finding that Assa and Alavi provided services to Iran and that the office tower was forfeitable as proceeds of violations of the International Emergency Economic Powers Act and as property involved in money laundering.

10th Century Cambodian Sculpture

The Office filed a civil forfeiture action seeking to forfeit and return to Cambodia a 10th century sandstone sculpture, known as the Duryodhana, that was allegedly stolen from the Prasat Chen Temple at Koh Ker in Cambodia in 1972 by an organized looting network, and ultimately imported into the United States and offered for sale by Sotheby’s Inc. (“Sotheby’s”). In December 2013, the United States entered into a settlement of the civil forfeiture action under which Sotheby’s and the customer selling the Duryodhana, Decia Ruspoli de Poggia Suasa, agreed to return the Duryodhana to Cambodia.

Tyrannosauras bataar and other dinosaur skeletons

In 2012, the Office filed a civil action seeking to forfeit and return to Mongolia a Tyrannosaurus bataar skeleton which was looted from the Gobi desert in Mongolia, imported into the United States in violation of law and put up for auction in Manhattan by a commercial paleontologist, Eric Prokopi (“Prokopi”). Prokopi was arrested for smuggling and interstate transportation of stolen property. Prokopi pled guilty and agreed to forfeit the Tyrannosaurus bataar skeleton, an additional Tyrannosaurus bataar skeleton and several other fossils. The investigation also led to the seizure and forfeiture for the purpose of returning them to Mongolia of additional dinosaur skeletons and fossils, including a Saurolophus skeleton, another Tyrannosaurus bataar skeleton, a Saurolophus Angustirostris skeleton, a Oviraptor matrix containing at least five Oviraptor skeletons and an additional Oviraptor skeleton. In 2013, all the dinosaur skeletons and fossils were forfeited. In May 2013, the United States returned the Tyrannosaurus bataar and other dinosaur skeletons to Mongolia.

Below are summaries of some of the civil actions in which the Office has obtained significant recoveries:

Ambac

$101.9 million paid to the United States

In April 2013, the Office entered into a settlement in bankruptcy court resolving a dispute arising out of the tax accounting methods used by Ambac, a financial guarantee insurance company, to account for the credit default swap contract losses it purportedly sustained in the wake of the 2008 financial crisis. The United States recovered $101.9 million pursuant to the settlement. The settlement also secured a $1 billion reduction of Ambac’s net operating losses attributable to the credit default swaps, thereby preventing the company from potentially reducing its tax burden by several hundred million dollars.

Delphi

$23.1 million paid to the United States

In November 2013, the Office settled environmental claims and liabilities asserted against DPH Holdings Corporation, formerly known as Delphi Corporation (one of the largest auto parts manufacturers in the world), and its corporate affiliates. Pursuant to the settlement agreement, filed in bankruptcy court, Delphi paid approximately $23.1 million in cash for the clean-up of four properties in Michigan and Ohio contaminated with hazardous waste.

Bioscrip

$2.3 million (out of $11 million total) paid to date to the United States

In January 2014, the Office filed, and simultaneously settled, a civil fraud lawsuit for $11 million against Bioscrip, Inc., for accepting kickbacks from Novartis Pharmaceuticals Corp. in connection with the distribution of Exjade, a Novartis prescription drug. The Complaint alleged that Bioscrip accepted kickbacks in the form of patient referrals and rebates in exchange for recommending to Exjade patients that they should order refills. As part of the settlement, Bioscrip made extensive admissions concerning this conduct and agreed to continue to cooperate in the Government’s continuing investigation. $2.3 million of the $11 million total has been paid to date.

US v. NY Institute of Technology and Cardean Learning Group, LLC

$2.5 million paid to the United States

In December 2012, the Office settled civil fraud lawsuits against New York Institute of Technology and against Cardean Learning Group, LLC, for submitting false claims in connection with federal student loans and grants. In the settlement agreements, NYIT and Cardean made admissions concerning certain conduct set forth in the complaint.

US v. SEEDCO et al.

$1.8 million paid to the United States

In December 2012, the Office settled a civil fraud lawsuit for $1.725 million against Structured Employment Economic Development Corporation, or SEEDCO, for fraud in connection with a federally-funded program to provide job placement assistance to unemployed and underemployed New York City residents. SEEDCO, a national not-for-profit corporation, operated two New York City Workforce1 Career Centers, which provided services to prepare and connect job candidates to job opportunities. The Government’s lawsuit, filed May 22, 2012, asserted False Claims Act violations against SEEDCO and seven former managers for fraud for, among other things, routinely falsifying entries in the government job placement reporting database. As part of the settlement SEEDCO made extensive admissions and instituted a compliance program. Subsequently in 2013, the Office obtained Consent Decrees and Orders of Settlement and Dismissal as to five settling defendants, each of whom made certain admissions regarding their conduct and made “ability to pay” payments totaling $86,000.

US v. Test Quest et al.

$1.725 million paid to the United States

In January 2013, the Office filed a lawsuit against TestQuest and Michael Logan (a manager at TestQuest) in connection with a scheme whereby TestQuest obtained federal funds for allegedly providing after-school tutoring services that it did not actually provide. At the same time, Logan was arrested. In June 2013, Logan pled guilty to one count of conspiring to defraud the United States and, pursuant to the plea agreement, agreed to pay the Government approximately $750,000 in restitution. In August 2013, the Office filed settlement agreements with TestQuest and Logan, and simultaneously filed an amended civil complaint naming three public school teachers who also participated in the fraud. Pursuant to the settlement agreements, TestQuest made admissions of wrongdoing and paid $1,725,000, and Logan made admissions of wrongdoing.

The Office’s Money Laundering and Asset Forfeiture Unit is led by Sharon Cohen Levin and handles all criminal and civil forfeiture actions for the U.S. Attorney’s Office for the Southern District of New York. Civil recoveries are handled by the Office’s Civil Division, which is led by Sara L. Shudofsky. Criminal and civil collections are handled by the Office’s Financial Litigation Unit, which is led by Kathleen Zebrowski.

For further information, the United States Attorneys’ Annual Statistical Reports can be found online at http://www.justice.gov/usao/resources/reports/.

Preet Bharara, the United States Attorney for the Southern District of New York, and Philip R. Bartlett, the Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced that NADEISHA BLAKE, RASHINA WATSON, CRYSTAL MOSS, KIMONA PETERKIN, MELISSA BLAKE, and SOPHIA BLAKE were arrested today for allegedly engaging in a lottery telemarketing fraud scheme that obtained over $400,000 from elderly victims in the United States between 2010 and March 2013. Five of the defendants – NADEISHA BLAKE, MOSS, PETERKIN, MELISSA BLAKE, and SOPHIA BLAKE – were arrested this morning in New York, and will be presented and arraigned in Manhattan federal court this afternoon before U.S. Magistrate Judge Andrew J. Peck. WATSON, the sixth defendant, was arrested this morning in Bladensburg, Maryland, and will be presented in federal court in Maryland this afternoon.

U.S. Attorney Preet Bharara said: “As alleged, the defendants sought out and preyed on the elderly through their lottery telemarking scam. This Office will aggressively pursue and prosecute fraudsters who seek to exploit our citizens for financial gain. Thanks to the cooperative efforts of law enforcement, both here and abroad, this alleged international fraud scheme was uncovered, and the defendants will now be made to face justice. Citizens should be wary of these types of fraudulent lottery schemes that sound too good to be true.”

USPIS Inspector-in-Charge Philip R. Bartlett said: “Foreign lotteries prey upon trusting individuals who believe they have won a large prize. Not only are they illegal, but those who choose to participate run the risk of criminal charges for their involvement, like these alleged defendants. Postal Inspectors will bring to justice anyone who uses the mail for their illegal enterprise, both foreign and domestic.”

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

The defendants participated in a fraudulent scheme in which dozens of elderly victims in the United States were informed that they had won substantial cash prizes in an international sweepstakes lottery, but that in order to claim these prizes, they first needed to pay tens of thousand dollars in fees and taxes. In fact, there was no sweepstakes lottery and the victims never received any cash prize, even after victims sent cash and checks totaling up to $100,000 each to the defendants and their co-conspirators in Jamaica.

As part of this scheme to defraud, the defendants worked with several co-conspirators in Jamaica. The Jamaican co-conspirators bought lists containing information about elderly Americans, called them, and informed them that they had won the lottery. All the victims had to do to get their prizes, according to the Jamaican co-conspirators, was to send payments for certain “taxes” and “fees.” The victims were then instructed to send the money to the defendants by wire transfer or U.S. mail. Victims who sent money were often contacted again by the Jamaican co-conspirators and instructed to send additional money in order to claim their prizes. After receiving money from the victims, the defendants transmitted the funds to their Jamaican co-conspirators either through wire transfers or by carrying cash to Jamaica.

All of the defendants are charged with one count of conspiracy to commit mail and wire fraud, one substantive count of mail fraud, and one substantive count of wire fraud, which each carry a maximum sentence of 20 years in prison. A chart containing each defendant’s age and residence information is attached. The case is assigned to U.S. District Judge Victor Marrero.

The investigation into the lottery telemarketing fraud scheme is being conducted in New York by the USPIS, in cooperation with the Jamaican Constabulary Force (“JCF”). Mr. Bharara praised the investigative work of the USPIS and the JCF, and expressed his gratitude to the Office of International Affairs, United States Department of Justice Criminal Division, and the Consumer Protection Branch of the United States Department of Justice Civil Division for their cooperation in the investigation.

This case is being prosecuted by the Office’s General Crimes Unit. Assistant United States Attorneys Megan Gaffney and Tatiana R. Martins 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)

U.S. v. Nadeisha Blake, et al. Indictment PR

Preet Bharara, the United States Attorney for the Southern District of New York, announced that IGOR BELYANSKY and DAVID BINMAN were sentenced today in Manhattan federal court to 20 and nine months in prison, respectively, for conspiring to pay approximately $20,000 in bribes to former New York State Assemblyman Eric Stevenson in exchange for Stevenson’s official acts, including drafting, proposing, and agreeing to enact legislation that favored the bribers’ business interests. BELYANSKY was also sentenced for conspiring to bribe former New York State Assemblyman Nelson Castro. BELYANSKY and BINMAN both pled guilty in September 2013 before U.S. District Judge William H. Pauley III, who also imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara said: “Igor Belyansky and David Binman were more than willing to break the law by paying tens of thousands of dollars in bribes to Eric Stevenson to advance their own business interests and to buy favorable legislation. Today, they learned that their corruption of the legislative process comes at a cost, time behind bars in a federal prison.”

According to the Complaint and the Indictment filed in Manhattan federal court, and statements made in Court:

Stevenson began serving as a member of the New York State Assembly in 2011 representing District 79, which includes various neighborhoods in the Bronx. The four businessmen – BELYANSKY, BINMAN, Rostislav Belyansky (“Slava”), and Igor Tsimerman – are individuals who, during 2012 and 2013, were seeking to open and manage adult day care centers in the Bronx, New York, including a center on Westchester Avenue (the “Westchester Avenue Center”), within Stevenson’s Assembly District, and a second center on Jerome Avenue (the “Jerome Avenue Center”), within then-Assemblyman Castro’s Assembly District. During that time period, they paid multiple bribes to Stevenson in connection with efforts to open and operate both centers.

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

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

On December 27, 2012, the CW met with Stevenson and showed Stevenson a copy of an email dated December 26, 2012, sent from the contractor for the Jerome Avenue Center to Slava and Tsimerman. In the email, the contractor stated that “[i]t is urgent . . . that we call the State Senator Eric Stevenson so that he can call the building department at once and ask them to have this application reviewed” in connection with getting “a permit to install the gas lines into the building.” After reviewing this email, Stevenson stated, “he’s not a smart guy . . . he’s not too bright, this guy” because “he put this in writing . . . why he got to put my name in it? . . . He shouldn’t have said that.” Stevenson said they needed to avoid creating a “paper trail.” During that meeting, the CW and Stevenson also discussed the possibility of Stevenson introducing legislation that would establish a temporary moratorium on the construction and/or opening of new adult day care centers (the “Moratorium Legislation”), which would have the effect of eliminating competition with the Jerome Avenue Center and the Westchester Avenue Center, thereby substantially increasing the profits earned by those two centers. Stevenson told the CW: “All you gotta do is tell me what you want in the bill, and the bill drafter will put it together…I just need you to tell me what they [the co-defendants] want; we prepare the bill. . . . You can write down the language, basically what you want.” Stevenson then asked: “Are Igor [BELYANSKY] and them putting together a nice little package [of money] for me, huh?” He said: “I got my inauguration I gotta take care of, I got a lot of sh*t man.” Stevenson then said to the CW, in reference to the legislation, “I’m telling you, it’s done. It’s no problem.” Subsequently, the CW met with Tsimerman and BELYANSKY. Tsimerman said that as a result of the Moratorium Legislation, the value of their adult day care centers was “gonna

skyrocket. . . . As long as [there’s a] moratorium, I can guarantee you at least a triple [in profits].”

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

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

Stevenson had a draft of the Moratorium Legislation prepared by January 31, 2013, which he showed the CW at a meeting in his office and which was consistent with the bullet points prepared by the CW and BELYANSKY, BINMAN, Slava, and Tsimerman. On February 11, 2013, Stevenson told the CW: “We got the bill [the Moratorium Legislation] back today . . . [t]he bill is done now, it’s going out to the members . . . to the committee and . . . we’re

gonna . . . try to push it to get it to the floor.” On February 16, in a hotel room in Albany, Slava gave $5,000 in cash to the CW, which the CW gave to Stevenson after taking a $500 cut. While the CW took out his $500 cut, Stevenson walked into the bathroom of the CW’s room and left the door open so that he could receive the $4,500 cash in the bathroom.

On February 20, 2013, Stevenson introduced and sponsored Bill Number A05139, which places a temporary moratorium on the construction and/or opening of new adult day care centers within New York City.

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

In addition to prison, BELYANSKY, 42, of Bronx, New York, was sentenced to three years of supervised release, and ordered to pay a $2,000 fine and a $200 special assessment fee. BINMAN, 52, of Glendale, New York, was also sentenced to three years of supervised release, and ordered to pay a $7,500 fine and a $100 special assessment fee.

Stevenson was convicted on January 13, 2014, of conspiring to commit honest services wire fraud, conspiring to commit federal programs bribery and to violate the Travel Act, committing federal programs bribery, and extortion under color of official right following a six-day jury trial before U.S. District Judge Loretta A. Preska. Stevenson is scheduled to be sentenced by Judge Preska on May 20, 2014.

Tsimerman and Slava pled guilty in September 2013 to conspiring to commit honest services wire fraud in connection with their payment of bribes to Stevenson before Judge Pauley. On January 24, 2014, Judge Pauley sentenced Tsimerman principally to 24 months in prison, and sentenced Slava principally to 18 months in prison.

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

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

“As the jury unanimously found, Mathew Martoma cultivated and purchased the confidence of doctors with secret knowledge of an experimental Alzheimer's drug, and used it to engage in illegal insider trading. Martoma bought the answer sheet before the exam – more than once – netting a quarter billion dollars in profits and losses avoided for SAC, as well as a $9 million bonus for him. In the short run, cheating may have been profitable for Martoma, but in the end, it made him a convicted felon, and likely will result in the forfeiture of his illegal windfall and the loss of his liberty. Mathew Martoma becomes the 79th person convicted of insider trading after trial or by guilty plea in this District in the last four years.”

Preet Bharara, the United States Attorney for the Southern District of New York, announced that MATHEW MARTOMA, a former portfolio manager of CR Intrinsic Investors, LLC, a division of S.A.C. Capital, was found guilty today in Manhattan federal court in connection with his participation in the most lucrative insider trading scheme ever charged, involving approximately $275 million in illegal profits and avoided losses. MARTOMA was convicted after a four-week jury trial presided over by U.S. District Judge Paul G. Gardephe.

Manhattan U.S. Attorney Preet Bharara said: “As the jury unanimously found, Mathew Martoma cultivated and purchased the confidence of doctors with secret knowledge of an experimental Alzheimer's drug, and used it to engage in illegal insider trading. Martoma bought the answer sheet before the exam – more than once – netting a quarter billion dollars in profits and losses avoided for SAC, as well as a $9 million bonus for him. In the short run, cheating may have been profitable for Martoma, but in the end, it made him a convicted felon, and likely will result in the forfeiture of his illegal windfall and the loss of his liberty. Mathew Martoma becomes the 79th person convicted of insider trading after trial or by guilty plea in this District in the last four years.”

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

During the period of the insider trading scheme, MARTOMA was an S.A.C. Capital portfolio manager responsible for investment decisions in public companies in the health care sector, including pharmaceutical companies Elan and Wyeth, that were involved in the development of experimental drugs to combat Alzheimer’s Disease. At the time, scientists and investors alike were awaiting the results of a clinical trial being conducted by Elan and Wyeth for a drug called bapineuzumab, which offered a novel but untested approach to the treatment of Alzheimer’s Disease (the “Drug Trial”).

In order to obtain material nonpublic information (the “Inside Information”) about the Drug Trial, MARTOMA, shortly after starting his employment at S.A.C. Capital in the summer of 2006, began using expert networking firms to try to speak to doctors involved in the Drug Trial with access to confidential information. Through these efforts, MARTOMA arranged dozens of paid consultations with one of the Drug Trial’s principal investigators, Dr. Joel Ross, and the chairman of the Drug Trial’s Safety Monitoring Committee (“SMC”), Dr. Sidney Gilman. Through an exploitation of MARTOMA’s personal and financial relationships with these doctors, MARTOMA was able to obtain Inside Information about the Drug Trial.

The Inside Information that MARTOMA initially received from Dr. Ross included anecdotal reports concerning patients under Dr. Ross’s care. The Inside Information MARTOMA initially received from Dr. Gilman included generally positive safety data about which Dr. Gilman was aware through his chairmanship of the SMC. In fact, MARTOMA arranged a paid consultation shortly after each and every SMC meeting, in part to ensure that he would be among the first to learn if any substantial safety issues were emerging from the Drug Trial that could lead to the cancellation of the Drug Trial and decreases in the price of Elan and Wyeth stock. Based in part on the positive safety information, MARTOMA purchased and held shares of Elan and Wyeth, and further recommended that the owner of S.A.C. Capital (the “S.A.C. Capital Owner”) purchase and hold Elan and Wyeth securities, which the S.A.C Capital Owner did. By the spring of 2008, S.A.C. Capital held approximately $700 million worth of Elan and Wyeth equity securities.

Elan and Wyeth planned to release the full results of the Drug Trial to the investing public at the International Conference on Alzheimer Disease (the “ICAD Presentation”) on July 29, 2008. Dr. Gilman was selected to present the results on behalf companies and was “unblinded” to the full safety and efficacy results of the drug trial on July 15, 2008. Until that time, Dr. Gilman had only been privy to the safety results of the Drug Trial. On July 17, 2008, Dr. Gilman received a draft PowerPoint presentation that had been created for the ICAD meeting and that was marked “Confidential, Do Not Distribute.” The draft PowerPoint presentation showed that the Drug Trial results were negative, particularly in comparison with market expectations. The results raised serious questions about how well the drug worked and, in fact, whether it worked at all.

Later on July 17, 2008, MARTOMA called Dr. Gilman from his home and spoke to Dr. Gilman in detail about the draft PowerPoint presentation during a phone call that lasted one hour and forty-five minutes. Then, on Saturday, July 19, 20008, MARTOMA flew roundtrip from New York City to Detroit, Michigan, to meet Dr. Gilman in his University of Michigan office and review the draft PowerPoint presentation further.

The next day, Sunday, July 20, 2008, MARTOMA sent the owner of S.A.C. Capital (the “S.A.C. Capital Owner”) an email in which he wrote that “…It’s important [that we speak,]” which they did, for approximately 20 minutes. The S.A.C. Capital Owner then directed S.A.C Capital to sell Elan and Wyeth securities prior to the ICAD Presentation. Over the next seven days, S.A.C. Capital liquidated its entire equity position in Elan and almost all of its equity position in Wyeth – a total of 17.7 million shares worth approximately $700 million. S.A.C. Capital also shorted Elan and Wyeth by approximately 7.75 million shares. This trading represented over 20% of the reported U.S. trading volume in Elan and 11% of the volume in Wyeth.

MARTOMA also received information about the ICAD presentation from Dr. Joel Ross. In particular, on the evening of July 28, 2008, after Dr. Ross had been un-blinded to the Drug Trial results at a dinner for Principal Investigators, Dr. Ross met with MARTOMA in a hotel lobby to discuss the negative results. To Dr. Ross’s surprise, MARTOMA already seemed to have seen the Drug Trial results.

The day after the ICAD presentation, Elan stock closed approximately 42% lower, and Wyeth shares fell approximately 11%. Through this trading activity S.A.C. Capital earned profits and avoided losses of approximately $275 million.

MARTOMA, 39, was convicted of one count of conspiracy to commit securities fraud and two counts of securities fraud. He faces a maximum penalty of five years in prison for the conspiracy charge and 20 years in prison on each of the two securities fraud charges. With respect to the conspiracy charges, he faces a maximum fine of $250,000, or twice the gross gain or loss derived from the crimes, and for the securities fraud charges, he faces a maximum fine of $5 million, or twice the gross gain or loss derived from the crime on each charge.

Mr. Bharara praised the efforts of the FBI and also thanked the SEC for its assistance in the investigation. He added that the investigation is continuing.

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. Attorneys Arlo Devlin-Brown, Eugene Ingoglia, Megan Gaffney, and Andrea Griswold are in charge of the prosecution.

U.S. v. Mathew Martoma S1 Indictment.pdf

Preet Bharara, the United States Attorney for the Southern District of New York, and Toni Weirauch, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced the indictment today of PETER AMREIN, an asset manager at a Swiss asset management firm who assisted U.S. taxpayer-clients and others in hiding millions of dollars in offshore accounts from the IRS and evading U.S. taxes on the income earned in those accounts.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, from his post in Switzerland, Peter Amrein aided and abetted U.S. taxpayers in their efforts to skirt the tax code and conceal their assets in offshore accounts. As today’s charges make clear, tax evasion is a serious offense. This Office is committed to prosecuting individuals, both U.S. citizens and non-citizens like Amrein, who engage in this illicit conduct.”

IRS Special Agent-in-Charge Weirauch said: “Offshore tax enforcement remains a top priority for the Internal Revenue Service. Individuals who choose to hide income outside of the United States, as well as those who assist them in hiding their assets, expose themselves to a variety of criminal charges and severe penalties. As we continue to gain access to more and more information about individuals involved in offshore tax evasion, potential violators can expect us to use all of our enforcement tools to stop this abuse.”

According to the allegations contained in the Indictment, which was unsealed today in Manhattan federal court, as well as other court documents previously filed:

AMREIN worked as a client adviser at a Swiss bank (“Swiss Bank No. 3) and, later, as an asset manager at a Swiss asset management firm (the “Swiss Asset Management Firm”). In those roles, between 1998 and 2012, AMREIN helped U.S. taxpayers evade taxes and hide millions of dollars in undeclared accounts at various Swiss banks, including, among others, Wegelin & Co. (“Wegelin”), which previously pled guilty in Manhattan federal court for conspiring with U.S. taxpayers to evade taxes.

In 1998, AMREIN began to work with Edgar Paltzer, a Zurich-based attorney, in the management of undeclared accounts for a number of U.S. taxpayers (collectively, the “Amrein/Paltzer Clients”). Paltzer has previously pled guilty in the Southern District of New York to conspiring to help U.S. taxpayers evade taxes. AMREIN requested that Paltzer establish sham foundations, organized under the laws of non-U.S. countries, such as Liechtenstein, so that the assets of the Amrein/Paltzer Clients could be maintained in accounts held in the names of these foreign foundations rather than in the names of the clients themselves. AMREIN made this request in order to help clients conceal their ownership of these undeclared accounts from the IRS.

In 2006, AMREIN left his position as a client adviser at Swiss Bank No. 3, and began to work as an asset manager at the Swiss Asset Management Firm. When AMREIN left Swiss Bank No. 3, he transferred the undeclared accounts of the Amrein/Paltzer Clients to another Swiss bank (“Swiss Bank No. 4”). At Swiss Bank No. 4, the accounts continued to be held in the names of the sham foundations created by Paltzer, and continued to be hidden from the IRS.

In 2008, it became publicly known that UBS AG (“UBS”) was being investigated by United States law enforcement for helping U.S. taxpayers maintain undeclared accounts. Because of the investigation of UBS, Swiss Bank No. 4 informed AMREIN that it was going to close the undeclared accounts of the Amrein/Paltzer Clients. In order to assist his clients in continuing to maintain undeclared accounts, AMREIN searched for and found another bank in Switzerland (“Swiss Bank No. 1”) that would maintain undeclared accounts of the Amrein/Paltzer Clients.

Thereafter, in 2009, AMREIN opened undeclared accounts for the Amrein/Paltzer Clients at Swiss Bank No. 1 in the name of sham foundations and transferred his clients’ assets from Swiss Bank No. 4 to these accounts at Swiss Bank No. 1. For some of these clients, AMREIN, with Paltzer’s assistance, helped send funds back to the United States and to other foreign jurisdictions in ways that were designed to prevent U.S. authorities from discovering the existence of the clients’ undeclared accounts. For instance, AMREIN and Paltzer instructed a client adviser at Swiss Bank No. 1 to empty one of the accounts by sending checks in amounts smaller than $9,900 to the beneficial owner of the account, i.e., the U.S. taxpayer. On another occasion, AMREIN and Paltzer instructed the same client adviser to transfer the balance of one of the accounts, which was then valued at over $2.4 million, to another account controlled by the U.S. taxpayer in Belize City, Belize.

AMREIN, 52, a Swiss citizen, resides in Switzerland and has not been arrested.

AMREIN is charged with one count of conspiracy to defraud the United States and the IRS, and faces a maximum sentence of five years in prison, a maximum term of three years of supervised release, and a fine of the greatest of $250,000, twice the gross pecuniary gain derived from the offense, or twice the gross pecuniary loss to the victims.

Mr. Bharara praised the outstanding efforts of IRS-CI in the investigation, which he noted is ongoing. He also thanked the 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. Assistant U.S. Attorneys Sarah E. Paul, Jason H. Cowley, and Jared Lenow are in charge of the prosecution.

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

Preet Bharara, the United States Attorney for the Southern District of New York, and Toni Weirauch, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced the indictment today of PETER AMREIN, an asset manager at a Swiss asset management firm who assisted U.S. taxpayer-clients and others in hiding millions of dollars in offshore accounts from the IRS and evading U.S. taxes on the income earned in those accounts.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, from his post in Switzerland, Peter Amrein aided and abetted U.S. taxpayers in their efforts to skirt the tax code and conceal their assets in offshore accounts. As today’s charges make clear, tax evasion is a serious offense. This Office is committed to prosecuting individuals, both U.S. citizens and non-citizens like Amrein, who engage in this illicit conduct.”

IRS Special Agent-in-Charge Weirauch said: “Offshore tax enforcement remains a top priority for the Internal Revenue Service. Individuals who choose to hide income outside of the United States, as well as those who assist them in hiding their assets, expose themselves to a variety of criminal charges and severe penalties. As we continue to gain access to more and more information about individuals involved in offshore tax evasion, potential violators can expect us to use all of our enforcement tools to stop this abuse.”

According to the allegations contained in the Indictment, which was unsealed today in Manhattan federal court, as well as other court documents previously filed:

AMREIN worked as a client adviser at a Swiss bank (“Swiss Bank No. 3) and, later, as an asset manager at a Swiss asset management firm (the “Swiss Asset Management Firm”). In those roles, between 1998 and 2012, AMREIN helped U.S. taxpayers evade taxes and hide millions of dollars in undeclared accounts at various Swiss banks, including, among others, Wegelin & Co. (“Wegelin”), which previously pled guilty in Manhattan federal court for conspiring with U.S. taxpayers to evade taxes.

In 1998, AMREIN began to work with Edgar Paltzer, a Zurich-based attorney, in the management of undeclared accounts for a number of U.S. taxpayers (collectively, the “Amrein/Paltzer Clients”). Paltzer has previously pled guilty in the Southern District of New York to conspiring to help U.S. taxpayers evade taxes. AMREIN requested that Paltzer establish sham foundations, organized under the laws of non-U.S. countries, such as Liechtenstein, so that the assets of the Amrein/Paltzer Clients could be maintained in accounts held in the names of these foreign foundations rather than in the names of the clients themselves. AMREIN made this request in order to help clients conceal their ownership of these undeclared accounts from the IRS.

In 2006, AMREIN left his position as a client adviser at Swiss Bank No. 3, and began to work as an asset manager at the Swiss Asset Management Firm. When AMREIN left Swiss Bank No. 3, he transferred the undeclared accounts of the Amrein/Paltzer Clients to another Swiss bank (“Swiss Bank No. 4”). At Swiss Bank No. 4, the accounts continued to be held in the names of the sham foundations created by Paltzer, and continued to be hidden from the IRS.

In 2008, it became publicly known that UBS AG (“UBS”) was being investigated by United States law enforcement for helping U.S. taxpayers maintain undeclared accounts. Because of the investigation of UBS, Swiss Bank No. 4 informed AMREIN that it was going to close the undeclared accounts of the Amrein/Paltzer Clients. In order to assist his clients in continuing to maintain undeclared accounts, AMREIN searched for and found another bank in Switzerland (“Swiss Bank No. 1”) that would maintain undeclared accounts of the Amrein/Paltzer Clients.

Thereafter, in 2009, AMREIN opened undeclared accounts for the Amrein/Paltzer Clients at Swiss Bank No. 1 in the name of sham foundations and transferred his clients’ assets from Swiss Bank No. 4 to these accounts at Swiss Bank No. 1. For some of these clients, AMREIN, with Paltzer’s assistance, helped send funds back to the United States and to other foreign jurisdictions in ways that were designed to prevent U.S. authorities from discovering the existence of the clients’ undeclared accounts. For instance, AMREIN and Paltzer instructed a client adviser at Swiss Bank No. 1 to empty one of the accounts by sending checks in amounts smaller than $9,900 to the beneficial owner of the account, i.e., the U.S. taxpayer. On another occasion, AMREIN and Paltzer instructed the same client adviser to transfer the balance of one of the accounts, which was then valued at over $2.4 million, to another account controlled by the U.S. taxpayer in Belize City, Belize.

AMREIN, 52, a Swiss citizen, resides in Switzerland and has not been arrested.

AMREIN is charged with one count of conspiracy to defraud the United States and the IRS, and faces a maximum sentence of five years in prison, a maximum term of three years of supervised release, and a fine of the greatest of $250,000, twice the gross pecuniary gain derived from the offense, or twice the gross pecuniary loss to the victims.

Mr. Bharara praised the outstanding efforts of IRS-CI in the investigation, which he noted is ongoing. He also thanked the 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. Assistant U.S. Attorneys Sarah E. Paul, Jason H. Cowley, and Jared Lenow are in charge of the prosecution.

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

U.S. v. Peter Amrein Indictment

Preet Bharara, 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 return to the Polish Government of the Johann Conrad Seekatz painting, “St. Philip Baptizing a Servant of Queen Kandaki” (the “Seekatz Painting”), that was stolen from the National Museum of the City of Warsaw by Nazi forces during World War II.

Manhattan U.S. Attorney Preet Bharara said: “Decades ago, during World War II, this Johann Conrad Seekatz painting was removed from its home in a national Polish museum by Nazi forces. Since then it has crisscrossed the globe, but today, we are very pleased to finally be able to return this Polish national treasure to the country and its people.”

HSI New York Special Agent-in-Charge James T. Hayes, Jr. said: “We are deeply grateful to return this cherished painting to our partners from the Republic of Poland. Homeland Security Investigations will continue to work tirelessly to track down objects stolen during World War II and return them to their rightful owners.”

During World War II, Nazi forces invaded and occupied Poland and removed from the National Museum of the City of Warsaw numerous works of art, including the Seekatz Painting. The Seekatz Painting was never returned to the City of Warsaw following its removal by the Nazis during World War II. In 2006, the Seekatz Painting, erroneously labeled with another title, was sold to a gallery in London, England. In 2012, an evaluation of the Seekatz Painting was conducted and it was determined that it was, in fact, the painting stolen by the German Army from the National Museum of the City of Warsaw during World War II. On July 12, 2012, the U.S. Attorney’s Office submitted, and the U.S. District Court for the Southern District entered, a stipulation and order (the “Order”) providing for the seizure and return of the Seekatz Painting to the Republic of Poland. Subsequent to the entry of the Order, ICE HSI took possession of the painting in London, with the voluntary cooperation of the gallery in London, and returned the Seekatz Painting to New York.

The Seekatz Painting was returned to the Minister of Culture and National Heritage of Poland, Bogdan Zdrojewski, and the Polish Ambassador to the United States, Ryszard Schnepf, today at a repatriation ceremony at the Consulate General of the Republic of Poland in New York, New York. Its return to the Government of Poland marks the seventh time that the U.S. Attorney’s Office for the Southern District of New York, in conjunction with ICE HSI, has returned important historical and cultural property and art work stolen during either World War I or World War II to its rightful owner.

Mr. Bharara praised the investigative work of ICE HSI in this matter, and its ongoing efforts to find and repatriate stolen and looted art and cultural property.

The case is being handled by the Office’s Money Laundering and Asset Forfeiture Unit. Assistant U.S. Attorney Jason H. Cowley is in charge of the case.

Preet Bharara, the United States Attorney for the Southern District of New York, Bridget G. Brennan, the Special Narcotics Prosecutor for the City of New York (“SNP”), James J. Hunt, the Acting Special Agent-in-Charge of the New York Field Division of the U.S. Drug Enforcement Administration (“DEA”), and William Bratton, the Police Commissioner of the City of New York (“NYPD”), announced today the unsealing of an Indictment against 24 defendants in connection with a massive drug distribution ring that operated out of a purported medical clinic with multiple locations in the Bronx, New York, known as “Astramed,” and unlawfully distributed more than five million tablets of the prescription painkiller oxycodone over a three-year period. The participants in the distribution ring included doctors, clinic employees, and drug traffickers who oversaw crews of “patients” who they sent into the clinics in order to obtain medically unnecessary prescriptions. The prescriptions were then filled at pharmacies, and the resulting pills resold on the streets of New York and elsewhere.

Twenty-one defendants were arrested yesterday in connection with today’s charges. The defendants will be presented in Manhattan federal court before U.S. Magistrate Judge Gabriel W. Gorenstein later this afternoon. Related charges against one of the clinic doctors were also unsealed today by SNP. The defendant is expected to be arraigned later today in Manhattan Supreme Court before Judge Bruce Allen.

Manhattan U.S. Attorney Preet Bharara said: “The world of prescription drug trafficking is looking more and more like the world of old-school trafficking in narcotics like heroin, cocaine and crack. In this case, the drug spot was a clinic controlled by traffickers, often through intimidation and violence. The traffickers were supplied with prescriptions by corrupt doctors and clinic employees, dispensed to lower-level ‘pretend’ patients so that massive quantities of oxycodone could be distributed wherever the most money could be made, often in communities hundreds of miles away. This is poison by prescription, and the volume and money allegedly involved would make hardened illegal drug traffickers envious – over 31,000 medically unnecessary oxycodone prescriptions for 5.5 million tablets sold with a street value between $170 million and over half a billion dollars. Even legal drugs illegally obtained can be deadly, and more people have been dying from prescription drug abuse than heroin and cocaine combined. Unnecessary painkillers can simply end up being killers. This has to stop and we will do everything we can to stop it.”

Special Narcotics Prosecutor Bridget G. Brennan said: “These clinics have long been a source of community concern and complaints. Dr. Robert Terdiman is charged with selling prescriptions for highly addictive painkillers on a scale we have not seen before – flooding the black market with oxycodone carrying a street value of over $90 million. Not only is he charged with perpetuating a practice that did little to heal and much to harm, both he and The Clinic reaped huge profits. We would like to recognize the extraordinary commitment and dedication of all of the agencies that participated in this investigation.”

DEA Acting Special Agent in Charge James J. Hunt said, “Twenty two arrests, the dismantlement of the largest pill mill in the northeast and the ability for residents living near Southern Boulevard and Westchester Avenue in the Bronx to reclaim their neighborhood from drug dealers are the end results of unified police work by local, state and federal law enforcement in New York. I commend the diligent work of the numerous law enforcement agencies who participated in this investigation.”

NYPD Commissioner William Bratton said: “Instead of abiding by the Hippocratic Oath, these doctors scheduled pseudo physical exams for greed and self-profit. They fueled a criminal operation which distributed highly addictive prescription drugs in the Bronx community and surrounding areas. Thanks to the investigators and prosecutors in this case, Lowe and his crew will no longer traffic illegal drugs.”

According to the allegations contained in the Indictment and other documents unsealed today in Manhattan federal court:

Oxycodone is a highly addictive, prescription narcotic-strength opioid used to treat severe and chronic pain conditions. More than 13 million Americans abuse oxycodone, with the misuse of prescription painkillers such as oxycodone leading to as many as 500,000 annual emergency room visits. Oxycodone prescriptions have enormous cash value to street level drug dealers, who can fill the prescriptions at most pharmacies and resell the resulting pills at vastly inflated rates. Indeed, a single prescription for 180 30-milligram oxycodone pills has an average resale value in New York City of more than $6,000, and up to $18,000 in nearby states.

From approximately January 2011 until January 2014, a drug distribution ring centered at “Astramed,” a purported medical clinic with multiple locations in the Bronx, including a primary location on Southern Boulevard (the “Clinic”), unlawfully diverted and trafficked millions of oxycodone tablets, which netted participants in the distribution scheme hundreds of millions of dollars in proceeds.

Astramed was owned and operated by KEVIN LOWE, a medical doctor, who reaped millions of dollars by charging cash for the thousands of medically unnecessary prescriptions written by the clinic doctors (the “Doctors”). The Doctors were corrupt, Board-certified, state- licensed doctors who, in exchange for cash, were willing to write medically unnecessary prescriptions for large quantities of oxycodone. The Clinic typically charged $300 in the form of a money order for “doctor visits” that usually lasted just a minute or two, involved no actual physical examination, and consistently resulted in the issuance of a prescription for large doses of oxycodone, typically 180 30-milligram tablets, or a daily dosage of six 30-milligram tablets. Indeed, the Doctors, who worked directly for LOWE, were paid only for each prescription they wrote – rather than for each patient they saw – and they were paid nothing if they did not write a prescription.

Various employees of the Astramed clinics controlled access to the Doctors and created false documents in exchange for cash payments. To avoid detection by law enforcement, the Doctors sometimes asked the “patients” for medical documentation, such as MRIs, purporting to document injuries, or urine samples purporting to show that the “patient” was taking oxycodone. Fake MRIs and urine samples were sold by members of the conspiracy to Astramed’s “patients,” typically inside the Clinic or immediately outside its premises.

The Clinic itself bears little resemblance to a standard medical office. For example, on a daily basis during the time set forth in the Indictment, crowds of up to one hundred people gathered outside the Clinic, clamoring to see one of the doctors at the clinic and thereby get a prescription for oxycodone. The majority of these individuals had no medical need for oxycodone, or any legitimate medical record documenting an ailment for which oxycodone would be prescribed. Instead, most of these individuals were members of “crews” – that is, they were recruited and paid by high-level drug traffickers, oxycodone distributors (the “Crew Chiefs”), to pose as “patients” in order to receive medically unnecessary prescriptions from the Doctors. The Crew Chiefs then arranged for and oversaw the filling of the resulting prescription at various pharmacies and took possession of the oxycodone pills to be resold on the street. Crew Chiefs also paid the Clinic’s employees hundreds of dollars in cash at a time to get their Crew Members into the Clinic to see one of the Doctors. The Crew Chiefs maintained their joint control over the operations of the Clinic, in part, as a result of intimidation and the threat of violence.

In total, between approximately January 2011 and January 2014, Astramed Doctors issued approximately 31,500 medically unnecessary prescriptions for oxycodone, comprising nearly 5.5 million oxycodone tablets with a street value of up to $550 million. LOWE alone collected nearly $12 million in fees for “doctor visits” during this time period. Based on the street market value of the pills distributed, the participants in the distribution ring together made hundreds of millions of dollars as a result of the clinic fees charged and the proceeds obtained from the resale of the illegally obtained oxycodone.

All of the defendants are charged with one count of conspiracy to distribute and possess with intent to distribute oxycodone, which carries a maximum sentence of 20 years in prison.

A chart containing each defendant’s age and residence information is attached. The case is assigned to U.S. District Judge Lorna G. Schofield.

Mr. Bharara thanked the DEA and the NYPD for their work in the 15-month investigation, which he noted is ongoing. Mr. Bharara also thanked, the Office of the Special Narcotics Prosecutor for the City of New York, the Town of Orangetown Police Department, the Westchester County Police Department, the United States Department of Health and Human Services, the United States Marshals Service, the New York State Health Department’s Bureau of Narcotic Enforcement, the Office of the Medicaid Inspector General, New York City's Human Resource Administration, the New York State Attorney General’s Office Medicaid Fraud Control Unit, Beacon New York Police Department, the Internal Revenue Service-Criminal Investigation and the El Dorado Task Force for their assistance.

The case is being prosecuted by the Office’s Narcotics Unit. Assistant U.S. Attorneys Edward B. Diskant and Tatiana R. Martins are in charge of the prosecution. Assistant U.S. Attorney Micah Smith of the Office’s Asset Forfeiture Unit is responsible for the forfeiture of assets.

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

U.S. v. Kevin Lowe et al. Indictment
U.S. v. Kevin Lowe et al. Detention Memo
U.S. v. Kevin Lowe et al Defendant Ages and Residences

Preet Bharara, the United States Attorney for the Southern District of New York, and Philip R. Bartlett, the Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), today announced the unsealing of an Indictment in Manhattan federal court charging JOSEPH MOSSERI, ALBERT MOSSERI, ODED HAKIM, a/k/a “Eddie Hakim,” ELLIOT SHASHO, and ANDREW LI, for their alleged participation in a scheme that victimized hundreds of consumers and numerous credit card processers through the marketing and sale of counterfeit luxury handbags over the Internet. JOSEPH MOSSERI, HAKIM, SHASHO, and LI were arrested today. ALBERT MOSSERI also surrendered today to USPIS. JOSEPH MOSSERI will be presented in Manhattan federal court this afternoon before United States Magistrate Judge Gabriel W. Gorenstein, and the remaining defendants will be presented tomorrow.

U.S. Attorney Preet Bharara said: “I would like to thank our partners, the U.S. Postal Inspection Service, Immigration and Customs Enforcement’s Homeland Security Investigations, U.S. Customs and Border Protection, and the New York State Department of Taxation and Finance, for their outstanding investigative efforts and assistance in bringing this alleged counterfeiting scheme to light.”

USPIS Inspector-in-Charge Philip R. Bartlett said: “When criminals counterfeit goods they harm the economy and legitimate businesses that pay their fair share in taxes and employ American citizens. It’s the same as identity theft, but only from a brand. Postal Inspectors have little tolerance for this type of theft and will aggressively investigate and bring to justice anyone who defrauds American consumers.”

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

The defendants and others controlled a series of websites that advertised and sold luxury fashion and other name-brand items – primarily handbags – at prices of up to $3,000. The websites advertised that the goods offered for sale were authentic and that they were offered at a discount because of manufacturing defects that were, according to one of the websites, “infrequently noticeable to the consumer.” In fact, however, the defendants either never shipped goods to consumers who ordered them or shipped goods that were verifiably counterfeit.

In order to prevent the proceeds of their scheme from being eroded by credit card chargebacks initiated by deceived customers, the defendants also defrauded the credit card processors for the websites by misrepresenting the reasons for disputed charges and obstructing efforts by credit card processors to recover disputed funds. The losses attributable to such efforts exceeded, in some cases, hundreds of thousands of dollars.

JOSEPH MOSSERI, ALBERT MOSSERI, HAKIM, and SHASHO directed the scheme and managed its finances. LI supplied the counterfeit luxury goods that were sold on the websites.

JOSEPH MOSSERI, 43; ALBERT MOSSERI, 34; HAKIM, 46; SHASHO, 41; and LI, 34, all of Brooklyn, New York, are each charged with one count of conspiracy to commit wire fraud, one count of substantive wire fraud, and one count of trademark counterfeiting. Each of the fraud counts carries a maximum sentence of 20 years in prison. The trademark counterfeiting count carries a maximum sentence of 10 years in prison. U.S. District Judge Alvin K. Hellerstein has been assigned to the case.

Mr. Bharara praised the outstanding investigative work of the Postal Inspection Service. He also thanked U.S. Immigration and Customs Enforcement’s Homeland Security Investigations, U.S. Customs and Border Protection, and the New York State Department of Taxation and Finance for their assistance.

The prosecution is being handled by the Office’s General Crimes Unit. Assistant U.S. Attorney Scott A. Hartman is in charge of the prosecution.

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

U.S. v. Joseph Mosseri, et al. Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, and James J. Hunt, Acting Special Agent-in-Charge of the New York Field Division of the U.S. Drug Enforcement Administration, announced that YESID RIOS SUAREZ pled guilty yesterday in Manhattan federal court in connection with his role in overseeing the manufacture of tens of thousands of kilograms of cocaine in clandestine laboratories in Colombia, and the distribution and importation of tons of cocaine to the United States and other countries. RIOS SUAREZ, a citizen of Colombia, who was originally charged in September 2011, pled guilty yesterday before U.S. District Judge Katherine B. Forrest.

Manhattan U.S. Attorney Preet Bharara said: “Yesid Rios Suarez has admitted his role in the manufacture, distribution, and importation into the U.S. of tons of Colombian cocaine. As a man who stands convicted by guilty plea of spending two decades in the cocaine business, he now faces the prospect of a lengthy prison term.”

DEA Acting Special Agent-in-Charge James J. Hunt said: “This is a significant international drug trafficker responsible for facilitating addiction and heartache for individuals and communities across the country. Thanks to our vast network of law enforcement and sources throughout the world, DEA and our partners successfully infiltrated his prolific drug enterprise and Mr. Suarez will now face the consequences for his criminal life.”

According to the Indictment and statements made at related court proceedings:

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

RIOS SUAREZ, 46, of Colombia, pled guilty to one count of participating in a conspiracy to import cocaine into the United States, and to manufacture and distribute cocaine knowing and intending that it would be imported into the United States. RIOS SUAREZ faces a mandatory minimum sentence of ten years in prison and a maximum sentence of life in prison. RIOS SUAREZ is scheduled to be sentenced by Judge Forrest on June 6, 2014, at 10:00 a.m.

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

The DEA’s New York Organized Crime Drug Enforcement Strike Force comprises agents and officers of the U. S. Drug Enforcement Administration, the New York City Police Department, Immigration and Customs Enforcement – Homeland Security Investigations (HSI), 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, the U.S. Marshal Service, New York National Guard, Office of Foreign Assets Control and the New York Department of Taxation and Finance. The Strike Force is partially funded by the New York/New Jersey High Intensity Drug Trafficking Area (HIDTA), which is a federally funded crime fighting initiative.

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

U.S. v. Didier Gerson Rios Galindo and Yesid Rios Suarez Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, Associate Attorney General Tony West, Stuart F. Delery, the Assistant Attorney General for the Justice Department’s Civil Division, Damon Smith, Acting General Counsel of the U.S. Department of Housing and Urban Development (“HUD”), David A. Montoya, Inspector General of HUD, and Richard J. Griffin, Acting Inspector General of the U.S. Department of Veterans Affairs (“VA”), announced today that the United States has filed, and simultaneously settled, a civil fraud lawsuit against JPMORGAN CHASE & CO. and JPMORGAN CHASE BANK, N.A. (collectively, “JPMORGAN CHASE”), for improperly approving thousands of residential home mortgage loans for government insurance and refinancing. In the settlement, JPMORGAN CHASE admitted, acknowledged, and accepted responsibility for, among other things, submitting false certifications to HUD, the VA, and the Federal Housing Administration (a component of HUD, and, together with HUD, “HUD-FHA”) that: (1) induced HUD-FHA and the VA to accept for government insurance and refinancing thousands of loans that were not eligible for such insurance or refinancing; and (2) ultimately resulted in substantial losses to the Government when the loans defaulted. JPMORGAN CHASE also admitted to failing to self-report to HUD-FHA hundreds of loans that it had identified as fraudulent or otherwise deficient, and to submitting loan data to HUD-FHA that lacked integrity.

To resolve the United States’ claims, JPMORGAN CHASE has agreed to pay $614 million to the United States under the False Claims Act. In addition, JPMORGAN CHASE has agreed to implement an enhanced quality control program to address the misconduct concerning the integrity of loan data submitted to HUD-FHA. The settlement was approved today by United States District Judge J. Paul Oetken.

Manhattan U.S. Attorney Preet Bharara stated: “For years, JPMorgan Chase has enjoyed the privilege of participating in federally-subsidized programs aimed at helping millions of Americans realize the dream of homeownership. Yet, for more than a decade, it abused that privilege. JPMorgan Chase put profits ahead of responsibility by recklessly churning out thousands of defective mortgage loans, failing to inform the Government of known problems with those loans, and leaving the Government to cover the losses when the loans defaulted. With today’s settlement, however, JPMorgan Chase has accepted responsibility for its misconduct and has committed to reform its business practices. This settlement adds to the list of successful mortgage fraud cases this Office has pursued.”

Associate Attorney General Tony West said: “The resolution announced today is a product of the Justice Department’s continuing efforts to hold accountable those whose conduct contributed to the financial crisis. This settlement recovers wrongfully claimed funds for vital government programs that give millions of Americans the opportunity to own a home and sends a clear message that we will take appropriately aggressive action against financial institutions that knowingly engage in improper mortgage lending practices.”

Stuart F. Delery, Assistant Attorney General for the Justice Department’s Civil Division, said: “The Department of Justice will continue to hold accountable financial institutions whose irresponsible mortgage lending undermines the housing market and costs the taxpayers many millions of dollars. I thank U.S. Attorney Bharara and his team for their stellar efforts in this case and look forward to our coordinated efforts in these cases.”

HUD Acting General Counsel Damon Smith said: “This settlement with JP Morgan Chase will enable HUD to recover funds lost due to Chase’s past unacceptable mortgage underwriting practices. In addition, Chase must now institute new and tighter controls to prevent abuses of FHA’s automated underwriting system. HUD will continue working with the Department of Justice to ensure that lenders are held accountable and are required to institute practices that will benefit both borrowers and the FHA insurance fund.”

HUD Inspector General David A. Montoya said: “The agreement reached with JPMC was possible due to the dedication of the U.S. Attorney’s Office for the Southern District of New York and the hard work of the talented staff at the Office of Inspector General. It also demonstrates the combined commitment of the Justice Department and the Office of Inspector General to continuing efforts to enforce FHA mortgage insurance requirements.”

Richard J. Griffin, Acting Inspector General for the Office of Inspector General, Department of Veterans Affairs, said: “I commend the efforts of the United States Attorney’s Office for the Southern District of New York to hold lenders accountable for conduct that defrauds the Government and deserving veterans who rely on VA’s loan guaranty program to purchase their homes.”

According to the Complaint filed in Manhattan federal court:

Since at least 2002, JPMORGAN CHASE has been a participant in the HUD-FHA Direct Endorsement Lender program (“DEL Program”) and the VA Home Loan Guaranty program (“Loan Guaranty Program”) – federal programs authorizing private-sector mortgage lenders to approve mortgage loans for insurance or refinancing by the Government. If a lender approves a mortgage loan for insurance and refinancing pursuant to the DEL Program or the Loan Guaranty Program and the loan later defaults, the holder of the loan may submit an insurance claim to FHA-HUD or the VA for the costs associated with the defaulted loan, which HUD-FHA or the VA must then pay. Under both the DEL Program and the Loan Guaranty Program, neither HUD-FHA nor the VA reviews a loan before it is approved for government insurance or refinancing. Consequently, it is crucial that lenders follow the rules of the DEL Program and the Loan Guaranty Program. Those rules require lenders to follow HUD-FHA’s and the VA’s underwriting requirements in determining which loans to approve for insurance or refinancing. The rules also require lenders to self-report loans that they identify as having been affected by fraud or other material deficiencies. The rules further require lenders to refrain from manipulating the loan data they submit to TOTAL Mortgage Scorecard (“TOTAL”) – a credit-rating software application maintained by HUD-FHA that determines whether a given loan qualifies for government insurance.

Notwithstanding the importance of following the rules of the DEL Program and the Loan Guaranty Program, during the period January 1, 2002, through the present (the “Covered Period”), JPMORGAN CHASE routinely violated those rules. Specifically, JPMORGAN CHASE: (1) approved thousands of loans for government insurance or refinancing that did not meet one or more of the requirements of the DEL Program or the Loan Guaranty Program; (2) failed to self-report hundreds of loans that it identified as having been affected by fraud or other material deficiencies; and (3) regularly submitted to TOTAL loan data that lacked integrity – the data was not based on documents or other information possessed by JPMORGAN CHASE employees at the time they submitted it. This conduct prompted HUD-FHA and the VA to accept for government insurance and refinancing thousands of loans that did not, in fact, qualify. When those loans ultimately defaulted, HUD-FHA and the VA suffered substantial losses that, but for JPMORGAN CHASE’s conduct, would not have occurred.

As part of the settlement, JPMORGAN CHASE has admitted, acknowledged, and accepted responsibility for the following conduct alleged in the Government’s complaint:

• It failed to self-report to HUD-FHA 582 loans that, from 2007 through 2009, it identified as having been affected by borrower or correspondent fraud or other material deficiencies.
• It approved for government insurance or refinancing thousands of loans that did not meet one or more rules of the DEL Program or the Loan Guaranty Program, and therefore were not eligible for government insurance or refinancing.
• Certain of its employees submitted data to TOTAL that lacked integrity. Specifically, when loans did not receive an “accept/approve” rating from TOTAL, these employees re-submitted the loans through TOTAL multiple times over a short period, each time entering into TOTAL hypothetical data that had not been corroborated by documents or other information possessed by the employees in order to determine data values that would generate an “accept/approve” rating. These employees communicated the qualifying data values to borrowers, thus increasing the risk of borrower fraud.
• As a result of the conduct described above, JPMORGAN CHASE induced HUD-FHA and the VA to accept for government insurance or refinancing thousands of loans that were not eligible for such insurance or refinancing, and that HUD-FHA and the VA otherwise would not have accepted for insurance or refinancing, and this resulted in substantial losses to the Government when the loans ultimately defaulted.

Pursuant to the settlement, JPMORGAN CHASE will pay the United States $614 million within 30 days of the settlement.

Under the settlement, JPMORGAN CHASE has also agreed to comply with all of the rules applicable to participants in the DEL Program and the Loan Guaranty Program, including the DEL Program requirement that it ensure the “integrity of the data supplied” to TOTAL. To ensure compliance with that data integrity requirement, JPMORGAN CHASE has agreed to implement an enhanced quality control program to review loans that it underwrites using TOTAL. Pursuant to this program, JPMORGAN CHASE must implement certain controls designed to detect instances where its employees submit to TOTAL data that is not supported by documents or other information possessed by the employees at the time the data is submitted. The details of the enhanced quality control program are subject to approval by this Office.

The case is being handled by the Office’s Civil Frauds Unit. Mr. Bharara established the Civil Frauds Unit in March 2010 to bring renewed focus and additional resources to combating financial fraud, including mortgage fraud.

By filing this case, the Government joined a private whistleblower lawsuit that had previously been filed against JPMORGAN CHASE under the False Claims Act.

The case filed today against JPMORGAN CHASE represents the eighth civil fraud lawsuit brought by this Office since May 2011 alleging fraudulent lending practices by residential mortgage lenders. In February 2012, this Office settled with Citimortgage (a subsidiary of Citibank) and Flagstar Bank. In May 2012, the Office settled with Deutsche Bank and a number of its subsidiaries. In October 2013, a jury returned a verdict against Countrywide, Bank of America, and Rebecca Mairone. Litigation is pending against Wells Fargo Bank and Kurt Lofrano; Allied Home Mortgage, Jim Hodge, and Jeanne Stell; and Golden First Mortgage and David Movtady.

The Civil Frauds Unit works 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.

Mr. Bharara thanked HUD-OGC, HUD-OIG and VA-OIG for their extraordinary assistance in this case. He also expressed his appreciation for the support of the Commercial Litigation Branch of the U.S. Department of Justice’s Civil Division in Washington, D.C.

Assistant U.S. Attorney Christopher B. Harwood is in charge of the case.

U.S. v. JPMorgan 13 Civ 0220 Government Complaint
U.S. v. JPMorgan 13 Civ 0220 Executed Stipulation of Settlement and Judgment

Preet Bharara, the United States Attorney for the Southern District of New York, announced today the indictment in Manhattan federal court of ROSS WILLIAM ULBRICHT, a/k/a “Dread Pirate Roberts,” a/k/a “DPR,” a/k/a “Silk Road,” in connection with his operation and ownership of Silk Road, a hidden website designed to enable its users to buy and sell illegal drugs and other unlawful goods and services anonymously and beyond the reach of law enforcement. ULBRICHT was arrested in San Francisco, California, on October 1, 2013, pursuant to a criminal Complaint filed in Manhattan federal court.

According to the allegations in today’s Indictment and other documents previously filed in Manhattan federal court:

ULBRICHT created Silk Road in approximately January 2011, and owned and operated the underground website until it was shut down by law enforcement authorities in October 2013. Silk Road emerged as the most sophisticated and extensive criminal marketplace on the Internet, serving as a sprawling black-market bazaar where unlawful goods and services, including illegal drugs of virtually all varieties, were bought and sold regularly by the site’s users. While in operation, Silk Road was used by several thousand drug dealers and other unlawful vendors to distribute hundreds of kilograms of illegal drugs and other unlawful goods and services to well over a hundred thousand buyers, and to launder hundreds of millions of dollars deriving from these unlawful transactions.

ULBRICHT deliberately operated Silk Road as an online criminal marketplace intended to enable its users to buy and sell drugs and other illegal goods and services anonymously and outside the reach of law enforcement. ULBRICHT sought to anonymize transactions on Silk Road in two principal ways. First, ULBRICHT operated Silk Road on what is known as “The Onion Router,” or “Tor” network, a special network of computers on the Internet, distributed around the world, designed to conceal the true IP addresses of the computers on the network and thereby the identities of the networks’ users. Second, ULBRICHT designed Silk Road to include a Bitcoin-based payment system that served to facilitate the illegal commerce conducted on the site, including by concealing the identities and locations of the users transmitting and receiving funds through the site.

The vast majority of items for sale on Silk Road were illegal drugs, which were openly advertised as such on the site. As of September 23, 2013, Silk Road had nearly 13,000 listings for controlled substances, listed under such categories as “Cannabis,” “Dissociatives,” “Ecstasy,” “Intoxicants,” “Opioids,” “Precursors,” “Prescription,” “Psychedelics,” and “Stimulants.” From November 2011 to September 2013, law enforcement agents made more than 100 individual undercover purchases of controlled substances from Silk Road vendors. These purchases included heroin, cocaine, ecstasy, and LSD, among other illegal drugs, and were filled by vendors believed to be located in more than ten different countries, including the United States, Germany, the Netherlands, Canada, the United Kingdom, Spain, Ireland, Italy, Austria and France.

In addition to illegal narcotics, other illicit goods and services were openly bought and sold on Silk Road as well. For example, as of September 23, 2013, there were: 159 listings under the category “Services,” most of which offered computer-hacking services, such as a listing by a vendor offering to hack into social networking accounts of the customer’s choosing; 801 listings under the category “Digital goods,” including malicious software, hacked accounts at various online services, and pirated media content; and 169 listings under the category “Forgeries,” including offers to produce fake driver’s licenses, passports, Social Security cards, utility bills, credit card statements, car insurance records, and other forms of false identification documents.

Using the online moniker “Dread Pirate Roberts,” or “DPR,” ULBRICHT controlled and oversaw every aspect of Silk Road, and managed a small staff of paid, online administrators who assisted with the day-to-day operation of the site. Through his ownership and operation of Silk Road, ULBRICHT reaped commissions worth tens of millions of dollars generated from the illicit sales conducted through the site. ULBRICHT also demonstrated a willingness to use violence to protect his criminal enterprise and the anonymity of its users. ULBRICHT even solicited six murders-for-hire in connection with operating the site, although there is no evidence that these murders were actually carried out.

To date, approximately 173,991 Bitcoins (worth over $150 million at present exchange rates) have been seized in the course of the investigation, including approximately 29,655 Bitcoins recovered from servers used to run the Silk Road website, and approximately 144,336 Bitcoins recovered from computer hardware belonging to ULBRICHT seized upon his arrest. On January 15, 2014, the Bitcoins recovered from the Silk Road servers were ordered forfeited in connection with a civil action previously filed in Manhattan federal court on September 30, 2013, seeking the forfeiture of all assets of Silk Road, including its website and all of its Bitcoins, because those assets allegedly were used to facilitate money laundering and constitute property involved in money laundering. ULBRICHT has filed a claim in the civil action, asserting that he is the owner of the Bitcoins found on his computer hardware, and contesting the forfeiture of those Bitcoins.

ULBRICHT, 29, of San Francisco, California, is charged with one count of narcotics conspiracy, which carries a maximum sentence of life imprisonment and a mandatory minimum sentence of 10 years; one count of engaging in a continuing criminal enterprise, which carries a maximum sentence of life imprisonment and a mandatory minimum sentence of 20 years in prison; one of count of conspiracy to commit computer hacking, which carries a maximum sentence of five years in prison; and one count of money laundering conspiracy, which carries a maximum sentence of 20 years in prison.

In December 2013, an Indictment filed in Manhattan federal court was unsealed charging three individuals, Andrew Michael Jones, a/k/a “Inigo,” Gary Davis, a/k/a “Libertas,” and Peter Phillip Nash, a/k/a “Samesamebutdifferent,” a/k/a “Batman73,” a/k/a “Symmetry,” a/k/a “Anonymousasshit,” for their alleged roles in assisting Ulbricht in the operation of Silk Road.

Mr. Bharara praised the outstanding investigative work of the Federal Bureau of Investigation and its New York Special Operations and Cyber Division, as well as the outstanding investigative work of the DEA’s New York Organized Crime Drug Enforcement Strike Force, which comprises agents and officers of the DEA, the IRS, the New York City Police Department, U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), the New York State Police, the Bureau of Alcohol, Tobacco, Firearms and Explosives, the U.S. Secret Service, the U.S. Marshals Service, Office of Foreign Assets Control, and NY Department of Taxation. Mr. Bharara also thanked the ICE-HSI Chicago-O’Hare office for its assistance and support, as well as the Department of Justice’s Computer Crime and Intellectual Property Section and Office of International Affairs. Additionally, Mr. Bharara praised the foreign law enforcement partners whose contributions to the success of the investigation and prosecution have been invaluable, namely, the Australian Federal Police, the Irish Republic’s Computer Crime Investigation Unit of the An Garda Siochana, the Reykjavik Metropolitan Police of the Republic of Iceland, and the French Republic’s Central Office for the Fight Against Crime Linked to Information Technology and Communication.

Mr. Bharara also noted that the investigation remains ongoing.

The prosecution of this case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorney Serrin Turner is in charge of the prosecution, and Assistant United States Attorney Christine Magdo is in charge of the forfeiture aspects of the case.

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

US v. Ross Ulbricht Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced that MELANIE FERREIRA, 61, was found guilty on all counts of a four-count Indictment today that charged her with engaging in a series of frauds, which included cheating the Internal Revenue Service (“IRS”) out of nearly half a million dollars, and perpetrating a bank fraud scheme. The verdict came following a seven-day jury trial in White Plains Federal Court before U.S. District Judge Cathy Seibel.

U.S. Attorney Preet Bharara stated: “Melanie Ferreira thought she could enjoy the fruits of law-abiding taxpayers’ money while evading the tax laws and defrauding the government. Through today’s jury verdict, she learned how wrong she was.”

According to the Indictment and the evidence at trial:

On October 15, 2009, FERREIRA filed a U.S. Individual Income Tax Return, Form 1040, for the year 2008 (“2008 Return”). In her 2008 Return, she falsely reported interest income of $661,600 from three different banks. She then falsely claimed that she had paid taxes in the amount of $661,536 to the IRS for Tax Year 2008. On that basis, she claimed a refund of $440,924. In reality, she actually earned only $17 in interest income in 2008. Further, contrary to her claim on her 2008 Return that she had already paid $661,536 in federal taxes, she actually paid only $236.

On October 23, 2009, the IRS wired $440,924 to FERREIRA’s bank account. That same day, FERREIRA wired $44,100 to the individual listed on her tax return as her “tax preparer” and $88,172 to the individual who introduced her to the “tax preparer.”

The following spring, on April 15, 2010, FERREIRA tried to carry out the same type of scheme – requesting of a refund of over $332,033 – when she filed her Form 1040 for the year 2009, but this time, the IRS rejected her refund request. Thereafter, when the IRS notified FERREIRA that she was required to pay back the $440,924 plus interest and penalties, FERREIRA sent the IRS a series of incomprehensible documents and a worthless check for $759,033.05 written on a closed account.

In addition, FERREIRA also perpetrated a bank fraud scheme against the Bank of America (“BOA”), which was the bank that held the mortgage for her house in Dutchess County, New York (“House 1”). In May 2010, she caused a forged cashier’s check for $316,966.05, purporting to be drawn on the Federal Reserve Bank of Cleveland, Ohio (“Check 1”), to be sent to BOA in satisfaction of the mortgage on House 1. Believing that Check 1 was legitimate, BOA filed a satisfaction of mortgage. BOA subsequently determined that Check 1 was fraudulent and filed suit in New York State Supreme Court in order to have the mortgage reinstated. On June 2, 2012, FERREIRA sent a personal check in the amount of $305,000 (“Check 2”) to BOA, purporting, again, to pay off the balance of her mortgage. On the memo line of Check 2, FERREIRA wrote, in red ink, “FOR DISCHARGE OF DEBT EFT ONLY.” Check 2 was written on a bank account that had been closed two years before.

As reflected in papers filed in Court: FERREIRA’s schemes – sometimes known as a 1099-OID scheme and an electronic funds transfer or “EFT” scheme – are schemes often used by adherents to the Sovereign Citizens Movement, a group comprised of individuals who, although they reside in the United States, assert the position that they do not have to answer to any government authority, including courts, taxing entities, motor vehicle departments or law enforcement.

FERREIRA faces a maximum sentence of 58 years in prison and a maximum fine of $1,000,000, or twice the gross gain or gross loss from the offense. Judge Seibel set a sentencing date of May 20, 2014 at 2 p.m.

FERREIRA lived in Lagrangeville, New York, until her conviction today. Judge Seibel remanded her following the conviction.

Mr. Bharara praised the outstanding investigative work of the law enforcement partners involved in the investigation, including the FBI’s Joint Terrorism Task Force and the IRS.

This prosecution is being handled jointly by the Office’s Terrorism and International Narcotics Unit and the White Plains Division. Assistant United States Attorneys Jason P.W. Halperin and Marcia S. Cohen are in charge of the prosecution.

U.S. v. Melanie Ferreira Superseding 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 Office of the Federal Bureau of Investigation (“FBI”), announced that MAXO JEAN was found guilty on Friday, January 31, 2014, by a jury in Manhattan federal court of conspiracy to commit mail, wire, and health care fraud for orchestrating and carrying out a multi-year scheme to intentionally cause more than 30 car crashes, obtain unnecessary medical treatment, and file fraudulent claims for insurance benefits. JEAN was convicted after a one-week trial before U.S. Court of Appeals Judge Denny Chin, sitting by designation. After JEAN’s conviction, Judge Chin remarked that he was “appalled at the level of corruption” involved in the scheme, and remanded JEAN into the custody of the United States Marshals.

According to the Indictment and the evidence presented at JEAN’s trial:

From 2007 through 2011, JEAN engaged in a scheme to cause more than 30 intentional car crashes in order to fraudulently obtain insurance benefits. JEAN orchestrated the scheme by finding cars, recruiting crews of drivers and passengers, and then sending the crews out to hit cars driven by innocent victims. JEAN paid the drivers and passengers he recruited, and directed them to crash into cars driven by innocent people so that the supposed “accidents” would appear to be real accidents. Following the crashes, JEAN took his recruits to corrupt medical clinics and directed them to submit to unnecessary treatment, including unnecessary surgeries, for their non-existent injuries, so that the treatments could be billed to car insurance companies. JEAN encouraged his recruits to submit to treatments that he thought were likely to result in the largest payments from insurance companies, such as unnecessary back and shoulder surgeries. JEAN and his recruits then filed fraudulent no-fault insurance claims and insurance claims that fraudulently alleged pain and suffering. He profited from the scheme by collecting more than $150,000 in insurance company payouts and in kickbacks from the corrupt medical clinics.

JEAN, 52, of West Hempstead, New York, was convicted of one count of conspiracy to commit mail, wire, and health care fraud. He faces a maximum penalty of twenty years in prison and a fine of $250,000, or twice the gross gain or loss from the offense. JEAN is scheduled to be sentenced by Judge Chin on May 29, 2014, at 10:00 a.m.

Mr. Bharara praised the outstanding investigative work of the FBI.

This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Sarah E. Paul and Alexander J. Wilson are in charge of the prosecution.

U.S. v. Maxo Jean S1 Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, today announced that MAREK LESZCZYNSKI, a former sales broker, was sentenced in Manhattan federal court to 18 months in prison on charges of conspiracy to commit securities fraud and wire fraud. LESZCZYNSKI – along with Benjamin Chouchane and Henry Condron – defrauded clients out of millions of dollars by misrepresenting the prices at which securities were bought and sold. In doing so, the brokerage firm for which they worked earned illegitimate and illegal trading profits, and LESZCZYNSKI, Chouchane, and Condron were awarded lucrative bonuses. LESZCZYNSKI pled guilty to charges of conspiracy to commit securities fraud and wire fraud in August 2013, and was sentenced today by U.S. District Judge John F. Keenan.

Manhattan U.S. Attorney Preet Bharara said: “Marek Leszczynski blatantly defrauded his firm’s clients by providing them with distorted prices for trade executions in order to inflate firm profits and help procure himself and his cohorts hefty bonuses. With today’s sentence, he has learned that prison time is one’s reward for engaging in such illicit conduct.”

According to the Complaint, Indictment, statements made during LESZCZYNSKI’s guilty plea, and other court documents:

From 2005 through November 2010, LESZCZYNSKI, Chouchane, and Condron worked at a broker-dealer that was headquartered in London, England, with offices in major cities in Europe, Asia, and the United States (“Broker-Dealer 1”). Among other services offered, Broker-Dealer 1 bought and sold securities on behalf of institutional clients, such as commercial banks and investment firms located throughout the United States and in various European cities.

LESZCZYNSKI and Chouchane worked as sales brokers for Broker-Dealer 1’s Cash Equity Desk in New York, New York. In that capacity, they were responsible for receiving orders to buy or sell securities from Broker-Dealer 1’s clients, relaying those orders to traders who executed the trades, communicating with clients as their orders were being filled, and sending trading confirmations to the clients that showed the prices at which securities were bought or sold – including any commissions that Broker-Dealer 1 charged. Condron worked as an execution trader and a middle office manager. In that capacity, Condron was responsible for executing buy and sell orders at the instructions of sales brokers, such as LESZCZYNSKI and Chouchane, and inputting trading data into Broker-Dealer 1’s bookkeeping system.

From 2005 until December 2008, LESZCZYNSKI, Chouchane, and Condron misrepresented the execution prices at which securities were bought and sold. For example, when Broker-Dealer 1 received a buy order from a client, the defendants and their co-conspirators caused the purchase price of the security that would be reported back to the client to be “marked up” from its actual purchase price. Conversely, when Broker-Dealer 1 received a sell order from a client, the defendants and their co-conspirators caused the sale price of the security that would be reported back to the client to be “marked down” from its actual sale price. The difference between the actual execution prices and the false prices reported to clients was hidden from Broker-Dealer 1’s clients, enabling Broker-Dealer 1 to earn millions in trading profits to which it was not entitled. As a result of the fraudulent scheme, LESZCZYNSKI, Chouchane, and Condron were paid inflated bonuses.

In addition to the prison term, Judge Keenan sentenced LESZCZYNSKI, 44, of Miami, Florida, to two years of supervised release. LESZCZYNSKI was also ordered to forfeit $1.5 million, to make restitution in the amount of $1.5 million, and to pay a $100 special assessment fee.

Chouchane, 39, of Miami, Florida, who previously pled guilty to one count of conspiracy to commit securities fraud and wire fraud, was sentenced on November 15, 2013, by Judge Keenan to two years in prison and two years of supervised release, and was ordered to forfeit $5 million and to make restitution in the amount of $5 million. Condron, 34, of New York, New York, who previously pled guilty to one count of securities fraud and two counts of conspiracy to commit securities fraud, is scheduled to be sentenced on February 5, 2014, by U.S. District Judge Naomi Reice Buchwald.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation. He also thanked the U.S. 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. Attorney Benjamin Naftalis is in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today the filing and settlement of a lawsuit in Manhattan federal court against NEDERLANDER ORGANIZATION, the owners and operators of nine of Broadway’s most historic theaters, the BROOKS ATKINSON, the GERSHWIN, the LUNT FONTANNE, the MARQUIS, the MINSKOFF, the NEDERLANDER, the NEIL SIMON, the PALACE, and the RICHARD RODGERS, involving violations of the Americans With Disabilities Act (the “ADA”). The settlement, in the form of a consent decree, was entered today by U.S. District Judge Katherine Polk Failla.

Manhattan U.S. Attorney Preet Bharara said: “Today’s resolution marks the culmination of years of work to ensure that one of New York City’s leading cultural and entertainment treasures – Broadway theater – is accessible to people with disabilities. As a result of this suit and settlement, coupled with a similar lawsuit filed by the Office against the Shubert Theaters in 2003, over twenty of the leading Broadway theaters, operated by the two largest Broadway theater organizations, will be more accessible than ever before.”

According to the Complaint and Consent Decree filed in Manhattan federal court:

In the course of an investigation and negotiation over several years, the U.S. Attorney’s Office identified numerous ADA violations at each of the nine theaters operated by NEDERLANDER ORGANIZATION. Two of the theaters were constructed over one hundred years ago, in the 1910s; four of the theaters were constructed during the 1920s; and the remainder were constructed in the early 1970s and the 1980s. The ADA generally requires that, under these circumstances, barriers to accessibility be removed where it is readily achievable to do so. Throughout the Government’s investigation and the negotiation of the Consent Decree, NEDERLANDER ORGANIZATION agreed to remove hundreds of barriers to accessibility.

Under the Consent Decree, NEDERLANDER ORGANIZATION agrees to continue and eventually conclude its efforts to improve accessibility at its theaters over the next three years, as the schedules of shows at the theaters permit. NEDERLANDER ORGANIZATION will do the following:

• provide a total of 70 wheelchair accessible seating locations, and direct its ticket vendors to accord priority to persons with disabilities in selling those seating locations;
• provide a total of 134 aisle transfer seating locations for persons who are able to transfer from a wheelchair into a seat, and direct its ticket vendors to accord priority to persons with disabilities in selling those seating locations; and
• eliminate over 500 individual barriers to accessibility in theater restrooms, concession counters, waiting areas, and box offices.

In addition, NEDERLANDER ORGANIZATION will pay a $45,000 civil penalty to the United States.

Since President George H.W. Bush signed the ADA into law in 1990, the U.S. Attorney’s Office for the Southern District of New York has played a significant role in bringing numerous New York City institutions into compliance with the ADA regulations. They include Avery Fisher Hall at Lincoln Center, the Metropolitan Opera, Yankee Stadium, Madison Square Garden, the Apollo Theater, the Puck Building, the Shubert Theaters, the Rainbow Room, and Radio City Music Hall.

To file a complaint alleging that any place of public accommodation within the Southern District of New York is not accessible to persons with disabilities, use the Civil Rights Complaint Form available on the United States Attorney’s Office’s website, www.usdoj.gov/usao/nys. Complaints should be sent to:

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

86 Chambers Street, 3rd Floor

New York, New York, 10007

Attention: Chief, Civil Rights Unit

Assistant U.S. Attorneys David J. Kennedy and Rebecca C. Martin are in charge of the case.

U.S. v. Nederlander Organization Consent Decree Exhibits
US v. Nederlander Organization, Inc Signed Consent Decree
U.S. v. Nederlander Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, announced that JOSEPH DESMARET pled guilty today in White Plains federal court to participating in a scheme in which he accepted over $10,000 in cash bribes in exchange for his votes, as a member of the Spring Valley Board of Trustees, to sell Village land and steer a state-funded transportation contract to a real estate development company. DESMARET pled guilty before U.S. District Judge Kenneth M. Karas.

Manhattan U.S. Attorney Bharara stated: “Every politician needs to understand that they hold office to serve the public, not themselves, and that those who violate the trust placed in them by the people do so at the risk of ending their careers behind bars. Serving the public is a great privilege and it should be treated as such.”

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

DESMARET accepted approximately $10,500 worth of cash bribes from an undercover FBI agent (“UC”) and a cooperating witness in exchange for his vote in favor of a sale of land owned by Spring Valley to a company he believed was controlled by the UC. In addition, DESMARET agreed to steer to the UC’s company New York State funding for road work associated with the project that he believed the UC’s company was developing.

DESMARET, 56, of Monsey, New York, is scheduled to be sentenced by Judge Karas on May 22, 2014. He faces a sentence of up to 40 years in prison and also faces restitution and forfeiture orders each in the amount of up to $10,500.

Mr. Bharara praised the outstanding efforts of the Federal Bureau of Investigation.

This case is being handled by the Office’s White Plains Division and Public Corruption Unit. Assistant U.S. Attorneys Douglas B. Bloom and Justin Anderson are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that BRIAN RAMNARINE pled guilty yesterday to fraud charges arising from his attempt to sell a bronze sculpture that he falsely represented to be a genuine work of art by Jasper Johns, as well as his sales of bronze sculptures that he falsely represented to be the work of two other artists, Robert Indiana and Saint Clair Cemin. RAMNARINE pled guilty yesterday before U.S. District Court Judge John G. Koeltl, on the fifth day of a jury trial.

Manhattan U.S. Attorney Preet Bharara said: “Brian Ramnarine is a serial fraudster who attempted to peddle not one but multiple fake sculptures in three separate fraud schemes – the last two of which occurred after he had already been arrested and was facing charges for the first. Ramnarine now stands convicted and, with his admission of guilt, will pay for his fraud.”

According to the Indictment to which RAMNARINE pled guilty, evidence presented at trial, and statements made during the plea proceeding:

In 1960, Johns created a painting titled “Flag,” which he gave to fellow artist and friend Robert Rauschenberg. Years later, Johns made a mold (the “Flag Mold”) from that painting in order to make a sculpture. In 1990, Johns provided the Flag Mold to RAMNARINE, who owned a Queens, New York, foundry. Johns instructed RAMNARINE to use the Flag Mold to make a wax cast. RAMNARINE completed the wax cast and gave it to Johns, but he never returned to Johns the Flag Mold from which the wax cast was made.

In 2010, RAMNARINE began representing to various members of the art world that he owned a bronze sculpture, titled “Flag,” that was an authorized Jasper Johns work of art created in 1989 (the “Purported 1989 Bronze Sculpture”). In an effort to identify a purchaser for the Purported 1989 Sculpture, he showed it to a representative of an auction house who specialized in the sale of rare art, and to an art dealer. Around the same time, RAMNARINE also attempted to sell the Purported 1989 Bronze Flag directly to an art collector. At RAMNARINE’s direction, several art brokers were in frequent contact with the art collector, and with the art collector’s representative, regarding the possible sale of what was represented to be a genuine and authorized Jasper Johns work of art. Through an art broker to whom RANMARINE had shown the Purported 1989 Bronze Sculpture, RAMNARINE informed the art collector’s representative that he would sell it for approximately $11 million.

After the art collector expressed doubts about the authenticity of the Purported 1989 Bronze Sculpture, RAMNARINE provided false and fraudulent documents and information in an effort to deceive the art collector into believing that the artwork was genuine. For example, RAMNARINE stated that the Purported 1989 Bronze Sculpture was a gift from Johns. To support that assertion, RAMNARINE provided an art broker with a letter dated August 23, 1989, purportedly from Johns, along with other documents that falsely and fraudulently reflected that the Purported 1989 Bronze Sculpture was a genuine Johns work of art, and that it was owned by RAMNARINE.

In truth, the Purported 1989 Bronze Sculpture was a fake. Johns never authorized its production nor did he transfer ownership to RAMNARINE. Instead, against Johns’s earlier instructions and without authorization, RAMNARINE used the original Flag Mold provided by Johns to make the Purported 1989 Bronze Flag, dated it “1989,” and forged Johns’s signature on the back of the sculpture.

RAMNARINE was arrested in November 2012 on charges arising from his attempt to sell the Purported 1989 Bronze sculpture. Shortly after his arrest and while he was on bail, RAMNARINE engaged in two new schemes to defraud an online art gallery located in Queens (the “Gallery”). In particular, RAMNARINE sold to the Gallery two fake sculptures, titled “Two” and “Orb,” that he falsely claimed had been made and authorized by Robert Indiana, and numerous fake sculptures that he falsely claimed had been made and authorized by Saint Clair Cemin. The Gallery paid RAMNARINE tens of thousands of dollars for the phony sculptures.

RAMNARINE, 59, of Queens, New York, pled guilty to three counts of wire fraud. He faces a maximum sentence of 20 years on Count One, and a maximum sentence of 30 years on each of Counts Two and Three because those offenses were committed while RAMNARINE was on bail. RAMNARINE is scheduled to be sentenced by Judge Koeltl on May 30, 2014, at 10:00 a.m.

Mr. Bharara praised the FBI for its outstanding work in the investigation. He also thanked the Port Authority of New York/New Jersey Police Department and the New York State Police for their assistance.

The case is being handled by the Complex Frauds Unit of the United States Attorney’s Office. Assistant United States Attorneys Zachary Feingold and Daniel B. Tehrani are in charge of the prosecution.

U.S. v. Brian Ramnarine S1 Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced that JONATHAN WALLY, a Police Officer with the New York City Police Department (“NYPD”) at the time of his offenses, was sentenced today in Manhattan federal court to five years of probation for tax fraud and identity theft offenses related to his preparation and filing of false and fraudulent U.S. individual income tax returns (“tax returns”). WALLY’s probation will include six months of intermediate confinement and one year of electronic monitoring to run concurrent to confinement. WALLY pled guilty in August 2013, and was sentenced today by U.S. District Judge Lorna G. Schofield.

According to court filings and statements made in court:

From 2003 until his arrest in this case in April 2013, WALLY was employed by the NYPD as a Police Officer assigned to the 34th precinct located in the Washington Heights/Inwood section of Manhattan. Since at least 2008, he also served as a tax preparer registered with the Internal Revenue Service (“IRS”). Although the NYPD requires its Police Officers to obtain written authorization to engage in off-duty employment, WALLY never sought or obtained such authorization to work as a tax preparer.

From 2010 through April 2012, WALLY defrauded the IRS by causing it to issue tax refunds to other individuals based on fraudulent and false tax returns he prepared and filed on behalf of those taxpayers. Among other things, the tax returns claimed deductions for false dependents. During that time period and continuing through January 2013, WALLY further defrauded the IRS by preparing and filing fraudulent and false tax returns on his own behalf that claimed false dependents and failed to declare certain income. In connection with this fraudulent tax return scheme, WALLY obtained personal identifying information and Social Security cards of children and declared those children as dependents on the false and fraudulent tax returns he prepared and filed on behalf of others and himself.

As a result of the false and fraudulent tax returns WALLY prepared and filed on behalf of other individual taxpayers, the IRS paid these taxpayers at least $146,818 in fraudulent tax refunds. The false and fraudulent tax returns prepared and filed by WALLY on his own behalf and his failure to declare the income he earned as a tax preparer caused the IRS to pay him at least $48,990 in fraudulent tax refunds. In total, WALLY’s tax scheme defrauded the IRS in the amount of $195,808.

In addition to probation and intermediate confinement, Judge Schofield ordered WALLY, 34, of Bronx, New York, to pay a $400 special assessment fee. WALLY was also ordered to pay restitution of, and agreed to forfeit to the IRS, the amount of $195,808.

Mr. Bharara praised the investigative work of the IRS, the New York State Department of Taxation and Finance, and the Internal Affairs Bureau of the NYPD.

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

Preet Bharara, the United States Attorney for the Southern District of New York, James J. Hunt, the Acting Special-Agent-in-Charge of the New York Field Division of the Drug Enforcement Administration (“DEA”), and Toni Weirauch, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced the unsealing of criminal charges in Manhattan federal court against ROBERT M. FAIELLA, a/k/a “BTCKing,” an underground Bitcoin exchanger, and CHARLIE SHREM, the Chief Executive Officer and Compliance Officer of a Bitcoin exchange company, for engaging in a scheme to sell over $1 million in Bitcoins to users of “Silk Road,” the underground website that enabled its users to buy and sell illegal drugs anonymously and beyond the reach of law enforcement. Each defendant is charged with conspiring to commit money laundering, and operating an unlicensed money transmitting business. SHREM is also charged with willfully failing to file any suspicious activity report regarding FAIELLA’s illegal transactions through the Company, in violation of the Bank Secrecy Act. SHREM was arrested yesterday at John F. Kennedy International Airport in New York, and is expected to be presented in Manhattan federal court later today before U.S. Magistrate Judge Henry Pitman. FAIELLA was arrested today at his residence in Cape Coral, Florida, and is expected to be presented in federal court in the Middle District of Florida.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Robert Faiella and Charlie Shrem schemed to sell over $1 million in Bitcoins to criminals bent on trafficking narcotics on the dark web drug site, Silk Road. Truly innovative business models don’t need to resort to old-fashioned law-breaking, and when Bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act. We will aggressively pursue those who would coopt new forms of currency for illicit purposes.”

DEA Acting Special-Agent-in-Charge James J. Hunt said: “The charges announced today depict law enforcement's commitment to identifying those who promote the sale of illegal drugs throughout the world. Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way. Drug law enforcement’s job is to investigate and identify those who abet the illicit drug trade at all levels of production and distribution including those lining their own pockets by feigning ignorance of any wrong doing and turning a blind eye.”

IRS Special-Agent-in-Charge Toni Weirauch said: “The government has been successful in swiftly identifying those responsible for the design and operation of the ‘Silk Road’ website, as well as those who helped ‘Silk Road’ customers conduct their illegal transactions by facilitating the conversion of their dollars into Bitcoins. This is yet another example of the New York Organized Crime Drug Enforcement Strike Force’s proficiency in applying financial investigative resources to the fight against illegal drugs.”

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

From about December 2011 to October 2013, FAIELLA ran an underground Bitcoin exchange on the Silk Road website, a website that served as a sprawling and anonymous black market bazaar where illegal drugs of virtually every variety were bought and sold regularly by the site’s users. Operating under the username “BTCKing,” FAIELLA sold Bitcoins – the only form of payment accepted on Silk Road – to users seeking to buy illegal drugs on the site. Upon receiving orders for Bitcoins from Silk Road users, he filled the orders through a company based in New York, New York (the “Company”). The Company was designed to enable customers to exchange cash for Bitcoins anonymously, that is, without providing any personal identifying information, and it charged a fee for its service. FAIELLA obtained Bitcoins with the Company’s assistance, and then sold the Bitcoins to Silk Road users at a markup.

SHREM is the Chief Executive Officer of the Company, and from about August 2011 until about July 2013, when the Company ceased operating, he was also its Compliance Officer, in charge of ensuring the Company’s compliance with federal and other anti-money laundering (“AML”) laws. SHREM is also the Vice Chairman of a foundation dedicated to promoting the Bitcoin virtual currency system.

SHREM, who personally bought drugs on Silk Road, was fully aware that Silk Road was a drug-trafficking website, and through his communications with FAIELLA, SHREM also knew that FAIELLA was operating a Bitcoin exchange service for Silk Road users. Nevertheless, SHREM knowingly facilitated FAIELLA’s business with the Company in order to maintain FAIELLA’s business as a lucrative source of Company revenue. SHREM knowingly allowed FAIELLA to use the Company’s services to buy Bitcoins for his Silk Road customers; personally processed FAIELLA’s orders; gave FAIELLA discounts on his high-volume transactions; failed to file a single suspicious activity report with the United States Treasury Department about FAIELLA’s illicit activity, as he was otherwise required to do in his role as the Company’s Compliance Officer; and deliberately helped FAIELLA circumvent the Company’s AML restrictions, even though it was SHREM’s job to enforce them and even though the Company had registered with the Treasury Department as a money services business.

Working together, SHREM and FAIELLA exchanged over $1 million in cash for Bitcoins for the benefit of Silk Road users, so that the users could, in turn, make illegal purchases on Silk Road.

In late 2012, when the Company stopped accepting cash payments, FAIELLA ceased doing business with the Company and temporarily shut down his illegal Bitcoin exchange service on Silk Road. FAIELLA resumed operating on Silk Road in April 2013 without the Company’s assistance, and continued to exchange tens of thousands of dollars a week in Bitcoins until the Silk Road website was shut down by law enforcement in October 2013.

FAIELLA, 52, of Cape Coral, Florida, and SHREM, 24, of New York, New York, are each charged with one count of conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison, and one count of operating an unlicensed money transmitting business, which carries a maximum sentence of five years in prison. SHREM is also charged with one count of willful failure to file a suspicious activity report, which carries a maximum sentence of five years in prison.

Mr. Bharara praised the outstanding investigative work of the DEA’s New York Organized Crime Drug Enforcement Strike Force, which is comprised of agents and officers of the U. S. Drug Enforcement Administration, the New York City Police Department, Immigration and Customs Enforcement - 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, the U.S. Marshal Service, New York National Guard, Office of Foreign Assets Control and the New York Department of Taxation and Finance. Mr. Bharara also thanked the FBI’s New York Field Office.

Mr. Bharara also noted that the investigation remains ongoing.

The prosecution of this case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorney Serrin Turner is in charge of the prosecution, and Assistant United States Attorney Andrew Adams of the Asset Forfeiture Unit is in charge of the forfeiture aspects of the case.

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

U.S. v. Robert M. Faiella & Charlie Shrem 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 a criminal Complaint in Manhattan federal court charging WALDYR PRADO, a former financial adviser at a large U.S. brokerage firm, and IGOR CORNELSEN, a Director of a British Virgin Islands Investment Company that he owns and operates, with using inside information to trade on Burger King securities in advance of Burger King’s September 2010 acquisition by 3G Capital Partners (“3G”), a New York and Brazil based private equity firm. PRADO and CORNELSEN are nationals and residents of Brazil, and they have not yet been arrested on these charges.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, when Waldyr Prado and Igor Cornelsen traded around a ‘sandwich deal,’ the defendants knew they were committing insider trading. They were illegally profiting from material non-public information to which they were not entitled.”

Assistant Director-in-Charge George Venizelos said: “Assistant Director-in-Charge George Venizelos said: “Trading on inside information negatively impacts individual investors, puts companies at risk, and threatens the public's faith in our financial markets. As alleged, Mr. Prado and Mr. Cornelsen put their faith in a “sandwich deal” and bit off more than they could chew. The FBI will continue to investigate this type of illegal conduct and prosecute those who violate our laws.”

According to the Complaint unsealed today in Manhattan federal court:

In about February 2010, 3G initiated discussions with Burger King about a potential acquisition. As part of these discussions, Burger King and 3G executed a confidentiality agreement in April 2010, pursuant to which all aspects of their negotiations and due diligence were non-public.

In about early March 2010, a principal of 3G (“3G Principal-1”) contacted an investor of the firm (“Client-1”) and advised that 3G was in negotiations to acquire Burger King. Client-1, who was also a brokerage client of PRADO’s, signed a confidentiality agreement with 3G relating to the potential Burger King acquisition. This agreement permitted Client-1 to share information concerning the potential acquisition with Client-1’s financial adviser, i.e. PRADO, in order to facilitate Client-1’s decision to invest in the specific 3G fund that would acquire Burger King (the “3G Fund”).

From about March 2010 through the September 2, 2010 announcement that 3G would purchase Burger King for $4 billion in stock and the assumption of debt (the “September 2 Announcement”), Client-1 received periodic updates about the general progress of the deal from 3G’s principals. During this period, Client-1 evaluated whether to liquidate personal holdings for a $50 million commitment to the 3G Fund, or to obtain separate financing. Client-1 discussed this issue with PRADO, and in so doing, confided that the financing was for a commitment to a 3G fund seeking to acquire Burger King. Based on their professional relationship, Client-1 believed that PRADO would maintain the confidentiality of this information. Over the next several months, Client-1 and Client-1’s assistant spoke with PRADO about the progress of the Burger King transaction.

Notwithstanding the duties of trust and confidence owed to his brokerage firm employer and Client-1, PRADO misappropriated information learned from Client-1 for his own benefit and to purchase Burger King stock and options. For example, on May 17, 2010, after PRADO met with Client-1 in Brazil and learned of the potential 3G-Burger King acquisition, PRADO sent an e-mail to an acquaintance in the financial industry (“Witness-1”) stating that PRADO was “in Brazil with information that cannot be sent by email. You can’t miss it. . . .” After sending this e-mail, PRADO and Witness-1 spoke by telephone, and PRADO told Witness-1 that 3G was going to acquire Burger King. From May 17, 2010, through September 1, 2010, PRADO purchased Burger King stock and call options. On September 2, 2010, following the announcement of 3G’s acquisition, PRADO sold his Burger King holdings for a total profit of over approximately $175,000.

On May 17, 2010, and minutes after PRADO sent the e-mail to Witness-1 referenced above, PRADO sent a similar e-mail to CORNELSEN. The e-mail stated that PRADO had “some info that I cannot say over the phone . . .You have to hear this.” Within minutes, and after the market closed, CORNELSEN called PRADO. The next day, CORNELSEN began trading out-of-the-money Burger King call options. From May 18, 2010, through late August 2010, CORNELSEN purchased short-expiration call options and had frequent contact with PRADO. For example, on August 18, 2010, CORNELSEN sent PRADO an e-mail asking if “the sandwich deal going to happen,” to which PRADO replied, “it’s going to happen.” On the same day, CORNELSEN sent PRADO another e-mail asking again whether the “sandwich deal” was going to happen, and PRADO responded that it was a “sure thing.” After the September 2 Announcement, CORNELSEN sold his options for a total profit of approximately $1.68 million, and a net profit (including expired July 2010 options) of approximately $1.4 million.

In July 2012, in connection with an insider trading investigation, the Securities & Exchange Commission (“SEC”) deposed PRADO. In his deposition, PRADO denied any advance knowledge of the Burger King acquisition. Approximately one month after his deposition, PRADO fled to Brazil, from where he told his U.S.-based supervisor that he would not be returning to the United States because he believed that he was going to be charged with perjury and because Brazil did not have “an extradition policy.”

PRADO, 43, of Porto Seguro, Brazil, and CORNELSEN, 65, of São Paolo, Brazil, have been charged in the Complaint with conspiracy to commit securities fraud and fraud in connection with a tender offer (Count One), securities fraud (Count Two), and fraud in connection with a tender offer (Count Three). The securities fraud and fraud in connection with a tender offer charges each carry a maximum term of 20 years in prison, and the conspiracy charge carries a maximum term of five years in prison.

Mr. Bharara praised the investigative work of the FBI and also thanked the Securities and Exchange Commission, which has brought civil actions against the defendants.

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. Attorneys David I. Miller and Jason Cowley are in charge of the prosecution.

US v. Waldyr Prado & Igor Cornelsen Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, announced that IGOR TSIMERMAN and ROSTISLAV BELYANSKY (“SLAVA”) were sentenced today in Manhattan federal court to 24 and 18 months in prison, respectively, for conspiring to pay approximately $20,000 in bribes to New York State Assemblyman Eric Stevenson in exchange for Stevenson’s official acts, including drafting, proposing, and agreeing to enact legislation that favored the bribers’ business interests. TSIMERMAN was also sentenced for conspiring to bribe former New York State Assembly member Nelson Castro. TSIMERMAN and SLAVA pleaded guilty in September 2013 before U.S. District Judge William H. Pauley III, and were both sentenced today by Judge Pauley.

Manhattan U.S. Attorney Preet Bharara said: “Igor Tsimerman and Rostislav Belyansky thought they could buy legislation to suit their business needs, but as these sentences show, the bribes they paid to Eric Stevenson only bought them a trip to federal prison.”

According to the Complaint and the Indictment filed in Manhattan federal court, and statements made in public proceedings:

Stevenson has served as a member of the New York State Assembly since 2011 representing District 79, which includes various Bronx neighborhoods. The four businessmen –TSIMERMAN, SLAVA, Belyansky, and Binman – are individuals who, during 2012 and 2013, were seeking to open and manage adult day care centers in the Bronx, New York, including a center on Westchester Avenue (the “Westchester Avenue Center”), within Stevenson’s Assembly District, and a second center on Jerome Avenue (the “Jerome Avenue Center”), within then-Assemblyman Castro’s Assembly District. During that time period, they paid multiple bribes to Stevenson in connection with efforts to open and operate both centers.

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

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

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

During that meeting, the CW and Stevenson also discussed the possibility of Stevenson introducing legislation that would establish a temporary moratorium on the construction and/or opening of new adult day care centers (the “Moratorium Legislation”), which would have the effect of eliminating competition with the Jerome Avenue Center and the Westchester Avenue Center, thereby substantially increasing the profits earned by those two centers. Stevenson told the CW: “All you gotta do is tell me what you want in the bill, and the bill drafter will put it together…I just need you to tell me what they [the co-defendants] want; we prepare the bill . . . . You can write down the language, basically what you want.” Stevenson then asked: “Are Igor [Belyansky] and them putting together a nice little package [of money] for me, huh?” He said: “I got my inauguration I gotta take care of, I got a lot of sh*t man.” Stevenson then said to the CW, in reference to the legislation, “I’m telling you, it’s done. It’s no problem.” Subsequently, the CW met with TSIMERMAN and Belyansky. TSIMERMAN said that as a result of the Moratorium Legislation, the value of their adult day care centers was “gonna skyrocket. . . . As long as [there’s a] moratorium, I can guarantee you at least a triple [in profits].”

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

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

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

Stevenson introduced and sponsored Bill Number A05139, which places a temporary moratorium on the construction and/or opening of new adult day care centers within New York City on February 20, 2013, and it is currently pending before the New York State Assembly’s Committee on Aging.

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

In addition to prison, TSIMERMAN, 47, of Staten Island, New York, was sentenced to three years of supervised release, and ordered to pay a $10,000 fine and a 200 special assessment fee. SLAVA, 42, of Bronx, New York, was also sentenced to three years of supervised release, and ordered to pay a $2,000 fine and a $100 special assessment fee.

Stevenson was convicted on January 13, 2014, of conspiring to commit honest services wire fraud, conspiring to commit federal programs bribery and to violate the Travel Act, committing federal programs bribery, and extortion under color of official right following a six-day jury trial before U.S. District Judge Loretta A. Preska. Stevenson is scheduled to be sentenced by Judge Preska on May 20, 2014.

Belyansky and Binman pled guilty in September 2013 to conspiring to commit honest services wire fraud in connection with their payment of bribes to Stevenson before Judge Pauley. They are scheduled to be sentenced by Judge Pauley on February 6, 2014.

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

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced that DAVID LEVY was sentenced today to nine years in prison after having been found guilty by a federal jury for orchestrating “pump and dump” stock fraud schemes that employed the Internet and social networking sites, among other tools, to manipulate the price of penny stocks as well as participating in an international money laundering scheme. DAVID LEVY was sentenced in Manhattan federal court by U.S. District Judge Paul A. Crotty who also presided over the three-week jury trial. David Levy’s wife and co-defendant, Donna Levy, who also was found guilty by the federal jury for her role in this and other schemes, is scheduled to be sentenced by Judge Crotty on February 5, 2014.

Manhattan U.S. Attorney Preet Bharara said: “With today’s sentence David Levy will now pay a heavy price for the massive ‘pump and dump’ schemes that he and his wife orchestrated, which defrauded multiple victims of millions of dollars – the loss of his liberty.”

According to the evidence introduced at trial, court filings, and statements made in court:

The Start-Up Company Stock Fraud Scheme

The scheme worked as follows: DAVID LEVY and Donna Levy offered to help start-up companies obtain financing, take the start-up companies public, and coordinate marketing and investor relations for the companies, in exchange for company shares. Once they had helped the companies go public, Donna Levy put out press releases on behalf of the target companies, and she worked with her husband to secretly fund and distribute misleading third-party "buy" recommendations concerning the targeted companies. This misleading promotional campaign, along with other manipulative conduct, generated demand for stock in the targeted companies, and caused the price of the stocks to rise. DAVID LEVY, Donna Levy, and their co-conspirators took advantage of the "pumped-up" stock trading volume and price to "dump" their shares into the market until the misleading promotional campaign had run out of steam. They would repeat the scheme multiple times until the target companies' shares were essentially valueless, thereby harming company founders and executives, as well as innocent investors who bought in reliance on the misleading promotional campaigns orchestrated by DAVID LEVY and Donna Levy. DAVID LEVY was convicted of engaging in this pump and dump scheme with three companies that he helped take public: Cardiac Network, Inc., which has traded under symbol ACNWI,@ Banneker, Inc., which has traded under symbol “BANI,” and Greenway Design Group, Inc., which has traded under symbol “GDGI.”

The International Money Laundering Scheme

DAVID LEVY also was convicted of a money laundering conspiracy in connection with his efforts to conceal more than $2.3 million in proceeds of the fraudulent schemes in Panamanian shell company bank accounts maintained by a co-conspirator at a bank in Panama. In connection with the scheme, DAVID LEVY wire transferred $150,000 in fraud proceeds to a Panamanian shell company bank account through a bank account in New York. DAVID LEVY carried more than $2 million in cashier’s checks, representing proceeds from stock fraud, to Panama and caused them to be deposited into the shell company bank accounts.

Nine additional defendants already have pled guilty to charges arising out of the conduct described in the Indictment, and five of the nine have been sentenced. The relevant plea dates and, where applicable, the sentences imposed are set forth in the attached chart.

In addition to the prison sentence, Judge Crotty sentenced DAVID LEVY, 61, of Fort Lauderdale, Florida, to three years of supervised release and ordered him to pay a $500 special assessment fee. In addition, DAVID LEVY was also preliminarily ordered to forfeit $12 million, his home in Florida, certain luxury vehicles, and certain bank accounts.

This case originated and the schemes were uncovered as part of the Government’s long-term investigation into criminal conduct at the Port of New York-New Jersey. Mr. Bharara thanked the Internal Revenue Service-Criminal Investigations’ New Jersey office, as well as the other participants in the High Intensity Drug Trafficking Area Task Force, which includes the Drug Enforcement Administration and Homeland Security Investigations’ New Jersey Offices, for their assistance with the investigation. Mr. Bharara also thanked the Securities and Exchange Commission and the Financial Industry Regulatory Authority for supporting the investigation, which is ongoing.

The prosecutions are being handled by the Office’s Public Corruption Unit. Assistant United States Attorneys Howard S. Master and Carrie H. Cohen are in charge of the prosecutions.

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 an Indictment charging DINESH D’SOUZA with violating the federal campaign finance laws by making illegal contributions to a United States Senate campaign in the names of others and causing false statements to be made to the Federal Election Commission in connection with those contributions. D’SOUZA is expected to be presented and arraigned tomorrow in Manhattan federal court before U.S. District Judge Richard M. Berman.

Manhattan U.S. Attorney Preet Bharara stated: “As we have long said, this Office and the FBI take a zero tolerance approach to corruption of the electoral process. If, as alleged, the defendant directed others to make contributions to a Senate campaign and reimbursed them, that is a serious violation of federal campaign finance laws.”

FBI Assistant Director-in-Charge George Venizelos stated: “Trying to influence elections through bogus campaign contributions is a serious crime. Today, Mr. D’Souza finds himself on the wrong side of the law. The Federal Election Campaign Act was written to limit the influence of money in elections; the FBI is fiercely committed to enforcing those laws to maintain the integrity of our democratic process.”

According to the allegations in the Indictment and statements made in court:

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

In 2012, the Election Act limited both primary and general election campaign contributions to $2,500 for a total of $5,000 from any individual to any one candidate. In August 2012, D’SOUZA directed other individuals with whom he was associated to make contributions to the campaign committee for a candidate for the United States Senate (the “Campaign Committee”) that totaled $20,000. D’SOUZA then reimbursed those individuals for the contributions. By directing the illegal contributions to be made, D’SOUZA also caused the Campaign Committee to falsely report to the FEC the sources and amounts of those contributions to the campaign.

D’SOUZA, 52, of San Diego, California, is charged with one count of causing $20,000 in illegal campaign contributions to be made to a candidate for the United States Senate in calendar year 2012, which carries a maximum sentence of two years in prison. He also is charged with one count of causing false statements to be made to the FEC in connection with the illegal campaign contributions, which carries a maximum sentence of five years in prison.

The Indictment is the result of a routine review by the FBI of campaign filings with the FEC by various candidates after the 2012 election for United States Senator in New York. Mr. Bharara praised the investigative work of the FBI.

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

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

U.S. v. Dinesh D'Souza Indictment

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 Office of the United States Department of Homeland Security (“DHS”), Homeland Security Investigations (“HSI”), announced today the arrest of BRIAN FANELLI for possession of child pornography. FANELLI, the Chief of the Mount Pleasant, New York, Police Department, was arrested by HSI agents today at his residence in Mahopac, New York and presented in White Plains federal court before United States Magistrate Judge Lisa Margaret Smith.

Manhattan U.S. Attorney Preet Bharara stated: “Given the allegations, this case is particularly disturbing and sad. A senior law enforcement officer, sworn to uphold the law, stands accused of breaking the law. And it is the law designed to protect the youngest and most vulnerable of our population from vile exploitation.”

HSI Special Agent-in-Charge James T. Hayes, Jr. stated: “Police officers – and especially police executives – are understandably held to a higher standard of conduct than ordinary citizens. The defendant’s alleged acquisition and viewing of sexually explicit images of children irrevocably breached the trust the public had in him. The widespread exploitation of children in the United States is nothing short of an epidemic that requires the coordinated focus of law enforcement agencies, prosecutors, and the general public alike. HSI is committed to devoting the necessary resources to protect the children in our communities from those intent on victimizing them.”

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

From at least as early as October 2013, through in or about January 2014, FANELLI used a Peer-to-Peer File Sharing Program (“the “P2P Network”) to download more than 120 files containing images and videos believed to be child pornography and made those files available to other P2P Network users through his computer’s shared folder on the P2P Network program. Additionally, on three occasions, DHS agents acting in an undercover capacity and using the P2P Network downloaded from FANELLI’s computer files containing images and videos believed to contain child pornography.

Acting pursuant to a search warrant, DHS agents searched FANELLI’s residence today and located three computers. During the execution of the search warrant, FANELLI was advised of his Miranda rights, after which he voluntarily told DHS agents, among other things, that he has taught sexual abuse awareness classes to elementary and middle school-age students for more than one year, and that approximately one year ago, he began viewing child pornography from his home using the P2P Network – at first as research for the classes he was teaching, but shortly thereafter for personal interest.

FANELLI, 54, of Mahopac, New York, is charged with one count of possessing child pornography, which carries a maximum sentence of 10 years in prison. The count also carries a maximum fine of $250,000 or twice the gross gain or loss from the offense.

Mr. Bharara praised the outstanding investigative work of the Department of Homeland Security. He added that the investigation is continuing.

HSI encourages the public to report suspected child predators and any suspicious activity through its toll-free hotline at 1-866-DHS-2ICE. Investigators staff this hotline around the clock. Suspected child sexual exploitation or missing children may also 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

The prosecution is being overseen by the Office’s White Plains Division and the Public Corruption Unit. Assistant United States Attorneys Andrew D. Goldstein and Lee Renzin are in charge of the prosecution.

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

U.S. v. Brian Fanelli Complaint

Preet Bharara, United States Attorney for the Southern District of New York, announced that after a fairness hearing on January 13, 2014, United States District Judge Richard J. Sullivan has approved the proposed Settlement Agreement entered into between the United States Attorney’s Office and the City of New York (the “City”), resolving the issues raised in the August 2012 class action lawsuit brought against the City in Manhattan federal court. The suit concerns the City’s illegal calculation of pensionable earnings, in violation of the Uniformed Services Employment and Reemployment Rights Act of 1994 (“USERRA”), of retired New York City Police Department (“NYPD”) officers who were called up to active military service since September 11, 2001, and are collecting a pension from the City (“NYPD Class Members”).

Manhattan U.S. Attorney Preet Bharara said: “This Settlement Agreement will ensure that the brave men and women at all the City agencies who served both their city and their country get the pension that they have earned. Now we can turn to implementing the Settlement Agreement, which will require continued coordination between the City and this Office to put into effect these critically important changes.”

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

On August 2, 2012, the United States Attorney’s Office filed a class action lawsuit against the City, the NYPD, and the New York City Police Pension Fund, on behalf of all current and retired NYPD officers who have performed active military service since September 11, 2001, or who will do so in the future. The class action suit alleges that the City unlawfully calculates the pensionable earnings of NYPD officers called to active military duty by relying exclusively on their base pay rate, instead of including the overtime or night shift differential compensation they would have earned had they not been on active military duty, as required by USERRA. As a result, service members are being deprived of pension benefits they would have been reasonably likely to receive but for their military service.

The class action lawsuit sought to require the City to lawfully calculate the pensionable earnings of all current and former NYPD officers who were called to perform active military service after September 11, 2001, or who will be called to service, to recalculate the pension benefits they are currently receiving, and to remit any additional pension benefits owed as a result of performing these recalculations.

On July 2, 2013, the Court preliminarily approved the Settlement Agreement, and ordered that notice be given to the approximately 630 potential members of the class. Following a four-month period in which potential class members had an opportunity to submit objections to the Settlement Agreement, the Court found on January 14, 2014, that there were no objections that warrant withholding approval of the Settlement Agreement, and, by orders dated January 14 and 21, 2014, the Court approved the Settlement and closed the case.

The Settlement Agreement provides the following relief:

• All NYPD Class Members will receive the past pension benefits that they are entitled to under USERRA as well as have their future pension benefit payments adjusted to reflect any increase that results from the recalculation of their pension benefits.
• All active NYPD officers who have been or will be called up to active military service will have their future pensionable earnings calculated in accordance with USERRA, and can request in writing to have their past pensionable earnings recalculated.
• The City will implement the terms of the Settlement Agreement in the other retirement systems so that all other municipal workers will have their pensions appropriately calculated.

More information can be obtained by calling the civil rights hotline number at (212) 637-0840, or e-mailing usanys.userra@usdoj.gov.

This case is being handled by the Office’s Civil Rights Unit. Assistant United States Attorneys Tara M. La Morte and Arastu K. Chaudhury are in charge of the case.

Goodman v. City of New York, et al. Final Order Approving Settlement
Goodman v. City of New York, et al. Approved Settlement Agreement

Preet Bharara, the United States Attorney for the Southern District of New York, announced that EDWIN TING was sentenced today in Manhattan federal court to five months in prison and ordered to forfeit $2 million for conducting an illegal gambling business. TING was charged in April 2013 along with 33 other alleged members and associates of two Russian-American organized crime enterprises in an indictment that included charges of racketeering, money laundering, extortion, and various gambling offenses. He was sentenced by U.S. District Judge Jesse M. Furman.

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

From 2010 through 2013, TING ran what was likely the largest and highest-stakes illegal poker game in New York City. At these games, the pots frequently reached tens, or even hundreds, of thousands of dollars or more. TING collected percentages of the pots, known as “rakes.” He made millions of dollars in profits from operating his illegal poker games. These poker games employed at least five or more people to assist with the operation of the games, payments of debts, and collection of debts.

In addition to the prison term and forfeiture, TING, 42, of New York, New York, was sentenced to two years of supervised release.

Twenty-five defendants in this case have pled guilty. The defendants who have pled to date have agreed to forfeit, in total, more than $68,000,000.00. The following defendants have pled guilty, and have been sentenced or await sentencing:

• Bryan Zuriff pled guilty to gambling charges on July 26, 2013, and was sentenced on November 25, 2013;
• William Barbalat pled guilty to gambling charges on August 14, 2013, and was sentenced on December 16, 2013;
• Kirill Rapoport pled guilty to gambling charges on August 16, 2013, and was sentenced on December 19, 2014;
• Justin Smith pled guilty to gambling charges on September 4, 2013, and was sentenced on January 6, 2013;
• Dmitry Druzhinsky and David Aaron pled guilty to gambling charges on October 4, 2013;
• Alexander Zaverukha pled guilty to gambling charges on October 10, 2013;
• Nicholas Hirsch pled guilty to conspiring to commit wire fraud on October 16, 2013;
• Anatoly Shteyngrob pled guilty to conspiring to commit money laundering on October 17, 2013;
• Yugeshwar Rajkumar pled guilty to gambling charges on October 18, 2013;
• Stan Greenberg pled guilty to conspiring to commit racketeering on October 22, 2013;
• Arthur Azen pled guilty to conspiring to commit money laundering and conspiring to collect extensions of credit by extortionate means on November 5, 2013;
• Hillel Nahmad pled guilty to gambling charges on November 12, 2013;
• Vadim Trincher pled guilty to conspiring to commit racketeering on November 14, 2013;
• Eugene Trincher pled guilty to gambling charges on November 14, 2013;
• Anatoly Golubchik pled guilty to conspiring to commit racketeering on November 15, 2013;
• Illya Trincher pled guilty to gambling charges on November 15, 2013;
• Ronald Uy pled guilty to structuring financial transactions on November 25, 2013;
• Moshe Oratz pled guilty to gambling charges on December 3, 2013;
• Michael Sall pled guilty to interstate travel in aid of an unlawful activity (illegal gambling) and Jonathan Hirsch pled guilty to gambling charges on December 4, 2013;
• Noah Siegel pled guilty to gambling charges on December 5, 2013;
• Molly Bloom pled guilty to gambling charges on December 12, 2013; and
• Alexander Katchaloff pled guilty to gambling charges on January 16, 2014.

The charges against the remaining eight defendants are merely accusations, and these defendants are presumed innocent unless and until proven guilty.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation, the New York City Police Department, and the Internal Revenue Service.

The case is being prosecuted by the Office’s Organized Crime Unit. Assistant U.S. Attorneys Harris M. Fischman, Joshua A. Naftalis, Peter Skinner, and Kristy J. Greenberg of the Organized Crime Unit are in charge of the prosecution. Assistant U.S. Attorney Alexander Wilson of the Office’s Asset Forfeiture Unit is responsible for the forfeiture aspects of the case.

Preet Bharara, the United States Attorney for the Southern District of New York, George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced criminal charges against MARK ANTHONY WARREN for engaging in a scheme to lure minor children over the Internet into engaging in sexually explicit conduct, which WARREN secretly recorded and threatened to disseminate unless the minor children produced and sent him additional sexually explicit videos. WARREN was charged with production and receipt of child pornography, and extortion. Based on information provided by the FBI, WARREN was arrested yesterday in Australia by the New South Wales Police Force, and charged with related offenses.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Mark Anthony Warren used social media and phony profiles to ensnare his minor victims and later force them into engaging in sexually explicit acts that he recorded. Warren allegedly believed he could hide behind the anonymity of the Internet and use special computer software to escape detection, but he was sorely mistaken. Protecting minors from individuals who prey on and attempt to exploit them is a high priority of this Office, and thanks to the outstanding efforts of FBI agents and our prosecutors, Warren will be made to answer for his alleged crimes.”

FBI Assistant Director-in-Charge Venizelos said: “Warren was arrested today for allegedly developing unsuspecting male minors into subjects of his self-directed production of child pornography. Posing as a teenager himself, he coerced them into engaging in sexually explicit conduct and later tormented them with the threat of releasing proof of this conduct to their families and friends. Once removed, the virtue of innocence can never be restored. The exploitation of minors is a cause of great concern, and the FBI will continue to go after networks of online pedophiles and other sexual predators who use the Internet to sexually exploit children.”

According to the allegations contained in the criminal Complaint unsealed today:

From at least November 2013 to December 2013, MARK ANTHONY WARREN used multiple false identities and posed as a teenage girl in order to trick, coerce, and extort minor male victims into producing child pornography at his direction. In particular, WARREN created bogus accounts on various social media websites using false identities and posing as various teenage girls and a teenage boy. Using these bogus accounts, WARREN contacted male minors, including a 14 year-old in New York, New York, and, posing as a teenage girl, engaged them in sexually explicit discussions via online chats. During these chats, WARREN showed the minor males a pornographic video of a young woman who WARREN claimed to be, and simultaneously secretly video recorded the minor males engaging in sexually explicit conduct.

After making these secret pornographic recordings of his minor victims, WARREN contacted them again online and threatened to publish the videos to the victims’ families and friends unless the victims created additional pornographic videos of themselves and uploaded them to a particular website accessible by WARREN. WARREN provided the victims with specific, detailed instructions about the sexually explicit videos they were to make at his direction. He further threatened that if the minor male victims went to law enforcement, the victims would be arrested and charged with child pornography crimes. WARREN also told his victims that he used particular computer software to obscure his identity, and that he was beyond the reach of law enforcement.

WARREN, 49, of New South Wales, Australia, is charged with one count of production of child pornography and one count of attempted production of child pornography, each of which carries a mandatory minimum sentence of 15 years in prison, and a maximum sentence of 30 years in prison. He is also charged with one count of receipt and distribution of child pornography, which carries a mandatory minimum sentence of five years in prison and a maximum sentence of 20 years in prison, as well as one count of extortion, which carries a maximum sentence of two years in prison.

Mr. Bharara praised the outstanding investigative work of the FBI. He also thanked the New South Wales, Australia, Police Force and the Australian Federal Police. Mr. Bharara added that the investigation is continuing.

The FBI encourages the public to report suspected child predators and any suspicious activity through their switchboard at (212) 384 -1000. It 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.

The prosecution is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorneys Eun Young Choi and James Pastore are in charge of the prosecution.

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

U.S. v. Mark Anthony Warren Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), George Longworth, the Commissioner of the Westchester County Department of Public Safety (“WCDPS”), and William J. Bratton, the Commissioner of the New York Police Department (“NYPD”), announced today the filing of a criminal Complaint against PHILIP AVERY PUTTER for aiming a high-powered laser pointer at a WCDPS helicopter that was conducting aerial surveillance at the July 2013 Kensico Dam Fireworks Independence Day celebration. The Government and the defendant have entered into a deferred prosecution agreement, which was today approved in White Plains federal court by United States Magistrate Judge Paul E. Davison.

U.S. Attorney Preet Bharara stated: “Aiming a high-powered laser pointer at an aircraft is serious business; it can cause a deadly crash. The public should know that those who engage in such conduct are committing a federal crime.”

FBI Assistant Director-in-Charge George Venizelos stated: “This is no laughing matter. Plain and simple: lasers pointed at pilots can down an aircraft. The FBI is committed to investigating these incidents that continue to occur with alarming frequency.”

Westchester County Department of Public Safety Commissioner George Longworth stated: “This incident not only caused a danger to the pilots and crew of our Aviation Unit helicopters, but it also jeopardized the safety of thousands of people who were enjoying the festivities that evening at Kensico Dam Park. Blinding the pilot of any aircraft is not a silly prank. It is a crime that has the potential to cause devastating consequences.”

New York Police Commissioner William J. Bratton said, “This prank underscores the type of reckless conduct that can potentially endanger law enforcement and the communities they serve. I want to thank the investigators for their swift action that led to the apprehension of this individual.”

According to allegations contained in the Complaint filed today in White Plains federal court:

On the evening of July 3, 2013, two WCDPS helicopter pilots were assigned to conduct aerial observation of the Fireworks Celebration at the Kensico Dam in Valhalla, New York. There were approximately 10,000 to 15,000 people on the ground below enjoying the festivities.

The helicopter pilots explained that very shortly after they arrived near the Kensico Dam just after 9 p.m., the helicopter was hit by a green laser beam. The laser contact lasted approximately 4-5 seconds. One pilot said that the laser hit prevented him from being able to see objects outside the aircraft, and that after the beam struck the helicopter, his night vision was severely impaired. The other pilot said that the laser beam impaired his ability to read the flight instruments for a period of time.

WCDPS officers on the ground looked up into the sky and saw a green laser beam pointing toward the WCPD helicopter. A police officer followed the steady beam down to the ground and saw a man holding a laser pointer. That man was subsequently identified as PUTTER.

PUTTER, 40, who lives in Hawthorne, New York, has been charged with one count of aiming a laser pointer at an aircraft, which is a relatively new criminal statute enacted by Congress in February 2012 in order to address the increasing nationwide problem of laser pointers targeting aircraft.

PUTTER faces a maximum penalty of 5 years’ imprisonment. Under the terms of the deferred prosecution agreement, however, if PUTTER abides by the conditions of the agreement for six months, the Government will agree to dismiss the Complaint.

Mr. Bharara praised the investigative work of the law enforcement partners involved in the investigation, including the FBI’s Joint Terrorism Task Force and the Westchester County Department of Public Safety..

The case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorney Jason P.W. Halperin 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.

There are a number of incidents involving lasers pointed at aircraft in the metropolitan New York area that the FBI is now actively investigating. Anyone with information about such incidents is asked to call the FBI at 212-384-1000.

U.S. v. Philip Avery Putter Complaint
U.S. v. Philip Avery Putter Deferred Prosecution Agreement

Preet Bharara, the United States Attorney for the Southern District of New York, announced that SCOTT FAPPIANO and ANTHONY BAZZINI pled guilty today in Manhattan federal court in connection with their roles in an illegal scheme to exert control over the commercial waste-hauling industry in the greater New York City metropolitan area and in parts of New Jersey. FAPPIANO and BAZZINI, who were among 32 defendants charged in January 2013, in connection with the scheme, pled guilty today before U.S. District Judge P. Kevin Castel. FAPPIANO and BAZZINI are the twentieth and twenty-first defendants to plead guilty in this matter.

Manhattan U.S. Attorney Preet Bharara said: “With today’s pleas we have convicted nearly two-thirds of the defendants originally charged in this case, and we will not rest until all responsible for this scheme to control the waste-hauling industry in New York City and beyond are made to answer for their numerous crimes.”

According to the Indictment against FAPPIANO and BAZZINI, other documents filed in Manhattan federal court, and statements made at related court proceedings:

FAPPIANO, who is an associate of the Gambino Crime Family, and BAZZINI, who is a made member of the Gambino Crime Family, participated in a scheme, along with other members and associates of three different Organized Crime Families of La Cosa Nostra (“LCN”) – the Genovese, Gambino, and Luchese Crime Families – to control various waste disposal businesses in the New York City metropolitan area and multiple counties in New Jersey. Members of the scheme engaged in various crimes including extortion, loansharking, mail and wire fraud, and stolen property offenses. As part of their involvement in the scheme, FAPPIANO and BAZZINI made threats of bodily harm to a cooperating Government witness (“CW-1”), who owned a waste hauling company, in an effort to obtain payments from CW-1.

FAPPIANO, 52, of Staten Island, New York, pled guilty to one count of communicating a threat of bodily harm in interstate commerce and faces a maximum sentence of five years in prison. FAPPIANO is scheduled to be sentenced by Judge Castel on May 8, 2014, at 10:30 a.m.

BAZZINI, 54, of Glen Head, New York, pled guilty to one count of communicating a threat of bodily harm in interstate commerce and faces a maximum sentence of five years in prison. Bazzini is scheduled to be sentenced by Judge Castel on May 8, 2014, at 11:30 a.m.

Two other defendants have also recently pled guilty in connection with this case. Anthony Cardinalle, 61, of Saddle River, New Jersey, pled guilty on December 20, 2013, before Judge Castel, to participation in a racketeering conspiracy and participation in an extortion conspiracy. He faces a maximum sentence of 40 years in prison and is scheduled to be sentenced on May 23, 2014, at 11:00 a.m. Charles Giustra, 52, of Staten Island, New York, pled guilty on December 23, 2013, before Magistrate Judge Gabriel W. Gorenstein, to using a facility of interstate commerce in furtherance of a narcotics transaction. He faces a maximum sentence of eight years in prison and is scheduled to be sentenced by U.S. District Judge Colleen McMahon on March 25, 2014, at 4:00 p.m.

The charges against the remaining defendants are merely accusations, and these defendants are presumed innocent unless and until proven guilty.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and the Westchester County Police Department.

The prosecution of this case is being handled by the Office’s Organized Crime Unit. Assistant United States Attorneys Brian R. Blais, Natalie Lamarque, and Patrick Egan are in charge of the prosecution. Assistant United States Attorney Micah Smith of the Office’s Asset Forfeiture Unit is responsible for the forfeiture aspects of the case.

U.S. v. Bazzini & Fappiano Superseding Information

Preet Bharara, the United States Attorney for the Southern District of New York, today announced the forfeiture of approximately 29,655 Bitcoins (which, at today’s Bitcoin exchange rate, are worth approximately $28 million) that were seized from the Silk Road server, as well as the forfeiture of the Silk Road hidden website. The Silk Road hidden website and the Bitcoins that were forfeited yesterday had been seized in connection with the civil forfeiture action previously filed in Manhattan federal court on September 30, 2013, seeking the forfeiture of all assets of Silk Road, including its website and all of its Bitcoins because those assets allegedly were used to facilitate money laundering and constitute property involved in money laundering. In addition to the civil action, a criminal Complaint against Ross William Ulbricht, a/k/a “Dread Pirate Roberts,” a/k/a “DPR,” a/k/a “Silk Road,” the alleged owner and operator of the Silk Road hidden website, was filed in September 2013 in Manhattan federal court charging him with one count of narcotics conspiracy, one of count of conspiracy to commit computer hacking, and one count of money laundering conspiracy. The forfeiture order was signed yesterday by United States District Judge J. Paul Oetken.

Manhattan U.S. Attorney Preet Bharara said: “With today’s forfeiture of $28 million worth of Bitcoins from the Silk Road website, a global cyber business designed to broker criminal transactions, we continue our efforts to take the profit out of crime and signal to those who would turn to the dark web for illicit activity that they have chosen the wrong path. These Bitcoins were forfeited not because they are Bitcoins, but because they were, as the court found, the proceeds of crimes.”

The Silk Road hidden website was designed to enable its users to buy and sell illegal drugs and other unlawful goods and services anonymously and beyond the reach of law enforcement. In connection with the civil forfeiture action, and in addition to the Bitcoins that were forfeited yesterday, the Government seized an additional 144,336 Bitcoins (which, at today’s Bitcoin exchange rate, are worth over $130 million) that were found on computer hardware belonging to Ulbricht. Ulbricht has filed a claim in the civil forfeiture action, asserting that he is the owner of the Bitcoins found on his computer hardware, and contesting the forfeiture of those Bitcoins.

The prosecution of this case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorney Serrin Turner is in charge of the prosecution, and Assistant United States Attorney Christine Magdo is in charge of the forfeiture aspects of the case.

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

U.S. v. Silk Road Partial Default Judgment and Order of Forfeiture

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 a criminal complaint (the “Complaint”) against STEPHEN COX, the former warehouse manager of a prescription drug wholesale distribution company (the “Wholesaler”), for his alleged participation in a scheme to falsify pedigrees for prescription drugs sold to pharmacies all over the country, including at least six pharmacies in New York City. The prescription drugs were diverted from illegal sources and made to appear, through pedigrees falsely documenting their transaction histories, as though they were obtained legitimately from authorized distributors through licensed wholesalers. The defendant allegedly, through the Wholesaler, based in St. George, Utah, conspired with others to sell to pharmacies more than $49 million worth of illegally obtained prescription drugs through several wholesale distribution companies controlled by co-conspirators, some of whom have pled guilty pursuant to cooperation agreements with the Government. COX surrendered to the FBI this morning in New York City in connection with the charges announced today and was presented in Manhattan federal court before U.S. Magistrate Judge Ronald L. Ellis this afternoon.

The Complaint is a result of the continuing investigation into a scheme that defrauded Medicaid out of more than $500 million through the diversion of prescription drugs. On July 17, 2012, 48 defendants were charged in connection with United States v. Viera, et al., 11 Cr. 1072 (DLC), all but five of whom have been arrested and have pled guilty.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, in his position as a warehouse manager for a prescription drug wholesaler, defendant Stephen Cox played an integral role in a multimillion-dollar prescription drug diversion scheme by helping his employer to falsify the pedigrees of second-hand prescription drugs and dispense them to pharmacies across the country. People in need of medicine walk into a pharmacy to untainted, safe prescription drugs; they should not walk out with black market pills, a risk the alleged conduct makes very real.”

FBI Assistant Director-in-Charge George Venizelos said: “Every operation has a conductor whose job it is to ensure all players work together and all parts are delivered on time. As alleged, Stephen Cox acted as a conductor in this massive Medicaid fraud, working with his co-conspirators to manage the shipment and delivery of illegally obtained prescription drugs to the tune of more than $49 million. By providing advice on how to falsify required FDA documents, he continued to defraud the Medicaid system, which is funded by tax dollars to provide healthcare to lower income individuals, and put at risk those unwitting customers who would eventually purchase these secondhand pills. The FBI remains committed to working with our law enforcement partners on our Health Care Fraud Task Force to ensure the public’s safety and investigate those who seek to defraud government program.”

The following allegations are based on the Complaint and other publicly filed documents in the Viera case:

For years, a large network of individuals operated a nation-wide scheme to illegally launder and resell second-hand prescription drugs (typically HIV/AIDs drugs) purchased from Medicaid beneficiaries on street corners and out of bodegas in and around New York City. The drugs had been dispensed in manufacturers’ bottles with pharmacy patient labels affixed to them. Once they purchased the second-hand drugs, the conspirators, who often held the drugs in uncontrolled and unsanitary conditions, used solvents to dissolve the adhesive on the patient labels to remove them and make the bottles look like new bottles, straight from the manufacturer. Once enough bottles were collected, the New York-based conspirators sold them, through Florida-based groups, to individuals in Texas, who operated several corrupt wholesale companies, such as those identified in the Complaint.

The Wholesaler, through COX and others, purchased more than $49 million worth of prescription drugs that they knew had been purchased illegally by the corrupt wholesale companies run from Texas. COX and others then sold them to unsuspecting pharmacies all over the United States, including to some pharmacies in New York City, which, in turn, sold and dispensed the second-hand drugs to unsuspecting patients who were unaware that their medications had previously been dispensed and may have had diminished efficacy or contained contaminants.

Federal law requires prescription drug wholesalers to create and maintain transaction histories, or “pedigrees,” that correctly document each transaction involving prescription drugs. COX and an uncharged co-conspirator who owned the Wholesaler (“CC-1”) instructed co-conspirators affiliated with the corrupt wholesale companies how to falsify these pedigrees to create paperwork that concealed from FDA inspectors and pharmacies purchasing the drugs that the drugs were illegally obtained and previously had been dispensed. Backed by these false pedigrees, the Wholesaler sold illegally obtained prescription drugs to pharmacies all over the country, including to the six in Manhattan and the Bronx referred to in the Complaint.

From at least 2009 through November 4, 2011, STEPHEN COX, the defendant, worked for CC-1 at the Wholesaler as its warehouse manager. At the Wholesaler, COX received by fax from co-conspirators lists of prescription drugs available from unlicensed sources. COX communicated with co-conspirators concerning orders and shipments of prescription drugs from unlicensed sources, and passed along instructions to co-conspirators concerning how to construct false pedigrees. At the Wholesaler and at two subsequent corrupt wholesale distribution companies, COX received and inspected shipments of prescription drugs from unlicensed sources and facilitated the sale of those drugs to pharmacies all around the country, ultimately to be dispensed to unsuspecting patients. COX is the first individual associated with a wholesale distribution company that sold directly to pharmacies to be charged as part of this ongoing investigation.

COX, 34, of Sugarland, Texas, is charged with one count of conspiracy to defraud the United States, falsify pedigrees, and commit misbranding offenses, which carries a maximum sentence of five years in prison. He is also charged with six counts of pedigree falsification relating to prescription drugs the Wholesaler sold to six pharmacies in Manhattan and the Bronx, each of which carries a maximum sentence of three years in prison.

Mr. Bharara praised the efforts of the FBI’s Health Care Fraud Task Force. The New York FBI Health Care Fraud Task Force was formed in 2007 in an effort to combat health care fraud in the greater New York City area. The task force is comprised of agents, officers, and investigators from the FBI, New York City Police Department, the New York State Insurance Fraud Bureau, U.S. Department of Labor, U.S. Office of Personnel Management Inspector General, U.S. Food and Drug Administration, New York State Attorney General’s Office, New York State Office of Medicaid Inspector General, New York State Health and Hospitals Inspector General, and the National Insurance Crime Bureau.

The case is being prosecuted by the Office’s Organized Crime Unit. Assistant U.S. Attorneys Jason A. Masimore, Russell Capone, and Edward B. Diskant are in charge of the prosecution. Assistant U.S. Attorney Alexander Wilson of the Office’s Asset Forfeiture Unit is responsible for the forfeiture of assets.

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

U.S. v. Stephen Cox Complaint

Preet Bharara, United States Attorney for the Southern District of New York, announced that RICHARD MELTZ pled guilty today to charges arising from his involvement in two separate conspiracies to kidnap, rape, and murder specific women. MELTZ, at the time the Chief of Police, United States Department of Veterans Affairs, at the Bedford Veterans Affairs Medical Center, conspired to kidnap, rape, and murder the wife of a man he had met over the Internet, and a female Federal Bureau of Investigation (“FBI”) agent working in an undercover capacity. MELTZ was charged in April 2013 and pled guilty today before U.S. District Court Judge Paul G. Gardephe.

Manhattan U.S. Attorney Preet Bharara said: “Richard Meltz, a former law enforcement officer, now stands convicted of serious federal crimes for his involvement in two sadistic kidnapping, rape, and murder conspiracies. Prosecuting and bringing to justice perpetrators of such depraved and violent crimes is at the core of this Office’s mission. Meltz’s guilty plea today furthers that mission and brings us one step closer to resolving this case.”

According to the Information to which MELTZ pled guilty, statements made during the plea proceeding, and other court documents:

Between the spring of 2011 and January 2013, MELTZ, Robert Christopher Asch, and Michael Van Hise engaged in a series of electronic email and instant message communications during which they discussed and planned the kidnapping, torture, and murder of Van Hise’s wife and other members of Van Hise’s family. Van Hise sent to MELTZ and Asch photographs of these family members, and the approximate location of their residence. MELTZ engaged in detailed discussions about kidnapping and brutalizing the proposed victims, and ultimately assisted Van Hise and Asch in planning a kidnapping, rape, and murder. The co-conspirators ceased active planning of the kidnapping when the FBI arrested New York City Police Officer Gilberto Valle for a related kidnapping conspiracy, and began investigating Van Hise.

In addition, beginning in approximately January 2013, MELTZ, Asch, and an FBI agent working in an undercover capacity (“UC-1”) began discussions about kidnapping a woman, who unbeknownst to MELTZ and his co-conspirators, was also an FBI agent working in an undercover capacity. MELTZ participated in multiple conversations with both UC-1 and Asch about the conspiracy’s objective to kidnap and commit acts of violence against the intended victim and other women. He advised Asch to obtain a stun gun to subdue the intended target, and based on MELTZ’s direction, Asch purchased a high-voltage Taser gun at a gun show in Pennsylvania, which they intended to use in the commission of the kidnapping offense. Charges against the two alleged co-conspirators, Michael Van Hise and Robert Christopher Asch, remain pending, and they are scheduled to begin trial in early 2014.

MELTZ, 65, of Linden, New Jersey, pled guilty to two counts of engaging in a conspiracy to commit kidnapping. He faces a maximum sentence of 10 years in prison and is scheduled to be sentenced by Judge Gardephe on May 22, 2014, at 2:30 PM.

Mr. Bharara praised the investigative work of the FBI. He also thanked the Department of Veterans Affairs and the New Jersey State Police for their assistance in the investigation.

The case is being prosecuted by the Office’s Violent Crimes Unit. Assistant United States Attorneys Brooke E. Cucinella and Hadassa Waxman are in charge of the prosecution.

The charges against Van Hise and Asch are merely accusations, and those defendants are presumed innocent unless and until proven guilty.

U.S. v. Richard Meltz S5 Information

Preet Bharara, the United States Attorney for the Southern District of New York, announced that DANIEL WILSON was sentenced today in White Plains federal court to 18 months’ probation for engaging in deliberate misconduct while serving as Chemistry Manager at Indian Point Energy Center (“Indian Point”), a nuclear power plant in Westchester County. WILSON was sentenced by United States District Judge Nelson Román, who also imposed a $500 fine.

U.S. Attorney Preet Bharara stated: “The safe operation of the Indian Point nuclear power facility is of critical importance to our communities in and around it. This Office will be vigilant about prosecuting criminal misconduct that takes place at the facility.”

According to the felony Information to which WILSON pleaded guilty, the Complaint, and information provided for purposes of sentencing:

Indian Point maintains a backup system of emergency generators for use in part to provide power in the event of a power outage and shutdown. WILSON, the Chemistry Manager at Indian Point from 2007 through 2012, was responsible for, among other things, ensuring that certain aspects of the operation at Indian Point were in compliance with technical specifications required by the Nuclear Regulatory Commission (“NRC”). One such requirement related to the amount of particulate matter in the diesel fuel used to power emergency generators at Indian Point, which could not exceed a set limit. In 2011, tests of the diesel fuel maintained for use in powering the emergency generators at Indian Point showed that the ratio of particulate matter in the diesel fuel exceeded the limit set by the NRC.

In February 2012, WILSON concealed material facts from his employer and the NRC by fabricating test data, falsely showing that resampling tests of diesel fuel tested below the applicable NRC limit. In fact, no such resamples were taken, and the purported test data were fabrications. Later in February 2012, WILSON, in response to questioning by other employees of Indian Point in advance of an inspection by the NRC, wrote a report – the kind on which the NRC ordinarily relies in inspecting nuclear facilities for safety – in which he gave a false explanation for the lack of supporting documentation for his fabricated test results. In a subsequent interview with NRC personnel, WILSON admitted that he had fabricated the test results so that Indian Point would not have to shut down.

In April 2012, Wilson resigned from Indian Point.

On October 16, 2013, WILSON pleaded guilty to a one-count Information charging him with deliberate misconduct in connection with a matter regulated by the NRC, in violation of Title 42, United States Code, Section 2273.

Mr. Bharara praised the efforts of the NRC Office of Investigations in connection with the investigation.

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

U.S. v. Daniel Wilson Information
U.S. v. Daniel Wilson Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, William G. Squires Jr., Special Agent-in-Charge, U.S. Department of Agriculture Office of the Inspector General (“USDA-OIG”), and Charles Gardner, Commissioner of the City of Yonkers Police Department, announced the unsealing of three Complaints yesterday charging five individuals with participating in three separate conspiracies to exchange food stamps for cash at three stores in Yonkers, New York, in violation of the terms of the Supplemental Nutrition Assistance Program (“SNAP”).

U.S. Attorney Preet Bharara stated: “Defrauding the SNAP program is tantamount to taking food from needy children and adults, all of whom need help to get adequate nutrition. As alleged, food stamps were being redeemed for a portion of their cash value. The scheme is cynical and illegal and those who practice it will be prosecuted to the full extent of the law.”

USDA Office of Inspector General, Special Agent-in-Charge William G. Squires Jr. stated: “SNAP was created to provide food and nutrition to those who truly need this assistance. Those who are involved in fraud and abuse of SNAP and other USDA programs will be aggressively pursued by our office. Our joint investigation with the Yonkers Police Department has brought to justice several individuals who sought to profit from the SNAP program through illegal schemes. The USDA Office of Inspector General will continue to dedicate resources and work with our state and local law enforcement partners in order to protect the integrity of these programs and to prosecute those who commit fraud.”

Yonkers Police Department Commissioner Charles Gardner stated: “I would like to thank the members of our Street Crime Unit for their extraordinary investigative efforts in this case. It is yet another example of a successful collaboration between the Yonkers Police Department and our federal partners. This should be a warning to other business owners here in Yonkers that SNAP benefits should be processed as intended or you will be subjected to serious criminal charges.”

According to allegations in the Complaints unsealed in White Plains federal court:

AHMED ALSAMET, 35, the owner of SAM DELI GROCERY STORE in Yonkers, and SHOIAB AHMED, 22, an employee of SAM DELI GROCERY STORE, are charged with conspiring to exchange over $250,000.00 in food stamp benefits for cash. YOUSIF KASSIM, 30, the owner of 42 POST DELI GROCERY in Yonkers, and MUFID KASSEM, 36, an employee of 42 POST DELI GROCERY, are charged with conspiring to exchange over $200,000.00 in food stamp benefits for cash. GLORIA GARCIA, 51, is charged with conspiring to exchange over $800,000.00 in food stamp benefits for cash at a store in Yonkers.

Four of the defendants charged in the Complaints were arrested and presented in White Plains federal court before U.S. Magistrate Judge Paul E. Davison. MUFID KASSEM remains at large.

Each defendant, upon conviction, faces a maximum penalty of 5 years’ imprisonment.

Mr. Bharara praised the outstanding investigative work of the USDA-OIG and the City of Yonkers Police Department.

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

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

U.S. v. Ahmed Alsamet et al Complaint
U.S. v. Gloria Garcia Complaint
U.S. v. Yousif Kassem et al Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, and Toni Weirauch, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced that MAHAMADOU DAFFE, a tax preparer, was found guilty Friday, January 10, 2014, by a jury in Manhattan federal court of conspiracy to steal government funds, theft of government funds, conspiracy to file false claims, wire fraud, and aggravated identity theft in connection with the preparation and filing of nearly 1,000 false tax returns submitted online using stolen identities. DAFFE was also convicted of conspiracy to steal government funds, theft of government funds, and conspiracy to file false claims in connection with his use of stolen children’s identities to claim false dependents on his clients’ income tax returns. The investigation that led to DAFFE’s arrest and his conviction last week was undertaken by the Criminal Investigation Unit of the Internal Revenue Service (“IRS”), which lost more than $1.5 million as a result of DAFFE’s crimes, during which he attempted to steal more than $4.5 million from the Government. DAFFE was convicted after a one-week trial before U.S. District Judge Naomi Reice Buchwald.

According to the Indictment, as well as evidence presented at DAFFE’s trial:

From 2008 through January 2013, DAFFE engaged in two separate schemes to defraud the IRS. DAFFE filed false tax returns for his tax preparation clients, in which he caused those clients to claim as dependents children who were in fact total strangers to them, and whose identities DAFFE stole. In exchange, DAFFE collected $1,000 per return.

In another scheme, during the same time frame, DAFFE used stolen identities to file hundreds of false tax returns, supported by bogus Forms W-2, through an online tax preparation service intended for use by individual taxpayers. He then funneled the resulting refunds into several bank accounts he controlled—accounts in his own name, the names of co-conspirators, and the names of aliases DAFFE used.

DAFFE, 31, of Queens, New York, was convicted of eight counts relating to theft of government funds, filing false returns, wire fraud, and aggravated identity theft. Each of the counts charging conspiracy to steal government funds carries a maximum penalty of five years in prison and a fine of $250,000, or twice the gross gain or loss from the offense. Each of the counts charging substantive theft of government funds carries a maximum penalty of 10 years in prison and a fine of $250,000, or twice the gross gain or loss from the offense. Each of the false claims conspiracy counts carries a maximum penalty of 10 years in prison and a fine of $250,000, or twice the gross gain or loss from the offense. The conspiracy to commit wire fraud count carries a maximum penalty of 20 years in prison and a fine of $250,000, or twice the gross gain or loss from the offense. The aggravated identity theft count of which DAFFE was convicted carries a mandatory minimum term of imprisonment of two years, to be served consecutively to any other sentence imposed, as well as a maximum fine of $250,000, or twice the gross gain or loss from the offense. DAFFE is scheduled to be sentenced by Judge Buchwald on April 24, 2014, at 3:00 p.m.

DAFFE’s co-conspirator, Mohamed Sangare, previously pled guilty to similar counts and is awaiting sentencing.

Mr. Bharara praised the investigative work of the IRS-CI and thanked the IRS. He noted that the investigation is continuing.

This case is being handled by the Office’s General Crimes Section. Assistant U.S. Attorneys Carolina A. Fornos and Sarah E. McCallum are in charge of the prosecution.

U.S. v. Mahamadou Daffee Indictment S1

“As a unanimous jury swiftly found, Assemblyman Stevenson brazenly betrayed the public that elected him. Graft and greed are intolerable in Albany, and we will go to trial as often as we have to until government in New York is cleaned up.”

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

Manhattan U.S. Attorney Preet Bharara said: “As a unanimous jury swiftly found, Assemblyman Stevenson brazenly betrayed the public that elected him. Graft and greed are intolerable in Albany, and we will go to trial as often as we have to until government in New York is cleaned up. As Assemblyman Stevenson readies himself to serve a likely prison term, he serves more importantly as a reminder of what happens to politicians who court only cash and throw their oath to the curb.”

Bronx County District Attorney Robert T. Johnson said: "I am grateful that the U.S. Attorney and our office were successful in uncovering and bringing to justice an elected official who betrayed the public trust by offering his vote for sale. It is fortunate that we were able to root out this corruption before this politician could do serious damage to the legislative process."

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

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

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

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

During that meeting, the CW and STEVENSON also discussed the possibility of STEVENSON introducing legislation that would establish a temporary moratorium on the construction and/or opening of new adult day care centers (the “Moratorium Legislation”), which would have the effect of eliminating competition with the Jerome Avenue Center and the Westchester Avenue Center, thereby substantially increasing the profits earned by those two centers. STEVENSON told the CW: “All you gotta do is tell me what you want in the bill, and the bill drafter will put it together…I just need you to tell me what they [the co-defendants] want; we prepare the bill . . . . You can write down the language, basically what you want.” STEVENSON then asked: “Are Igor [Belyansky] and them putting together a nice little package [of money] for me, huh?” He said: “I got my inauguration I gotta take care of, I got a lot of sh*t man.” STEVENSON then said to the CW, in reference to the legislation, “I’m telling you, it’s done. It’s no problem.” Subsequently, the CW met with Tsimerman and Belyansky. Tsimerman said that as a result of the Moratorium Legislation, the value of their adult day care centers was “gonna skyrocket. . . . As long as [there’s a] moratorium, I can guarantee you at least a triple [in profits].”

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

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

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

STEVENSON introduced and sponsored Bill Number A05139, which places a temporary moratorium on the construction and/or opening of new adult day care centers within New York City on February 20, 2013, and it is currently pending before the New York State Assembly’s Committee on Aging.

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

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

STEVENSON, 47, of the Bronx, New York, was convicted of one count of conspiring to commit honest services wire fraud, which carries a maximum sentence of 20 years in prison, one count of conspiring to commit federal programs bribery and to violate the Travel Act, which carries a maximum sentence of 5 years in prison, one count of committing federal programs bribery, which carries a maximum sentence of 10 years in prison, and one count of extortion under color of official right, which carries a maximum sentence of 20 years in prison. Each of the counts of conviction also carries a maximum fine of $250,000, or twice the gross gain or loss from the offense. STEVENSON is scheduled to be sentenced by Judge Preska on May 20, 2014.

Belyansky, Slava, Tsimerman, and Binman all pled guilty to conspiring to commit honest services wire fraud in connection with their payment of bribes to STEVENSON before United States District Judge William H. Pauley III. They are scheduled to be sentenced by Judge Pauley on January 24, 2014.

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

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

U.S. v. Eric Stevenson et al. S2 Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, Thomas J. Cannon, the Special Agent-in-Charge of the New York Field Office of the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), and William J. Bratton, the Police Commissioner for the City of New York (“NYPD”), announced today the filing of a Superseding Indictment in Manhattan federal court charging CATHERINE MORALES, a member of a drug trafficking organization (the “Organization”) that operated in the Bronx, with narcotics trafficking, firearms use and possession, and murder. MORALES was arraigned yesterday before United States District Judge Richard J. Sullivan.

MORALES was previously charged in an Indictment with narcotics trafficking and firearms offenses, and was arrested by federal authorities in August 2013 in Philadelphia, Pennsylvania. She was subsequently brought to Manhattan federal court in September 2013, to face those charges in the Southern District of New York. Co-defendants Adony Nina and Candido Antomattei, leaders of the Organization, were convicted of narcotics trafficking and firearms charges following a trial in October 2013. Nine other members of the Organization have pleaded guilty to various federal narcotics and firearms charges.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Catherine Morales not only operated within a web of traffickers that spread dangerous drugs in our Bronx neighborhoods, she personally participated in the drug gang’s violence, including murdering a young woman by shooting her in the head. With this superseding indictment, she will be made to answer for her alleged conduct. This investigation and prosecution serves as a perfect example of how federal authorities, working with our local law enforcement partners, can make our streets and communities safer and free from violence.”

ATF Special Agent-in-Charge Thomas Cannon said: “The Morales indictment is a prime example of exemplary investigative work coupled with a balanced and focused prosecution. The investigation – initiated with a single arrest for weapons possession – has grown to approximately a dozen defendants and has uncovered a variety of criminal acts, including armed narcotics trafficking and homicide. I commend the ATF Agents and NYPD Detectives along with the prosecution team that have remained steadfast in their pursuit for justice. I know that the people of New York, especially those residing in the 41st precinct in the Bronx, echo my sentiments.”

NYPD Commissioner William J. Bratton said: “I would like to commend the investigators for their hard work and dedication in bringing this suspect to justice.”

According to the allegations in the Superseding Indictment filed in Manhattan federal court, other publicly filed documents, and statements made in court at MORALES’s arraignment and throughout the pendency of the case:

From 2008 through 2013, the Organization’s members sold crack cocaine and heroin, among other drugs, primarily in the vicinity of Longwood Avenue, and Beck, Kelly, and Simpson Streets in the Bronx. MORALES was involved primarily in the sale of heroin in the vicinity of Simpson and East 163rd Streets.

During and in relation to MORALES’s participation in the drug trafficking conspiracy, MORALES fatally shot victim Aisha Morales, who was 21 at the time of her death, in the head. The shooting took place in the vicinity of 1018 East 163rd Street, and was sparked by a drug-related dispute.

MORALES, 28, of Bronx, New York, is charged with one count of conspiring to distribute and possess with the intent to distribute crack cocaine and heroin, which carries a mandatory minimum sentence of 10 years in prison and a potential maximum sentence of life in prison; one count of possessing firearms that were brandished and discharged, which carries a mandatory minimum sentence of 10 years in prison and a maximum sentence of life in prison; one count of using firearms to cause the death of another person during and in relation to the narcotics conspiracy, which carries a potential maximum sentence of life in prison, and one count of intentionally killing an individual while engaged in the narcotics conspiracy, which carries a mandatory minimum sentence of 20 years in prison, and a potential maximum sentence of life in prison.

Mr. Bharara praised the outstanding investigative work of the ATF and the NYPD, and added that the investigation is continuing.

The prosecution is being handled by the Office’s Violent Crimes Unit. Assistant U.S. Attorneys Christopher DiMase and Sarah Krissoff are in charge of the prosecution.

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

U.S. v. Catherine Morales S9 Indictment