Southern District of New York

“The jury spoke clearly today through its verdict: lying to a federal grand jury and thereby obstructing its ability to seek the truth is against the law, and those who do so will be punished.”

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that a jury found TYRONE L. GILLIAMS, JR., a Philadelphia businessman, and EVERETTE L. SCOTT, JR., a New Jersey attorney, guilty yesterday afternoon on fraud charges stemming from two separate schemes. In the larger of the two schemes, the defendants solicited and misappropriated $5 million in investments in a bogus United States Treasury Strips investment program. In the other scheme, the defendants solicited and misappropriated a $450,000 investment in a Utah coal mine. In addition to buying luxury cars, jewelry, and other items, GILLIAMS spent hundreds of thousands of dollars of investor money organizing and promoting a multi-day festival in Philadelphia that headlined Sean “Diddy” Combs. GILLIAMS and SCOTT were convicted after a two-week trial before U.S. District Judge Deborah A. Batts.

Manhattan U.S. Attorney Preet Bharara stated: “Tyrone Gilliams may have had his 15 minutes of fame as a result of his flagrant, multi-million dollar deception, but now he and his partner in crime face a significantly longer time to pay the price of their fraud.”

According to the Indictment and the evidence presented at trial:

In 2009 and 2010, GILLIAMS was the owner of TL Gilliams, LLC, which purported to engage in transactions in commodities like oil and gold. SCOTT was an attorney at a small law firm in New Jersey and acted as TL Gilliams’s general counsel.

In the summer of 2010, GILLIAMS solicited $5 million dollars from two investors for purposes of trading in U.S. Treasury Strips, which are a derivative of U.S. Treasury Bonds. GILLIAMS and SCOTT arranged for the investors to make their investments by wiring them into an attorney trust account maintained by SCOTT’s law firm. Upon receiving the money, SCOTT – at GILLIAMS’ direction – misappropriated more than $700,000 to satisfy expenses stemming from an unrelated and failed venture to buy a coal mine in Utah. SCOTT also claimed $50,000 of the investment money for himself as purported fees. At GILLIAMS’ direction, SCOTT transferred most of the remainder to bank and brokerage accounts that he controlled.

At most, GILLIAMS purchased $250,000 worth of Treasury Strips with the more than $4 million in investment money transferred by SCOTT. Over a span of less than six months, GILLIAMS spent more than $1.6 million on an unrelated gold investment; more than $200,000 to purchase a commercial warehouse in Denver; at least $100,000 to buy or lease luxury cars; at least $50,000 for construction work on his home; at least $100,000 on luxury hotel and travel expenses; and more than $500,000 promoting both a festival called “Joy to the World” involving an album release party with Jamie Foxx at the Vault nightclub in Philadelphia, and culminating in a red carpet, black tie gala at the Philadelphia Ritz-Carlton, headlined for a $120,000 fee by Sean “Diddy” Combs, and a December 2010 December 2010 comedy performance in Nassau, Bahamas called the “Gatta Be Jokin’ Comedy Jam.”

GILLIAMS did not engage in any trading of Treasury Strips and, as a result, did not derive any profits. Nonetheless, during the period when he was spending investor money, GILLIAMS provided them with false reports of trades and profits, and made occasional, nominal payments that he falsely claimed represented profits from Treasury Strips trading. Other than these purported profit payments, which totaled approximately $100,000, neither investor received any of their combined $5 million investment back.

In a separate scheme, GILLIAMS and SCOTT arranged in late 2009 for an investor to transfer $450,000 to SCOTT’s attorney trust account, to be held in escrow until used in connection with a venture to purchase the assets of a bankrupt Utah coal mine. Once the money was in SCOTT’s account, he secretly misappropriated approximately $112,000 by claiming it as purported fees, and transferred the rest to GILLIAMS or other individuals and entities at GILLIAMS’direction. Until August 2010, GILLIAMS and SCOTT falsely assured the victim that his $450,000 remained safely in escrow, long after SCOTT’s escrow account had been emptied. Although the victim repeatedly demanded the return of his funds, GILLIAMS and SCOTT pacified him by producing forged bank documents and a false attorney attestation letter written by SCOTT purporting to show that GILLIAMS was in possession of the millions of dollars necessary to purchase and operate the Utah coal mine. In August 2010, after an attorney for the victim threatened SCOTT with professional discipline for his failure to return the escrowed funds, GILLIAMS and SCOTT paid the victim $450,000 using funds they raised for investment in Treasury Strips.

GILLIAMS, 45, of Philadelphia, Pennsylvania, and SCOTT, 51, of Sewell, New Jersey, were each convicted of one count of securities fraud and two counts of wire fraud. Each count carries a maximum potential penalty of 20 years in prison. They also each face a maximum fine of $5 million or twice the gross gain or loss from the offense on the securities fraud count, and of $250,000 or twice the gross gain or gross loss from the offense on each wire fraud count. GILLIAMS and SCOTT are scheduled to be sentenced on September 17, 2013, at 10:30 a.m., and September 24, 2013, at 10:30 a.m., respectively, before Judge Batts.

Mr. Bharara praised the work of the Criminal Investigators of the United States Attorney's Office and the Federal Bureau of Investigation, which jointly investigated this case. He also thanked the U.S. Securities and Exchange Commission.

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

This case is being handled by the Office's Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Michael A. Levy and David B. Massey are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and Keith Milke, the Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), today announced the arrest of CRAIG B. HABER, a former partner of a global accounting firm, for stealing nearly $4 million in client payments intended for the firm. HABER was arrested by Postal Inspectors this morning at his residence in New York, New York, and will be presented this afternoon before U.S. Magistrate Judge Debra Freeman in Manhattan federal court.

Manhattan U.S. Attorney Preet Bharara said: “From his perch at a prestigious accounting firm, Craig Haber allegedly betrayed his partners, by deceiving the firm’s clients in order to rob the firm blind – diverting millions of dollars of client payments into his own pocket. Fraud is always serious, but it is especially alarming when, as alleged here, it is committed by professionals who are supposed to be gatekeepers responsible for ensuring financial rectitude.”

USPIS Inspector-in-Charge Keith Milke said: “Mr. Haber's alleged abuse of the trust given to him by his clients and employer is a classic example of greed overcoming honest business practices. His arrest should serve as a reminder that whenever someone uses the US Mail for illegal activities Postal Inspectors will bring them to justice.”

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

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

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

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

HABER stole a total of nearly $4 million in client payments.

HABER, 59, is charged with one count of mail fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $250,000 or twice the gross gain or gross loss from the offense.

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

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

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

U.S. v. Craig Haber Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, announced that KARL MOTEY was sentenced today to time served followed by one year of supervised release for his participation in an insider trading scheme in which MOTEY provided material, nonpublic information (“Inside Information”) about publicly traded companies to a number of individuals, including Doug Whitman, the president and founder of Whitman Capital. MOTEY pled guilty in December 2010 to securities fraud and conspiracy to commit securities fraud pursuant to a cooperation agreement with the Government. He was sentenced in Manhattan federal court by U.S. District Judge Jed S. Rakoff.

According to the Information, statements made during MOTEY’s guilty plea proceeding, MOTEY’s testimony during the criminal trial of Doug Whitman, and the Government’s sentencing submission in MOTEY’s case:

From approximately late 2007 through early 2009, MOTEY, through his consulting company, the Coda Group, provided Inside Information relating to Marvell Technology Group (“Marvell”) and Marvell’s customers to co-conspirators including Whitman, who regularly purchased and sold securities. MOTEY provided this Inside Information with the understanding that his tippees would use the information to trade securities. In exchange for providing this information, the Coda Group received quarterly consulting fees from its clients, including soft-dollar payments from Whitman Capital.

MOTEY, 48, was ordered to pay $40,000 in forfeiture and a $200 special assessment fee.

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

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 case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Jillian B. Berman, Christopher L. LaVigne, and Antonia M. Apps are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that JASON PFLAUM, a former research analyst with the hedge fund Barai Capital Management (“BCM”), was sentenced today to time served followed by two years of supervised release for his participation in an insider trading scheme in which PFLAUM obtained material, nonpublic information (“Inside Information”) about various publicly-traded companies, and provided it to the head of BCM, Samir Barai. PFLAUM pled guilty in December 2010 to one count of conspiracy to commit securities fraud and one count of securities fraud pursuant to a cooperation agreement with the Government. He was sentenced today in Manhattan federal court by U.S. District Judge Jed S. Rakoff.

According to the Information to which PFLAUM pled guilty, statements made during his guilty plea proceeding, PFLAUM’s testimony during the criminal trial of Winifred Jiau, and the Government’s sentencing submission in his case:

From mid-2008 through October 2010, while working as an analyst for Barai, PFLAUM obtained Inside Information about publicly traded technology companies and provided it to Barai, who then traded on it. In one example, PFLAUM obtained Inside Information from company insiders who worked as “experts” or “consultants” for the expert network firm Primary Global Research (“PGR”), and provided it to Barai. BCM paid PGR a fee, and PGR in turn paid the experts to talk to PFLAUM. PFLAUM also facilitated the passing of Inside Information to Barai from Barai’s own network of company insiders and consultants, including Winifred Jiau, who provided details of the quarterly earnings announcement of NVIDIA Corporation and Marvell Technology Group, Ltd.

PFLAUM, 39, of New York, New York, was ordered to pay a $200 special assessment fee and forfeiture in the amount of $500,000 for which he and his coconspirators are jointly and severally liable.

Jiau was convicted following a June 2011 jury trial of one count of conspiracy to commit securities fraud and wire fraud, and one count of securities fraud. She was sentenced in September 2011 to four years in prison.

Barai pled guilty in May 2011 to one count of conspiracy to commit securities fraud and wire fraud, one count of securities fraud, one count of wire fraud, and one count of obstruction of justice. He awaits sentencing.

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

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ROOMY KHAN was sentenced today to one year in prison for her participation in insider trading schemes in which KHAN provided material, nonpublic information (“Inside Information”) about various publicly-traded companies to a number of individuals, including Raj Rajaratnam, the founder and former head of the Galleon Group, and Doug Whitman, the president and founder of Whitman Capital. KHAN pled guilty in October 2009 to securities fraud, conspiracy to commit securities fraud, and obstruction of justice pursuant to a cooperation agreement with the Government. She was sentenced in Manhattan federal court by U.S. District Judge Jed S. Rakoff.

According to the Information, statements made during KHAN’s guilty plea proceeding, KHAN’s testimony during the criminal trial of Doug Whitman, and the Government’s sentencing submission in KHAN’s case:

From approximately 2004 through 2007, KHAN provided Rajaratnam, Whitman, and others with Inside Information relating to several companies, including Polycom and Google, with the understanding that these individuals would use the information to trade securities. KHAN also used some of the Inside Information to make personal trades. In exchange for the information she provided to her co-conspirators, KHAN received Inside Information about numerous other companies. In addition, KHAN obstructed the Government’s investigation of her co-conspirators by, among other things, deleting an incriminating email she received from a co-conspirator and alerting others to a pending investigation by the U.S. Securities and Exchange Commission.

In addition to the prison term, Judge Rakoff sentenced KHAN, 54, to three years of supervised release. KHAN was also ordered to pay $1,525,000 in forfeiture and a $300 special assessment fee.

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

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 case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Christopher L. LaVigne and Jillian Berman are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today a settlement of a lawsuit against the owners and operators of the three Manhattan locations of the popular Rosa Mexicano restaurant chain for violations of the Americans With Disabilities Act of 1990 (“ADA”). The defendant owners and operators of the Rosa Mexicano restaurants are ROSA MEXICANO COMPANY, WEST 62 OPERATING LLC, FENIX RESTAURANT, INC., and ROSA MEXICANO USQ LLC. The settlement, in the form of a consent decree, was approved today by U.S. District Judge Richard J. Sullivan.

The lawsuit was the first to be brought as a result of the Manhattan Restaurants ADA Compliance Initiative, announced in September 2011. As part of the initiative, the U.S. Attorney’s Office is reviewing and evaluating the ADA compliance of the “most popular” restaurants in Manhattan as designated by the 2011 Zagat Guide.

Manhattan U.S. Attorney Preet Bharara said: “The comprehensive corrective measures agreed to by Rosa Mexicano will give individuals with disabilities an equal opportunity to enjoy one of New York City’s most popular restaurants, as is required by the ADA. While we hope that other proprietors will voluntarily comply with this important civil rights law rather than face litigation, our Office remains committed, through our ongoing Restaurants Initiative, to ensuring that everyone can have access to the world-class offerings on the menu in New York City restaurants.”

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

The U.S. Attorney’s Office identified numerous violations of the ADA at each of Rosa Mexicano’s Manhattan locations: 61 Columbus Avenue (“Rosa Mexicano Lincoln Center”), 1063 First Avenue (“Rosa Mexicano First Avenue”), and 9 East 18th Street (“Rosa Mexicano Union Square”). Most significantly, Rosa Mexicano Lincoln Center lacks an accessible main entrance, and its “alternate entrance” is also non-compliant in several respects. Rosa Mexicano

First Avenue similarly lacks an accessible entrance, and all three of its restrooms are inaccessible to persons with disabilities. At Rosa Mexicano Union Square, both the main and “alternate” entrances fail to comply with the ADA, as do the men’s and women’s restrooms.

Today’s consent decree requires the restaurants to improve the accessibility of their entrances, waiting areas, bar areas, dining areas, and restrooms. Notably, the consent decree provides for renovations to the main and alternate entrances at Rosa Mexicano Lincoln Center; the creation of an accessible alternate entrance and the construction of an accessible restroom at Rosa Mexicano First Avenue; and renovations to the entrance and the men’s and women’s restrooms at Rosa Mexicano Union Square. In addition, the owners and operators of the restaurants will pay a $30,000 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 taken a leading 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.

Mr. Bharara thanked the Disability Rights Section of the Department of Justice, in particular its architectural staff, for their assistance in this matter.

The Restaurants Initiative is being handled by the Office’s Civil Rights Unit. Assistant U.S. Attorneys Amy A. Barcelo, Christopher Connolly, and Cristine Irvin Phillips are in charge of the Initiative.

To file a complaint alleging that a restaurant or any other 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

U.S. v. Rosa Mexicano Settlement

Preet Bharara, the United States Attorney for the Southern District of New York, and Brian M. Hickey, the Special Agent-in-Charge of the Northeastern Region of the United States Department of Education’s Office of Inspector General (“ED-OIG”), announced today a number of civil and criminal actions relating to false claims for reimbursement submitted by educational testing services companies, TESTQUEST, INC. (“TESTQUEST”) and THE PRINCETON REVIEW, INC. (“PRINCETON REVIEW”) in connection with a federally-funded program that provides tutoring services to public school children. The actions include: (1) the filing of a civil fraud lawsuit earlier today against TESTQUEST and MICHAEL LOGAN, a former Manager at TestQuest, seeking treble damages and civil penalties under the False Claims Act for the fraudulent reimbursement claims submitted by TESTQUEST between 2005 and 2012; (2) the arrest this morning of LOGAN on fraud charges; (3) the guilty pleas of ANA AZOCAR and ZORAYMA AZOCAR, two former Site Managers and then Directors of PRINCETON REVIEW’s New York City Supplemental Educational Services program (“SES”), to fraud charges and the settlement of civil claims filed against them; and (4) the settlement of civil claims filed against ROBERT STEPHEN GREEN, a former Director and Vice President of PRINCETON REVIEW. LOGAN was presented before U.S. Magistrate Judge James C. Francis IV this afternoon. ZORAYMA AZOCAR pled guilty before U.S. District Judge John F. Keenan on January 11, 2013, and ANA AZOCAR pled guilty before U.S. District Judge Jesse M. Furman on January 15, 2013.

The Government reached a settlement in December 2012 with EDUCATION HOLDINGS, INC. which was formerly known as THE PRINCETON REVIEW, INC. for its role in the government billing fraud.

Manhattan U.S. Attorney Preet Bharara said: “Today, we continue our push to clean up corruption in the tutoring of our school kids perpetrated by those who put their pockets before their pupils. In little more than a month since we exposed and resolved a scheme by Princeton Review to fraudulently bill the government for critical tutoring services that could make the difference between a child’s academic success or failure, we are now holding individuals to account – both criminally and civilly – for their roles in that scheme. But today we go even further – charging a second company and one of its principals for allegedly feeding at the trough of government largesse by targeting the same Supplemental Education Services program and manufacturing student beneficiaries of those services out of whole cloth.”

ED-OIG Special Agent-in-Charge Brian M. Hickey said: “The Supplemental Education Services program provides critical resources for children to improve their academic performance. Ana Azocar, Zorayma Azocar, and Robert Stephen Green were trusted to provide those services, but instead they chose to abuse that trust for personal gain, and that is unacceptable. And Michael Logan is alleged to have done the exact same thing. I am proud of the work of our office in holding these individuals accountable for their fraudulent actions and we will continue to track down those who cheat this important program and the students and families that rely on it.”

According to the Criminal Complaint against LOGAN, the Criminal Informations against the AZOCARS, the Civil Complaints against PRINCETON REVIEW and TESTQUEST, and the Settlement with GREEN filed in Manhattan federal court:

The Supplemental Educational Services Program

Each year, the New York City Department of Education (“NYCDOE”) receives funds from the federal government to pay for SES, such as after-school tutoring and other remedial and supplemental academic enrichment services for students attending underperforming public schools. NYCDOE typically enters into contracts with private entities and organizations to provide SES tutoring to students in New York City public schools. Students are eligible to receive SES tutoring if they meet certain criteria, such as attending a school that has been identified as needing improvement or restructuring for at least two years. Private entities contracted by NYCDOE to provide SES tutoring are required to have each student who attends a class sign a standard attendance form. The tutor of each class also is required to sign the form attesting that he or she provided SES tutoring to the students whose signatures appear on the attendance form. As a condition of getting paid for providing tutoring, the private entities are required to certify to the NYCDOE that their attendance records are “true and accurate.”

TESTQUEST

From 2005 through 2012, TESTQUEST contracted with the NYCDOE to provide SES tutoring to students in New York City. It provided individual tutoring to students at their homes and group tutoring at various New York City public schools, including the Monroe Academy of Business and Law/High School of World Cultures (“Monroe”) and the Global Enterprise Academy/Christopher Columbus High School (“Columbus”). TESTQUEST received tens of millions of dollars of federal funding for tutoring during this time period, including more than $2.3 million for purportedly providing tutoring at Monroe and Columbus alone.

MICHAEL LOGAN was an employee of TESTQUEST responsible for managing its SES tutoring program at Monroe and later at Columbus. LOGAN also worked as a long-term substitute teacher and computer technician at Monroe and, at times, coached Monroe’s baseball team. As a result of LOGAN’s conduct, TESTQUEST employees repeatedly submitted to the NYCDOE bills for students who never received any tutoring. LOGAN instructed TESTQUEST employees to forge student signatures on attendance forms and to have students sign attendance forms for tutoring classes they had not in fact attended. On some occasions, LOGAN caused TESTQUEST employees to fraudulently obtain students’ signatures by collecting them from students assembled in the school cafeteria or participating in afterschool activities such as baseball or basketball practice. LOGAN would direct employees to participate in this fraud by saying, for example, “if you can’t find the students, sign them in,” “make them sign or you won’t get paid,” and “I already got paid, this is how you get paid.” Further, when LOGAN learned of the criminal investigation, he coached others to lie. In one recorded conversation, LOGAN encouraged another witness to lie about teaching classes that occurred when the witness and LOGAN were actually coaching after-school sports, saying “…we just gotta stick to we taught the classes.” Through the fraud conducted at LOGAN’s direction, TESTQUEST was paid substantial sums for tutoring that never occurred.

TESTQUEST’s management knew of, deliberately ignored or recklessly disregarded the fraud by LOGAN. For example, during the 2008/2009 academic year, little or no tutoring was taking place at Monroe, and employees collected student signatures on attendance forms in the school cafeteria. During other years, the reported attendance at TESTQUEST's afterschool tutoring at Monroe and Columbus was greater than the number of students actually receiving tutoring. Moreover, TESTQUEST’s management was exposed to clear warning signs of the fraud, including one occasion in 2010 when TESTQUEST’s President saw student signatures on an attendance form and expressly stated that they looked forged.

PRINCETON REVIEW

From 2002 to 2010, PRINCETON REVIEW contracted with the NYCDOE to provide SES tutoring to students in New York City. Between 2006 and 2010, however, Site Managers at PRINCETON REVIEW’s New York City SES division falsified entries on daily student attendance sheets to make it appear that more students had attended the PRINCETON REVIEW’s SES classes than had, in fact, attended. In some cases, Site Managers falsified entire daily student attendance sheets for SES classes that did not, in fact, take place. If a Site Manager failed to report a sufficiently high rate of student attendance at PRINCETON REVIEW’s SES classes, the Site Manager’s Director would threaten to terminate and/or lower the hours and pay of the Site Manager.

ANA AZOCAR and ZORAYMA AZOCAR worked as Site Managers and then as Directors of PRINCETON REVIEW’s New York City SES division, responsible for supervising Site Managers at schools throughout New York City, including in Manhattan and the Bronx. As described in the Informations to which they pled guilty, as well as the civil settlements they entered into, ANA AZOCAR and ZORAYMA AZOCAR not only falsified attendance records on their own, but also pressured and instructed the Site Managers they supervised to commit fraud in this manner. ROBERT STEPHEN GREEN was also a Director at PRINCETON REVIEW and, later, the Vice President in charge of PRINCETON REVIEW’s New York City SES program. As he admitted in the civil settlement he entered into, he gave the Site Managers he supervised a daily quota for student attendance and pressured the Site Managers to meet the quota, including by threatening to fire them or lower their pay if they reported low attendance. He texted or called the Site Managers on a daily basis demanding that they continually report higher attendance and said, for example, “find 15 more students,” “get more students,” and “make it happen, I don’t want any excuses.” GREEN admitted that even after he became Vice President, he was “repeatedly put on notice that Site Managers were in fact falsifying entries on the daily student attendance sheets.” Through the fraud committed at the direction of ANA AZOCAR, ZORAYMA AZOCAR and GREEN, PRINCETON REVIEW billed for and received millions of dollars in federal funds for SES tutoring that it had not provided.

MICHAEL LOGAN, 48 of White Plains, New York, was charged with one count of conspiracy to commit mail and wire fraud and one count of conspiracy to defraud the United States and the U.S. Department of Education, and faces a maximum sentence of 25 years in prison. The charges in the Criminal Complaint against him are merely allegations and he is presumed innocent unless and until proven guilty.

By filing its Civil Complaint, the Government joined a private whistleblower lawsuit that had previously been filed against TESTQUEST under the False Claims Act.

ANA AZOCAR, 36 of New York, New York, and ZORAYMA AZOCAR, 35 of New York, New York, each pled guilty to one count of conspiracy to defraud a federal program and one count of federal program fraud. They both face a maximum sentence of 15 years in prison. ANA AZOCAR will be sentenced by Judge Furman on May 23, 2013, and ZORAYMA AZOCAR will be sentenced by Judge Keenan on June 26, 2013.

Separately, ANA AZOCAR and ZORAYMA AZOCAR settled civil claims filed against them, made admissions concerning their conduct, and agreed to pay $1,043,400 and $1,020,500, respectively, in restitution and forfeiture in satisfaction of the civil claims against them.

ROBERT STEPHEN GREEN also settled civil claims filed against him, made admissions concerning his conduct, and agreed to execute a judgment in favor of the Government in the amount of $3.2 million, and to pay $221,058 in satisfaction of the civil claims against him. The $221,058 represents the maximum of GREEN’s ability to pay a monetary settlement to the Government. In addition, in connection with their civil settlements, ANA AZOCAR, ZORAYMA AZOCAR and GREEN have each agreed not to participate in any procurement or non-procurement transactions with the federal Government for a period of five years.

The Government reached a settlement in December 2012 with EDUCATION HOLDINGS, INC. which was known as THE PRINCETON REVIEW, INC. until May 2012, for PRINCETON REVIEW’s repeated submission of false claims for reimbursement. In the settlement, EDUCATION HOLDINGS admitted, acknowledged, and accepted responsibility for engaging in fraudulent conduct while it was doing business as PRINCETON REVIEW and agreed to pay up to $10 million to the United States in damages and penalties under the False Claims Act.

Mr. Bharara thanked the Office of the ED-OIG for its extraordinary assistance in this case.

The criminal cases are being handled by the Complex Frauds Unit and Assistant U.S. Attorneys Joseph P. Facciponti and Christopher B. Harwood are in charge of the prosecution. The civil cases are being handled by Christopher B. Harwood of the Office’s Civil Frauds Unit.

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

U.S. v. TestQuest, Inc, et al. Complaint
U.S. v. Michael Logan Michael Complaint
U.S. v. Education Holdings1, Inc (Princeton Review) Amended Complaint
U.S. v. Zorayma Azocar Information
U.S. v. Ana Azocar Information

Preet Bharara, the United States Attorney for the Southern District of New York, Kathryn Keneally, the Assistant Attorney General for the Justice Department’s Tax Division, and Steven T. Miller, the Acting Commissioner of the Internal Revenue Service (“IRS”) today announced that U.S. District Judge William H. Pauley III entered an order authorizing the Internal Revenue Service to issue a summons requiring UBS AG (“UBS”) to produce information about U.S. taxpayers who may hold accounts at the Swiss bank Wegelin & Co. (“Wegelin”) and other banks based in Switzerland to evade federal income taxes. Specifically, the IRS summons seeks records of Wegelin’s United States correspondent account at UBS, which will allow the United States to determine the identity of the U.S. taxpayers who hold or held interests in financial accounts at Wegelin and other Swiss financial institutions that used Wegelin’s UBS account. Wegelin pled guilty in Manhattan federal court on January 3, 2013, to conspiring with U.S. taxpayers and others to hide more than $1.2 billion in secret Swiss bank accounts and to conceal the income they generated from the IRS. As part of its guilty plea, Wegelin agreed to pay approximately $20 million in restitution to the IRS and an additional $22.05 million criminal fine. In addition, Wegelin also agreed to a civil forfeiture of $32 million, $16.2 million of which was seized and forfeited by the Government from Wegelin’s correspondent account with UBS in Stamford, Connecticut (the “Correspondent Account”) in April 2012.

Manhattan U.S. Attorney Preet Bharara said: “This summons is the latest step in our efforts to identify and prosecute U.S. taxpayers who think they can evade their legal responsibility to pay taxes by secreting their money away in anonymous off-shore accounts at Wegelin and other banks, and to recover the hundreds of millions of dollars that is owed to the IRS. Wegelin’s recent guilty plea for facilitating this conduct – the first such plea by a Swiss financial institution - made it possible for us to take this step and our work continues in earnest.”

Kathryn Keneally, Assistant Attorney General for the Justice Department’s Tax Division said: “The Department of Justice will use all means available, and there are many, to pursue U.S. taxpayers who continue to attempt to evade their tax obligations by using foreign bank accounts. This John Doe summons is just one of many actions that we are taking. The world is shrinking, and time is running out for taxpayers to come into voluntary compliance before either the IRS or the Justice Department finds them.”

Steven T. Miller, IRS Acting Commissioner said: “The summons provides an important tool to help with international tax enforcement efforts and detect U.S. taxpayers hiding offshore accounts to evade taxes. This effort reflects a long-term strategy by the IRS and Justice Department to break through international bank secrecy and protect our nation's taxpayers.”

According to the Government’s Indictment and forfeiture Complaint:

Wegelin and at least two other Swiss banks used Wegelin’s Correspondent Account to covertly launder U.S. taxpayers’ funds from their undeclared accounts in Switzerland. As set forth in the papers filed with the district court, the IRS has reason to believe that these funds were transferred in a manner designed to reduce the risk of detection by U.S. authorities, so that the account holders could continue to avoid paying taxes due and owing to the IRS.

In this action, the Court granted the IRS permission to serve what is known as a “John Doe” summons on UBS. The IRS uses John Doe summonses to obtain information about possible tax fraud by individuals whose identities are unknown. This John Doe summons directs UBS to produce records identifying U.S. taxpayers with accounts at Wegelin and other Swiss banks that used Wegelin’s Correspondent Account. Wegelin has admitted that certain of its U.S. taxpayer clients were maintaining accounts at Wegelin in order to evade their U.S. tax obligations.

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. A deliberate failure to report a foreign account can result in a penalty of up to 50 percent of the amount in the account at the time of the violation.

This case is being handled by the Office’s Tax and Bankruptcy Unit. Assistant U.S. Attorney Natalie N. Kuehler is in charge of this case.

U.S. v. Wegelin & Co. Signed Order
U.S. v. Wegelin & Co. Notice of Petition
U.S. v. Wegelin & Co. Memo of Law in Support of Petition
Kiger Declaration
U.S. v. Wegelin & Co. Exhibit A - S1 Indictment
U.S. v. Wegelin & Co. Exhibit B - Forfeiture Complaint
U.S. v. Wegelin & Co Exhibit C - Plea Agreement
U.S. v. Wegelin & Co. Exhibit D - Guilty Plea Transcript
U.S. v. Wegelin & Co Exhibit E - Summons

Preet Bharara, the United States Attorney for the Southern District of New York, and James T. Hayes, Jr., the Special Agent-in-Charge of the New York Field Office of the U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), announced that CHRISTIE HWANG, the director of a vocational and career training school in Manhattan, guilty today in Manhattan federal court to conspiring to bribe employees of New York City Workforce1 Career Centers in order to secure federal funds for students, and to conspiring to engage in visa fraud for using her school to illegally obtain F-1 student visas.

U.S. District Judge Katherine B. Forrest presided over HWANG’s plea proceeding. Two employees of Workforce1 Career Centers in Manhattan and Queens, Romero Johnson and Lois Powell, have also pled guilty to bribery conspiracy charges as part of the scheme, and a similar scheme involving a driving school located in Manhattan. Johnson and Powell pled guilty before Judge Forrest on December 20, 2012, and January 18, 2013, respectively.

According to the Complaint, the Indictment to which HWANG pled guilty, other documents previously filed in Manhattan federal court, and statements made during plea proceedings:

The New York City Workforce Investment Board (“NYC-WIB”) disburses federal funds to student-oriented programs within New York City. Its mission, in part, is to ensure that New York City businesses have access to qualified workers by helping candidates find job openings and giving them vocational training. New York City’s Department of Small Business Services, operating under the NYC-WIB umbrella, contracts with, and oversees, several privately owned “Workforce1 Career Centers” across the five boroughs. Among other things, the career centers match student applicants to appropriate schools for job training, and approve school attendance vouchers. Staff members at Workforce1 Career Centers receive and adjudicate numerous competing applications for vouchers from students seeking to develop job skills.

HWANG was a director and owner of one such school, Global Education New York (“GENY”), a facility in Manhattan that offered training in several vocational disciplines, as well as English as a Second Language, and other career-related training. Between 2008 and 2011, HWANG arranged for an intermediary to pay employees at Workforce1 Career Centers a set percentage of NYC-WIB voucher funds secured on applications the employees handled. In return, the Workforce1 Career Center employees gave GENY vouchers special treatment and sent the school business, thereby corrupting unbiased processes that were designed to award vouchers based exclusively on the merits. During that time period, GENY received NYC-WIB vouchers totaling $575,845. Vouchers secured by Johnson, Powell and a third Workforce1 Career Center employee for GENY during this period totaled at least $300,000. Johnson and Powell also engaged in similar conduct with respect to a driving school located in Manhattan.

Additionally, HWANG participated in a visa fraud scheme, in which GENY made misrepresentations in Form I-20 student visa applications it issued that resulted in students receiving, and entering the U.S. based on, F-1 student visas to which they were not entitled.

HWANG, 50, of Weehawken, New Jersey, pled guilty today to one count of bribery conspiracy and one count of visa fraud conspiracy. She faces a maximum sentence of five years in prison on each count, and a maximum fine of $250,000 or twice the gross gain or loss from the offense on each count.

POWELL, 51, of the Bronx, New York, pled guilty to a Superseding Information charging her with two counts of conspiracy, representing the separate bribery schemes involving GENY and the driving school. She faces a maximum sentence of five years in prison on each count, and a maximum fine of $250,000 or twice the gross gain or loss from the offense on each count. JOHNSON, 42, of the Bronx, New York, also pled guilty to a Superseding Information charging him with two counts of conspiracy, representing the separate schemes involving GENY and the driving school. He faces a maximum sentence of five years in prison on each count, and a maximum fine of $250,000 or twice the gross gain or loss from the offense on each count.

Mr. Bharara praised the investigative efforts of ICE HSI.

The case is being prosecuted by the Office’s General Crimes Unit. Assistant United States Attorney Martin S. Bell is in charge of the prosecution.

U.S. v. Christie Hwang, et al. Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced that DOUG WHITMAN, a portfolio manager at Whitman Capital, LLC, was sentenced today in Manhattan federal court to 24 months in prison for his involvement in two insider trading schemes that earned his firm more than $900,000 in illegal profits. As part of the schemes, WHITMAN executed trades based on material, non-public information (“Inside Information”), related to three publicly traded companies: Marvell Technology Group, Ltd. (“Marvell”); Polycom, Inc. (“Polycom”); and Google, Inc. (“Google”). WHITMAN was convicted in August 2012 on two counts of conspiracy to commit securities fraud and two counts of securities fraud. He was sentenced by U.S. District Judge Jed S. Rakoff.

Manhattan U.S. Attorney Preet Bharara said: “With his sentence today, Doug Whitman joins scores of other privileged professionals who traded on inside information to gain an illegal edge and now live behind bars. His punishment shows yet again that supposedly elite financial players must operate by the same rules that apply to everyone else.”

According to the Indictment, evidence presented at Whitman’s trial, and testimony from other trials and court proceedings:

From 2007 through 2009, while running Whitman Capital, WHITMAN bought and sold Marvell stock and options based on Inside Information, including earnings, revenue, and/or other material financial and business information. The Inside Information was provided to WHITMAN by Karl Motey, an independent research consultant, who had obtained it from certain Marvell employees. In exchange for the Inside Information, WHITMAN paid Motey through a soft dollar payment arrangement between Whitman Capital and Motey’s consulting firm. WHITMAN also provided the Marvell Inside Information to Wesley Wang in exchange for other Inside Information.

In another scheme, from 2006 to 2007, WHITMAN obtained Inside Information, including earnings information and other material financial information pertaining to Polycom and Google from Roomy Khan, who worked in the hedge fund industry. Khan obtained the Polycom Inside Information from an employee at the company, and she obtained the Google Inside Information from an employee of a firm that provided investor relations services to Google. WHITMAN used the Polycom and Google Inside Information to execute securities transactions that earned his firm more than $900,000 in illegal profits. In exchange for the Inside Information, WHITMAN provided Khan with information about other publicly traded technology companies.

In addition to his prison term, WHITMAN, 55, of Atherton, California, was sentenced to one year of supervised release. He was also ordered to pay a $250,000 fine, a special assessment of $400, and to forfeit $935,306.

In issuing Whitman’s sentence, Judge Rakoff said, “Mr. Whitman was someone who had no compunctions about going across the legal lines that he was very well aware of, and excusing them, and even carrying those excuses into the courtroom when it served his interest.”

WHITMAN’s co-conspirators, Karl Motey, Roomy Khan, and Wesley Wang, previously pled guilty to insider trading charges. Wang was sentenced in Manhattan federal court to two years’ probation on January 9, 2013 by Judge Rakoff. Khan and Motey are scheduled to be sentenced by Judge Rakoff on January 31, 2013 and February 4, 2013, respectively.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation (“FBI”) and thanked the U.S. Securities and Exchange Commission.

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

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Jillian Berman, Christopher LaVigne, and Micah Smith are in charge of the prosecution.

NASA Computers Among the 40,000 U.S. Computers Infected With Gozi Virus

Preet Bharara, the United States Attorney for the Southern District of New York, Lanny A. Breuer, the Assistant Attorney General of the U.S. Department of Justice’s Criminal Division, 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 Indictments against three individuals who played critical roles in creating and distributing the Gozi Virus, one of the most financially destructive computer viruses in history. The Gozi Virus infected over one million computers globally and caused tens of millions of dollars in losses. NIKITA KUZMIN, a Russian national who created the Gozi Virus, was arrested in the U.S. in November 2010 and pled guilty before U.S. District Judge Leonard B. Sand to various computer intrusion and fraud charges in May 2011. DENISS CALOVSKIS, a/k/a “Miami,” a Latvian national who allegedly wrote some of the computer code that made the Gozi Virus so effective, was arrested in Latvia in November 2012. MIHAI IONUT PAUNESCU, a/k/a “Virus,” a Romanian national who allegedly ran a “bulletproof hosting” service that enabled cyber criminals to distribute the Gozi Virus, the Zeus Trojan and other notorious malware, and conduct other sophisticated cyber crimes, was arrested in Romania in December 2012.

Manhattan U.S. Attorney Preet Bharara said: “In an information-age update on Willie Sutton, these men allegedly ran a modern-day bank robbery ring, and like Sutton, they targeted banks because that’s where the money still is. But as we have seen with increasing frequency, cyber criminals’ bank heists require neither a mask nor a gun, just a clever program and an Internet connection. This case should serve as a wake-up call to banks and consumers alike, because cybercrime remains one of the greatest threats we face, and it is not going away any time soon.”

FBI Assistant Director-in-Charge George Venizelos said: “This long-term investigation uncovered an alleged international cybercrime ring whose far-reaching schemes infected at least one million computers worldwide and 40,000 in the U.S., and resulted in the theft or loss of tens of millions of dollars. Banking Trojans are to cyber criminals what safe-cracking or acetylene torches are to traditional bank burglars – but far more effective and less detectable. The investigation put an end to the Gozi virus.”

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

The Gozi Virus

The Gozi Virus is malicious computer code or “malware” that steals personal bank account information, including usernames and passwords, from the users of affected computers. It was named by private sector information security experts in the U.S. who, in 2007, discovered that previously unrecognized malware was stealing personal bank account information from computers across Europe on a vast scale, while remaining virtually undetectable in the computers it infected. To date, the Gozi Virus has infected over one million victim computers worldwide, among them at least 40,000 computers in the U.S., including computers belonging to the National Aeronautics and Space Administration (“NASA”), as well as computers in Germany, Great Britain, Poland, France, Finland, Italy, Turkey and elsewhere, and it has caused tens of millions of dollars in losses to the individuals, businesses, and government entities whose computers were infected.

The Gozi Virus was distributed to victims’ computers in several different ways. In one method, the virus was disguised as an apparently benign .pdf document which, when opened, secretly installed the Gozi Virus on the victim’s computer. Once installed, the Gozi Virus – which was intentionally designed to be undetectable by anti-virus software – collected data from the infected computer in order to capture personal bank account information including usernames and passwords. That data was then transmitted to various computer servers controlled by the cyber criminals who used the Gozi Virus. These cyber criminals then used the personal bank account information to transfer funds out of the victims’ bank accounts and ultimately into their own personal possession.

The Creation of the Gozi Virus

KUZMIN conceived of the Gozi Virus in 2005 when he created a list of technical specifications for the virus and hired a sophisticated computer programmer (“CC-1”) to write its source code, which is the unique code that enabled the Gozi Virus to operate. Once the Gozi Virus had been coded, KUZMIN began providing it to co-conspirators in exchange for a weekly fee through a business he ran called “76 Service.” Through “76 Service,” KUZMIN made the Gozi Virus available to co-conspirators, allowed them to configure the virus to steal data of their choosing, and stored the stolen data for them. He advertised “76 Service” on one or more Internet forums devoted to cybercrime and other criminal activities. Beginning in 2009, KUZMIN began to sell the Gozi Virus outright to his co-conspirators.

The Refinement of the Gozi Virus

KUZMIN and his co-conspirators regularly paid others to refine, update, and improve the Gozi Virus. For example, CALOVSKIS, a co-conspirator, was hired to develop certain computer code, known as “web injects,” which altered how the webpages of particular banks appeared on infected computers. Specifically, CALOVSKIS’s web injects changed the webpages of banks so that, when a victim used an infected computer to access the webpage, the victim was tricked into divulging additional personal information that cyber criminals would need in order to successfully steal money from the victim’s bank account. One web inject CALOVSKIS designed altered the customer welcome page of a bank so that the victim was prompted to disclose additional personal information – mother’s maiden name, social security number, driver’s license information, and a PIN code – in order to continue accessing the website.

The Gozi Virus and Bulletproof Hosting Services

Bulletproof hosting” services helped cyber criminals distribute the Gozi Virus with little fear of detection by law enforcement. Bulletproof hosts provided cyber criminals using the Gozi Virus with the critical online infrastructure they needed, such as Internet Protocol (“IP”) addresses and computer servers, in a manner designed to enable them to preserve their anonymity.

PAUNESCU operated a “bulletproof host” that helped cyber criminals distribute the Gozi Virus and commit other cyber crimes, such as distributing malware including the “Zeus Trojan” and the “SpyEye Trojan,” initiating and executing distributed denial of service (“DDoS”) attacks, and transmitting spam. PAUNESCU rented servers and IP addresses from legitimate Internet service providers and then in turn rented them to cyber criminals; provided servers that cyber criminals used as command-and-control servers to conduct DDoS attacks; monitored the IP addresses that he controlled to determine if they appeared on a special list of suspicious or untrustworthy IP addresses; and relocated his customers’ data to different networks and IP addresses, including networks and IP addresses in other countries, to avoid being blocked as a result of private security or law enforcement scrutiny.

A chart setting forth the names, ages and residences of the defendants, the charges each defendant faces, and the statutory maximum penalty associated with these charges is attached. Extradition proceedings against CAVLOSKIS in Latvia and PAUNESCU in Romania are ongoing.

The case against PAUNESCU is being prosecuted jointly with the Department of Justice’s Computer Crime and Intellectual Property Section (“CCIPS”), which is overseen by Assistant Attorney General Lanny A. Breuer. Mr. Bharara thanked CCIPS for its important partnership in this matter, and he also thanked the Department of Justice’s Office of International Affairs. Mr. Bharara praised the FBI for its outstanding work in the investigation, which he noted is ongoing. He also specially thanked the National Aeronautics and Space Administration Office of Inspector General, the Central Criminal Police Department of the Latvian State Police, the Romanian Intelligence Service, the Romanian Directorate for Combating Organized Crime, the Romanian Directorate for Investigating Organized Crime and Terrorism, and the Romanian Ministry of Justice.

The cases are being handled by the Complex Frauds Unit of the United States Attorney's Office. Assistant United States Attorneys Sarah Lai, Nicole Friedlander, and Thomas G.A. Brown, along with Trial Attorney Carol Sipperly of the Computer Crime and Intellectual Property Section of the Department of Justice on the PAUNESCU case, are 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.

Click here to view chart(s)

Preet Bharara, the United States Attorney for the Southern District of New York, announced that DAVID GILMARTIN, a Ph.D. economist, was found guilty today in Manhattan federal court of tax fraud charges stemming from his failure to file income tax returns, report more than $1.7 million in income, and pay over $1.5 million in taxes, penalties, and interest for the years 1989 through 2010. GILMARTIN was convicted after a one-week jury trial before U.S. District Judge Miriam G. Cedarbaum.

Manhattan U.S. Attorney Preet Bharara stated: “David Gilmartin repeatedly and systematically flouted the tax laws, and during his journey through the criminal justice system he got to see other people’s tax dollars at work, all the way through his conviction. With his conviction today, he trades his status as tax evader for tax felon. This Office will continue to prosecute tax cheats of all stripes and will not tolerate those who think the laws do not apply to them.”

According to the Indictment and the evidence presented during the trial:

GILMARTIN, who has a Ph.D. in economics, worked from 1989 to 2010, as an economist, performing computer analysis for a variety of companies, some of which were located in New York. Despite being paid compensation for every tax year during that 22-year period, GILMARTIN failed to file tax returns with the IRS as required, and evaded paying more than $1.5 million in taxes, penalties, and interest. GILMARTIN claimed that he did not have to file income tax returns or pay income taxes. He based his views in large part on the conduct of others who evaded paying taxes, and who are currently in prison on various tax charges.

GILMARTIN took various steps to evade his tax obligations and obstruct the IRS’s ability to collect back taxes. He used a false Social Security Number, submitted IRS forms to certain employers fraudulently claiming to be exempt from taxes, and caused checks that were paid to him as compensation to be cashed against a personal bank account rather than be deposited. GILMARTIN also caused checks paid to him as compensation to be made payable to a finance company, in order to pay down a personal line of credit and to prevent the IRS from seizing, pursuant to bank levies, the funds paid to him as compensation. GILMARTIN also engaged in a scheme to defraud New York out of state income taxes.

Over the years, GILMARTIN ignored many warnings and statements of courts, the IRS, and New York tax authorities, and associates who told him that he was required to file and pay income taxes. GILMARTIN admitted to an undercover agent earlier this year that he “may be living in prison next year.”

GILMARTIN, 69, of Phelan, California, faces five years’ incarceration on the tax evasion and charge and 20 years’ incarceration on the mail fraud charge. GILMARTIN also faces three years’ incarceration on the tax obstruction charge, and one year each on the failure to file and pay taxes charges.

United States District Judge Miriam G. Cedarbaum set April 30, 2013 as the sentencing date for GILMARTIN.

Mr. Bharara praised the work of the New York Field Office of the Internal Revenue Service, Criminal Investigations.

The prosecution was handled by Assistant United States Attorney Stanley Okula, and Nanette L. Davis, Assistant Chief with the Northern Criminal Enforcement Section of the Tax Division of the Department of Justice.

U.S. v. David Gilmartin S1 Indictment

U.S. v. Nikita Kuzmin Information
U.S. v. Deniss Calovskis S4 Indictment
U.S. v. Mihai Ionut Paunescu Complaint
U.S. v. Mihai Ionut Paunescu Indictment
U.S. v. Nikita Kuzmin Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that EVAN ZAUDER, a former sixth-grade teacher at a private school in New Jersey, pled guilty in Manhattan federal court to charges of using the Internet to entice a minor to engage in illegal sexual activity, and to receipt, distribution, and possession of child pornography. ZAUDER pled guilty before United States District Court Judge Lewis A. Kaplan. His criminal conduct is not currently known to have involved any students at the school.

Manhattan U.S. Attorney Preet Bharara stated: “Evan Zauder’s abuse and exploitation of minors was heinous criminal conduct perpetrated on some of the most vulnerable and powerless members of society. This Office treats the protection of children as an extraordinarily serious responsibility, and as this case demonstrates, we will persist in our efforts to ensure that those who prey on minors are found and held accountable.”

According to the Complaint, the Superseding Information, and statements made in court:

Between April and November of 2011, ZAUDER used the Internet to entice a minor in New Jersey who was 14 to 15 years old at the time to engage in sexual activity, and to attempt to entice the minor to do so a second time. ZAUDER also received and distributed files containing child pornography from his desktop computer between December of 2010 and May of 2011, and possessed hundreds of images and videos of child pornography on four devices that were seized from his Manhattan apartment in May of 2012.

ZAUDER, 27, pled guilty to a Superseding Information charging him with one count of enticement of a minor to engage in illegal sexual activity, one count of transportation, receipt, and distribution of child pornography, and one count of possession of child pornography. He faces a minimum sentence of 10 years in prison and a maximum sentence of life in prison on the enticement count, a minimum sentence of 5 years in prison and a maximum sentence of 20 years on the transportation, receipt, and distribution count, and a maximum sentence of 10 years on the possession count. For each of the three counts in the Superseding Information, ZAUDER faces a maximum fine of $250,000 or twice the gross gain or loss from the offense. He will be sentenced by Judge Kaplan on May 22, 2013, at 4:00 p.m.

Mr. Bharara praised the Federal Bureau of Investigation (“FBI”) for its outstanding work in the investigation.

The prosecution is being handled by the Office’s General Crimes Unit. Assistant U.S. Attorney Paul Monteleoni is in charge of the prosecution. Assistant U.S. Attorney Harry A. Chernoff represented the government at today’s plea proceeding.

The FBI encourages the public to report suspected child predators and any suspicious activity through its toll-free hotline 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 (800) 843-5678 or http://www.cybertipline.com.

US v Evan Zauder S1 Information

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that PETER J. AJEMIAN, a Board-certified orthopedist, pled guilty to charges related to 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. As described in the Complaint, between the late 1990s and 2008, AJEMIAN recommended that at least 734 retiring LIRR employees receive disability benefits, and was responsible for treating nearly half of all LIRR employees who retired and received disability benefits in one four-year period. AJEMIAN pled guilty before U.S. District Judge Victor Marrero. Three additional LIRR retirees, KARL BRITTEL, GREGORY BIANCHINI, and BRIAN DELGIORNO, also pled guilty to charges related to their participation in the LIRR fraud scheme this week. BRITTEL pled guilty before Judge Marrero today; BIANCHINI pled guilty before U.S. Magistrate Judge Kevin Nathaniel Fox on January 16, 2013; and DELGIORNO pled guilty before Judge Fox on January 17, 2013. Of the 32 defendants charged, 21 have now pled guilty.

Manhattan U.S. Attorney Preet Bharara stated: “Dr. Ajemian used his medical license to facilitate a massive fraud at the LIRR. By running the functional equivalent of a 'disability mill' and fraudulently qualifying hundreds of LIRR patients for undeserved disability benefits, Dr. Ajemian enriched himself and debased his degree. Twenty-one defendants have now pled guilty for their roles in this breathtaking and brazen fraud that cost the Railroad Retirement Board untold millions of dollars.”

According to the Complaint, the Superseding Indictments, the Superseding Informations, and statements made in other public filings and in court:

The LIRR Disability Fraud Scheme

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

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

PETER J. AJEMIAN is a Board-certified orthopedist who was instrumental in helping LIRR retirees receive disability benefits to which they were not entitled. As set forth in the Complaint, between the late 1990s and 2008, AJEMIAN declared over 94% of the LIRR employees he saw as patients disabled. As part of the massive fraud scheme, AJEMIAN prepared fraudulent medical narratives for LIRR retirees well before the employees’ planned retirement dates so that the narratives could be submitted to the RRB upon retirement. These medical narratives were completely fabricated or grossly exaggerated so that AJEMIAN 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.

AJEMIAN received approximately $800 to $1,200, often in cash, for these fraudulent assessments and narratives, as well as millions of dollars in health insurance payments for unnecessary medical treatments and fees for preparing fraudulent medical support for the claimed disabilities. Of approximately 453 LIRR annuitants studied, AJEMIAN received approximately $2.5 million in related payments from patients and insurance companies. In turn, those patients received over $90 million in RRB disability benefit payments.

As alleged in the Complaint, between 1998 and 2008, AJEMIAN recommended that at least 734 LIRR employees receive these disability benefits. During one four-year period, August 2004 through August 2008, AJEMIAN was the treating physician for nearly half of all LIRR retirees younger than 65 years old who filed for RRB disability benefits.

AJEMIAN, 63, of Oyster Bay Cove, New York pled guilty to one count of conspiracy to commit mail fraud, wire fraud, and health care fraud, as well as one count of health care fraud, and faces a maximum of 30 years in prison. He has also agreed to forfeit $116.5 million and pay $116.5 million in restitution. He will be sentenced by Judge Marrero on May 24, 2013, at 2:00 p.m.

BRITTEL, 62, of Atlantic City, New Jersey, pled guilty to conspiracy to commit mail fraud, wire fraud and health care fraud; conspiracy to defraud the United States; health care fraud; mail fraud; wire fraud; and perjury, and he faces a maximum of 80 years in prison. BIANCHINI, 59, of Key Largo, Florida, pled guilty to conspiracy to commit mail fraud, wire fraud and health care fraud; conspiracy to defraud the United States; health care fraud; mail fraud; and wire fraud, and he faces a maximum of 75 years in prison. DELGIORNO, 54, of Howard Beach, New York, pled guilty to conspiracy to commit mail fraud, wire fraud and health care fraud; conspiracy to defraud the United States; false claims; health care fraud; mail fraud; wire fraud; and perjury, and he faces a maximum of 85 years in prison. They will be sentenced by Judge Marrero on July 19, May 16, and May 17, 2013, respectively.

Thirty-two people have been charged in connection with the LIRR disability fraud scheme, 21 of whom have now pled guilty. The charges against the remaining defendants are merely allegations and they are all presumed innocent unless and until proven guilty.

Mr. Bharara praised the RRB-OIG, the FBI, and the MTA-OIG 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, Nicole Friedlander, and Danya Perry are in charge of the prosecution.

U.S. v. Ajemian, et al. S1 Indictment
U.S. v. Ajemian, et al. S9 Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, and Keith Milke, the Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced that SPIRO BALTATZIDIS, the former Founder and Chief Executive Officer of Starwich, Inc. (“Starwich”), pled guilty today in Manhattan federal court to a one-count Information charging him with wire fraud. BALTATZIDIS pled guilty before United States District Judge Ronnie Abrams.

Manhattan U.S. Attorney Preet Bharara stated: “Spiro Baltatzidis engaged in an elaborate charade to dupe a financial institution into lending him many millions of dollars – creating fraudulent bank statements, and doctoring emails. Fortunately, the financial institution did not ultimately lend him the $25 million he was seeking, his charade was discovered, and he has acknowledged his guilt.”

USPIS Inspector-in-Charge Keith Milke said: “Mr. Baltatzidis’ attempt to defraud investors is a classic case of greed overcoming honest business practices. Postal Inspectors are steadfast in investigating and stamping out fraud, keeping the US Mail and all modes of communication safe and secure for the American public.”

According to the Information and statements made in today’s plea proceeding:

Starwich was a privately held corporation headquartered in New York that engaged in the food services business, and more specifically, the upscale specialty sandwich business. Starwich operated a micro-chain of restaurants located around Manhattan and maintained multiple corporate bank accounts (collectively, the “Starwich Bank Accounts”) at Citibank, N.A. (“Citibank”) into which investor funds were deposited.

From the summer of 2007 through May 2008, BALTATZIDIS solicited a $25 million investment from a financial institution (the “Victim Financial Institution”). BALTATZIDIS represented that the purpose of the investment was to expand the business operations of Starwich. In connection with the investment solicitation, the Victim Financial Institution conducted due diligence to determine whether Starwich was a prudent investment opportunity. This due diligence included, among other things, a review of Starwich’s financials. Accordingly, at the Victim Financial Institution’s request, on September 16, 2007, it received a fax from Starwich containing Citibank statements for one of the Starwich Bank Accounts. The first statement purported to cover the period December 1, 2006 through December 31, 2006, and reflected an ending balance of approximately $450,000. Another statement for the same account purported to cover the period June 1, 2007 through June 30, 2007, reflected an ending balance of approximately $1.2 million – an increase in the ending balance of well over 100% in the six-month period between December 2006 and June 2007.

Based in part on the fake bank statement that showed a balance of approximately $1.2 million in the account as of June 30, 2007, the Victim Financial Institution entered into a Memorandum of Terms (“the Memorandum”) with Starwich on November 2007. The Memorandum detailed the principal terms of a proposed $25 million investment in shares of Starwich to be divided into three stages of disbursements – $5 million, $10 million, and $10 million, respectively – provided that Starwich met certain conditions. However, the bank statements provided to the Victim Financial Institution were in fact fake. The actual bank account records from Citibank showed a balance of approximately $400 as of December 31, 2006, and approximately $200 as of June 30, 2007.

In furtherance of its due diligence, the Victim Financial Institution requested a further update of Starwich’s financials and in response to this request, BALTATZIDIS forwarded an email chain between BALTATZIDIS and an employee of Citibank (the “Bank Employee”) on November 15, 2007. The content of the email chain forwarded to the Victim Financial Institution (the “Victim Financial Institution Email”) reflected that BALTATZIDIS asked the Bank Employee for the balance of one of the Starwich accounts for the period ending September 30, 2007, and the Bank Employee purportedly responded that the account’s current balance was approximately $1.3 million.

In fact, the email chain forwarded by BALTATZIDIS to the Victim Financial Institution on November 15, 2007, was materially altered from its original version (the “Authentic Citibank Email”). Specifically, in the Authentic Citibank Email, the Bank Employee wrote that the account’s current balance was “-$3,963.93,” whereas the Victim Financial Institution Email reflected a balance of “$1,317,963.93.” In addition, the Authentic Citibank Email included a copy of the account statement for the period ending September 30, 2007, whereas the Victim Financial Institution Email omitted the account statement.

From November 15, 2007 through May 2008, BALTATZIDIS and the Victim Financial Institution continued their discussions regarding the solicited financial investment in Starwich. By May 2008, however, the Victim Financial Institution decided against investing with Starwich and ended its discussions with BALTATZIDIS. In August 2008, Starwich filed for bankruptcy.

BALTATZIDIS, 37, faces a maximum prison term of 20 years and a maximum fine of the greater of $250,000 or twice the gross pecuniary gain or loss resulting from the crime. He is scheduled to be sentenced by Judge Abrams on April 23, 2013, at 3:00 p.m.

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

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

U.S. v. Spiro Baltatzidis Information

Preet Bharara, the United States Attorney for the Southern District of New York, and Brian R. Crowell, the Special Agent in Charge of the New York Field Office of the Drug Enforcement Administration (“DEA”), announced the arrest today of JI YUN LEE for conspiring to distribute oxycodone and for distribution of oxycodone at a pharmacy (the “Pharmacy”) in Yonkers, New York. LEE will be presented later today before U.S. Magistrate Judge Kevin N. Fox.

Manhattan U.S. Attorney Preet Bharara said: “Our society is in the throes of its own ‘opiates war’ and some pharmacies are serving more as pass-through ‘opiate dens’ than as legitimate professional dispensers of dangerous drugs. As alleged, Ji Yun Lee exploited his access to highly addictive pain medication and functioned as a ‘go-to’ prescription pill dispenser for those who were willing to pay his inflated prices. The number of people who die from prescription pill abuse ever year is staggering and bears repeating – almost 16,500 – which is more than illegal street drugs like heroin and cocaine combined. We are bound and determined to thwart those who facilitate the spread of this epidemic and to ensure that they are prosecuted for their crimes.”

Special Agent-in-Charge Brian R. Crowell said: “The perception that illegal prescription drug abuse is a safer high than street drugs, has spread like wildfire through our communities. According to the Drug Abuse Warning Network (DAWN), visits to hospital emergency rooms involving the misuse or abuse of pharmaceutical drugs have doubled over the past five years and there were more visits from pharmaceutical drug overdoses than all other illicit drugs combined. Over 7 million Americans reported using prescription medication for non-medical purposes and the rate is steadily rising each year as opiate abusers find new methods of obtaining diverted medication. As alleged, Ji Yun Lee took advantage of his position to allegedly accept and fill fraudulent prescriptions in exchange for money, just like a street dealer who puts lives at risk throughout our community. The investigations of medical professionals who choose the path to intentionally fuel this deadly threat to our society, just like traditional heroin traffickers, are one of our highest investigative priorities.”

The following allegations are based on the Complaint unsealed today in Manhattan Federal Court:

From 2011 to January 2013, LEE served as the store manager at the Pharmacy in Yonkers, New York, but was not a licensed pharmacist or physician in the State of New York. The investigation revealed that LEE was distributing large amounts of oxycodone by filling prescriptions for several individuals that he knew were fraudulently issued without a legitimate medical purpose. A confidential informant (“CI-1”) told law enforcement that LEE filled multiple fraudulent oxycodone prescriptions for CI-1 each month beginning in early 2011, prior to the time that CI-1 began working with law enforcement. LEE never requested identification prior to filling the fraudulent prescriptions. When CI-1 presented the fraudulent prescriptions, CI-1 would initially provide them to an employee of the Pharmacy, who would in turn provide them to LEE who would then approach CI-1, tell CI-1 when the oxycodone would be ready and what the price would be. LEE typically charged $1,075 for 180 30-milligram oxycodone pills.

When presented with a prescription from CI-1, LEE would enter information from the fraudulent prescription into a computer, return the prescription to CI-1, and provide a time that the oxycodone would be ready. Legitimate pharmacies retain prescriptions at the time they are initially presented for their records and for reporting requirements. According to CI-1, LEE engaged in this unusual practice to avoid a situation whereby other co-conspirators – who sometimes knew when fraudulent prescriptions were brought to the Pharmacy by others, and knew the fake names on those prescriptions – would visit the Pharmacy before the person who had dropped off the prescription and, without that person’s knowledge or permission, pick up the oxycodone.

A second confidential informant (“CI-2”) also knew that fraudulent oxycodone prescriptions were filled at the pharmacy. Together, CI-1 and CI-2, working with law enforcement, presented multiple fraudulent oxycodone prescriptions to LEE from September 2012 to January 2013, which LEE filled and the confidential informants paid for in cash. On at least two occasions, the names on the prescriptions provided to LEE were for people of different genders than those of the confidential informants. CI-1 and CI-2 would provide cash in exchange for the oxycodone, often placing the cash into paper or plastic bags, which were then handed to LEE. A review of the Pharmacy bank records revealed monthly cash deposits between January and September 2012 of over $100,000.

Records from the DEA and New York State’s Bureau of Narcotics Enforcement revealed that:

o The number of oxycodone dosage units purchased by the Pharmacy in 2012 is more than double the number of oxycodone dosage units purchased by any other pharmacy in the same zip code.

o The number of dosage units of oxycodone purchased by the Pharmacy more than doubled from 2010-2011 and then again more than doubled from 2011-2012.

o Many of the oxycodone prescriptions issued by the same practitioner contained sequential serial numbers, and were paid for in cash.

If convicted of the charges in the complaint, LEE faces a maximum penalty of 20 years in prison and a fine of $1 million.

Mr. Bharara praised the efforts of the DEA’s New York City Tactical Diversion Squad, comprised of members from the DEA, New York City Police Department, Westchester County Department of Public Safety, the New York State Insurance Bureau, the Rockland County Drug Task Force and the Internal Revenue Service. Mr. Bharara also thanked the Westchester County District Attorney’s Office, comprised of members of the New York State Police, the Yonkers Police Department, and District Attorney Investigators for their work on the investigation. He noted that the investigation is ongoing.

This case is being handled by the Office’s Narcotics Unit. Assistant U.S. Attorney Elisha Kobre is in charge of the prosecution.

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

U.S. v. Ji Yun Lee 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 Field Office of the Federal Bureau of Investigation (“FBI”), and Raymond W. Kelly, the Police Commissioner for the City of New York (“NYPD”), announced today the unsealing of an Indictment charging 13 members and associates of a drug trafficking organization (the “Organization”) operating in the Bronx with narcotics trafficking. Of the defendants charged, all thirteen defendants were arrested today, including four defendants who were already in custody on state charges that have been transferred to federal custody. Eleven defendants arrested today were presented in Manhattan federal court before Chief United States Magistrate Judge Kevin Nathaniel Fox. The case has been assigned to U. S. District Judge Deborah A. Batts.

Manhattan U.S. Attorney Preet Bharara said: “Today we continue our efforts to rid the Southern District of drug trafficking crews who peddle their lethal product in our neighborhoods, this time by taking down an alleged group of crack cocaine and heroin dealers in the Bronx. This case is the latest example of law enforcement working together to keep our neighborhoods safe.”

FBI Assistant Director-in-Charge George Venizelos said: “Crack and heroin are a blight on the communities they infest. Even absent the violence that almost always comes with the territory, there would be reason enough to target drug trafficking. But it isn’t just a matter of stopping the spread of poison. Drug trafficking entails violence with such frequency that curbing drug activity means reducing violent crime.”

NYPD Commissioner Raymond W. Kelly said: “Just as the NYPD collaborates with landlords in our "Clean Halls" program to suppress drug dealing and its associated violence in privately-owned buildings in the Bronx, we collaborated with the FBI and Federal prosecutors to suppress drug trafficking in and around Bronx public housing in this case. Residents of crime-prone neighborhoods deserve a modicum of safety others take for granted. Thanks to the detectives, agents and prosecutors who worked together on this case, law-abiding residents of the Bronx are that much safer today.”

According to the allegations in the Indictment filed in Manhattan federal court, other publicly filed documents, and statements made in court earlier today:

Since at least June 2012, the Organization’s members have sold crack cocaine and heroin to street level drug customers, and supplied it to other Bronx drug dealers, primarily in and around the John Adams Housing Project near Tinton Avenue in the Bronx.

The investigation into the Organization’s narcotics trafficking included the court-authorized interception of phone calls and text messages to and from the cellular telephone of a member of the Organization, as well as a number of controlled buys of heroin and crack cocaine by a confidential informant. The investigation was conducted in concert with an investigation into the 2010 murder of an individual on Nelson Avenue in the Bronx. The murder was suspected to have been committed by, among others, Jermaine Smalls, a leading member of the Organization. In October 2012, during the course of the investigations, Smalls was shot and killed outside a Manhattan night club. The investigation into both murders continues.

The defendants are charged with one count of conspiring to distribute, and possess with intent to distribute, crack cocaine and heroin, which carries a mandatory minimum sentence of ten years in prison and a potential maximum sentence of life in prison. Charts containing the names, ages, and residences for the defendants are attached.

Mr. Bharara praised the outstanding investigative work of the FBI 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 Kan Nawaday and Andrew Bauer are in charge of the prosecution.

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

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Preet Bharara, the United States Attorney for the Southern District of New York, announced that MARINA ZAYTSEVA was sentenced today in Manhattan federal court to one year and one day in prison for her participation in a $57 million fraud scheme that targeted programs administered by the Conference on Jewish Material Claims Against Germany, Inc. (the “Claims Conference”) and that were established to aid the survivors of Nazi persecution, and for instructing others to lie to the FBI if questioned about the fraud. ZAYTSEVA pled guilty in July 2012 to one count of conspiracy to commit mail fraud, and one count of witness tampering. She was sentenced by U.S. District Judge Thomas P. Griesa.

Manhattan U.S. Attorney Preet Bharara said: “Not only did Marina Zaytseva recruit participants into a multi-million dollar fraud scheme against an organization that exists solely for the purpose of aiding victims of Nazi atrocities, but she compounded her shameful conduct by obstructing the investigation into the fraud. She is the latest defendant in this massive scheme to be punished, but she will not be the last.”

According to the Superseding Indictment, the Complaint, and statements made during court proceedings:

The Claims Conference, a not-for-profit organization which provides assistance to victims of Nazi persecution, supervises and administers several funds that make reparation payments to victims of the Nazis, including “the Hardship Fund” and “the Article 2 Fund,” both of which are funded by the German government. Applications for disbursements through these funds are processed by Claims Conference employees in the Manhattan office who are supposed to confirm that the applicants qualify for payments.

As part of the charged scheme, a web of individuals systematically defrauded the Article 2 Fund and Hardship Fund programs for over a decade. The Claims Conference first suspected the fraud in December 2009, and immediately reported their suspicions to law enforcement, which conducted a wide-reaching investigation.

The Hardship Fund pays a one-time payment of approximately $3,500 to victims of Nazi persecution who evacuated the cities in which they lived and were forced to become refugees. Members of the conspiracy submitted fraudulent applications for people who were not eligible, including many who were born after World War II, and at least one person who was not Jewish.

ZAYTSEVA, along with other members of the conspiracy, recruited people to provide their identification documents, such as passports and birth certificates, which were then fraudulently altered and submitted to corrupt insiders at the Claims Conference. The corrupt insiders then processed those applications. When the applicants received their compensation checks, they kept a portion of the money and passed the rest back up the chain.

From the investigation to date, the Claims Conference has determined that at least 3,839 Hardship Fund applications appear to be fraudulent. These applications resulted in a loss to the Hardship Fund of approximately $12.3 million.

The Article 2 Fund makes monthly payments of approximately $400 to survivors of Nazi persecution who make less than $16,000 per year, and either (1) lived in hiding or under a false identity for at least 18 months; (2) lived in a Jewish ghetto for 18 months; or (3) were incarcerated for six months in a concentration camp or a forced labor camp. The fraud involved doctored identification documents in which the applicant's date and place of birth had been changed. The fraud also involved more sophisticated deception, including altering documents that the Claims Conference obtains from outside sources to verify a person’s persecution by the Nazis. Some of the detailed descriptions of persecution in the fraudulent Article 2 Fund applications were completely fabricated.

From the investigation to date, the Claims Conference has determined that at least 1,112 Article 2 Fund cases it processed have been determined to be fraudulent. Those cases have resulted in a loss to the Claims Conference of approximately $45 million.

Witness Tampering

When ZAYTSEVA first learned that the FBI was investigating her involvement in the fraudulent scheme, she instructed other participants in the fraud to lie to the FBI if questioned. Specifically, ZAYTSEVA instructed one witness to claim falsely a lack of memory about the fraud and instructed a second witness to deny having split money with her.

Of the 31 individuals who have been charged with participating in the scheme to defraud the Article 2 Fund and Hardship Fund programs since 2010, 19 defendants, including ZAYTSEVA, have pled guilty, and seven of those defendants have been sentenced. Charges are pending against 12 defendants in the case, and they are presumed innocent unless and until proven guilty.

In addition to her prison term, ZAYTSEVA, 52, of Brooklyn, New York, was sentenced to one year of supervised release. ZAYTSEVA was also ordered to pay $66,597.12 in restitution and to forfeit $6,000.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation (“FBI”). He also thanked the Claims Conference for bringing this matter to the FBI’s attention and for its extraordinary continued cooperation in this investigation, which he noted is ongoing.

This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Christopher D. Frey and Jonathan Cohen, and Special Assistant U.S. Attorney Rebecca Rohr, are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York announced today that ALAN RITTER, a self-employed accountant in Rockland County, New York, was sentenced today in Manhattan federal court to three years in prison in connection with his operation of an 11-year, $6 million Ponzi scheme. RITTER pled guilty to three counts of wire fraud in September 2012 before U.S. Magistrate Judge Debra Freeman. U.S. District Judge Paul A. Crotty imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara said: “Alan Ritter, like other Ponzi schemers before him, added personal betrayal to his fraud by fleecing unsuspecting victims who were friends and clients. He will now face the penalty for his conduct.”

According to the Information and statements made during the plea proceeding:

RITTER operated his own accounting practice in Rockland County, New York. In 2001, he suffered more than $500,000 in losses from an unrelated business venture. In order to cover those losses, RITTER solicited hundreds of thousands of dollars in loans from friends and clients of his accounting practice, falsely telling them that he intended to use the money to invest in real estate ventures. For the next 11 years, RITTER operated a Ponzi scheme in which he borrowed more and more money for purported business ventures that he used the money to cover the interest payments on the original loans he secured, and to pay for his own personal expenses.

RITTER also embezzled funds entrusted to him by several clients, using their money to cover the interest payments on the Ponzi scheme loans and to pay for his personal expenses. For example, in November 2011, RITTER was given $650,000 on behalf of a family and was instructed to use a portion of it to satisfy several of the family’s outstanding debts. The remainder of the funds was to be held pending further instructions. Instead, RITTER embezzled at least $530,000 of the original $650,000.

In addition to his sentence, Judge Crotty sentenced RITTER, 70, of Monsey, New York, to three years of supervised release and ordered him to pay restitution and forfeiture, which will be determined at a later date.

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

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

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

Preet Bharara, the United States Attorney for the Southern District of New York, George C. Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), and George N. Longworth, the Commissioner of the Westchester County Police Department today announced the unsealing of charges against 32 individuals as part of a multi-year investigation into organized crime’s alleged continuing control of large aspects of the commercial waste-hauling industry in the greater New York City metropolitan area and in parts of New Jersey. The main Indictment charges 12 defendants under the Racketeer Influenced and Corrupt Organizations Act (“RICO”) for conspiring to participate in a racketeering enterprise that asserted illegal and extortionate control over commercial waste-hauling companies, and 17 other defendants with individual acts of extortion, loansharking, and other crimes associated with those activities. The charges are contained in three Indictments, United States v. Franco, et al., United States v. Giustra, et al., and United States v. Lopez.

Thirty of the defendants were arrested this morning in connection with today’s charges, and will be presented and arraigned in Manhattan federal court before U.S. Magistrate Judge Kevin N. Fox later this afternoon. Two defendants, DOMINICK PIETRANICO and PASQUALE P. CARTALEMI, are expected to surrender this week.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, organized crime still wraps its tentacles around industries it has fed off for decades, but law enforcement continues to pry loose its grip. Here, as described in the indictments, organized crime insinuated itself into the waste disposal industry throughout a vast swath of counties in New York and New Jersey, and the tactics they used to exert and maintain their control come right out of the mafia playbook – extortion, intimidation, and threats of violence. And while these accused mobsters may have hidden themselves behind seemingly legitimate owners of waste disposal businesses, law enforcement was able to pierce that veil through its painstaking, multi-year investigation. Organized crime has many victims – in this case small business owners who pay for waste removal, potential competitors, and the communities infected by this corruption and its cost. Organized crime is in a losing battle and we and our law enforcement partners remain committed to its extinction.”

FBI Assistant Director-in-Charge George C. Venizelos said: “The indictments show the ongoing threat posed by mob families and their criminal associates. In addition to the violence that often accompanies their schemes, the economic impact amounts to a mob tax on goods and services. The arrests – the culmination of a long and thorough investigation – also show the ongoing determination of the FBI to diminishing the influence of La Cosa Nostra.”

Westchester County Police Department Commissioner George N. Longworth said: “The long-term partnership between the Westchester County Police and federal law enforcement is an important means of combating organized crime and ensuring that businesses in Westchester are free to operate without fear of extortion or undue influence.”

The following allegations are based on the Indictments unsealed today and statements made in Manhattan federal court:

Twelve of the defendants, who are members and associates of three different Organized Crime Families of La Cosa Nostra (“LCN”) – the Genovese, Gambino and Luchese Crime Families – are charged with participating in a RICO enterprise in which they worked together to control various waste disposal businesses in the New York City metropolitan area and multiple counties in New Jersey (the “Waste Disposal Enterprise,” or “Enterprise”). The Waste Disposal Enterprise was a criminal organization the members of which engaged in crimes including extortion, loansharking, mail and wire fraud, and stolen property offenses. CARMINE FRANCO, ANTHONY PUCCIARELLO, HOWARD ROSS, ANTHONY CARDINALLE, PETER LECONTE, FRANK OLIVER, CHARLES GIUSTRA, DOMINICK PIETRANICO, JOSEPH SARCINELLA, WILLIAM CALI, SCOTT FAPPIANO, and ANTHONY BAZZINI (“Enterprise members”) were leaders and members of the Waste Disposal Enterprise who committed crimes as part of the racketeering conspiracy in order to accomplish the Enterprise’s goals of enhancing its power, financially enriching its members, and keeping its victims - including small business owners and potential competitors – in check by threatening economic and physical harm.

Waste Disposal Enterprise members avoided any official connection to the waste disposal businesses they controlled because they were either officially banned from the waste hauling industry, or unlikely to be granted the necessary licenses required to do business in the waste hauling industry because of their affiliations with organized crime. Accordingly, Enterprise members concealed themselves behind waste disposal businesses that were officially owned and operated by non-Enterprise members (“Controlled Owners”), who were able to obtain the necessary licenses because they had no known affiliations with organized crime. Ultimately, Enterprise members exerted control over these waste disposal businesses by, among other things, dictating which trash pick-up stops that a particular hauling company could use and extorting payments in exchange for protection by individuals associated with organized crime. By asserting and enforcing purported “property rights” over the trash pick-up routes, the Enterprise members excluded any competitor that might offer lower prices or better service, in effect imposing a criminal tax on businesses and communities. Separately, some of the Controlled Owners were also committing crimes, including stealing property of competing waste disposal businesses and defrauding businesses of their customers.

The operation of the Waste Disposal Enterprise was coordinated by and among factions of the LCN families through the use of “sit-downs” to determine which faction would control a particular waste disposal company and established the financial terms upon which control of that company could be transferred from one faction to another in return for payment.

During the time period alleged in the Indictment, Enterprise members extorted a Controlled Owner, who, unknown to them, was a cooperating witness (the “CW”). The CW incorporated a waste removal company (the “CW Company”) that ultimately was controlled by a number of different factions of the Waste Disposal Enterprise.

At various times, the CW Company was under the control of CARMINE FRANCO, a Genovese Crime Family associate who was banned by New Jersey authorities from maintaining any involvement in the waste hauling business in that state due to prior criminal convictions. A Genovese Crime Family crew based principally in Lodi, New Jersey (“Lodi Crew”), which included Genovese Family soldiers ANTHONY PUCCIARELLO and PETER LECONTE, as well as Genovese Family associates ANTHONY CARDINALLE, HOWARD ROSS, and FRANK OLIVER, subsequently wrested control of the CW’s waste company from FRANCO, and further extorted the CW for weekly payments for “protection” from other LCN factions. In addition, at various times, a different faction of the Genovese Crime Family – led by Genovese soldiers DOMINICK “PEPE” PIETRANICO and JOSEPH SARCINELLA – and a Gambino Crime Family crew – including Gambino Family soldier ANTHONY BAZZINI and associate SCOTT FAPPIANO – controlled the CW’s waste hauling company.

In addition to the 12 defendants charged as members of the Waste Disposal Enterprise, 17 of the defendants are charged with carrying out various illegal activities in relation to the waste hauling industry. These illegal activities include: extortion, mail and wire fraud conspiracy, and interstate transportation of stolen property.

Charts identifying each defendant, the charges, and the maximum penalties, as well as the defendants’ ages and residency information are attached to this release. U.S. District Judges P. Kevin Castel, Colleen McMahon, and Laura Taylor Swain have been assigned to this case.

U.S. Attorney Preet Bharara thanked the FBI and the Westchester County Police Department for their work in the four-year investigation, which he noted is ongoing. Mr. Bharara also thanked the New York City Business Integrity Commission, the New York State Police, and the Town of Orangetown Police Department for providing invaluable assistance with the investigation.

The case is being prosecuted by the Office’s Organized Crime Unit. Assistant U.S. Attorneys Arianna R. Berg, Natalie Lamarque and Brian R. Blais are in charge of the prosecution. Assistant U.S. Attorney Martin S. Bell of the Office’s Asset Forfeiture Unit is responsible for the forfeiture of assets.

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

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U.S. v. Carmine Franco, et al. Indictment
U.S. v. Charles Giustra, et al. Indictment
U.S. v. Kenneth Lopez Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced that JOHN KINNUCAN, the President of Broadband Research, LLC, an investment research firm located in Portland, Oregon, was sentenced today to 51 months in prison for his participation in an insider trading scheme. KINNUCAN obtained material, non-public information (“Inside Information”) about publicly traded companies and sold that information to his clients, including hedge funds and money managers (the “BBR Clients”). KINNUCAN pled guilty in July 2012 to one count of conspiracy to commit securities fraud and two counts of securities fraud before U.S. District Judge Deborah A. Batts, who also imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara said: “Today’s sentence of John Kinnucan is a fitting conclusion to a criminal odyssey that began with the buying and selling of inside information and evolved into a vile and very public campaign to threaten public servants and obstruct the federal investigation into Kinnucan’s conduct. Mr. Kinnucan will now pay for both crimes with his liberty.”

According to the Indictment, other court documents filed in the case, as well as statements made during the guilty plea and sentencing proceedings:

From 2008 through 2010, KINNUCAN obtained Inside Information about publicly traded companies, including quarterly revenue numbers, and sold that information to BBR Clients. The Inside Information came from co-conspirators who were employed at publicly traded companies (the “Public Company Sources”), such as F5 Networks, Inc. (“F5”), Sandisk Corporation and Flextronics International, Ltd.

In order to develop and maintain his network of Public Company Sources, KINNUCAN befriended public company employees and offered to provide some of them with consulting fees and other non-monetary consideration. Specifically, KINNUCAN paid one of his sources approximately $27,500 for Inside Information, and invested $25,000 in the business of another source.

After he obtained Inside Information from Public Company Sources, KINNUCAN provided it to BBR Clients with the understanding that they would use the information to execute securities transactions. For example, in June 2010 and early July 2010, KINNUCAN repeatedly sought information about F5’s quarterly financial results for the quarter ending on June 30, 2010 from an F5 employee. In a telephone call on the morning of July 2, 2010, KINNUCAN told the F5 employee that the guidance F5 previously provided to the investment community for the quarter that ended June 30, 2012 was $220 million. The F5 employee then informed KINNUCAN that the unadjusted revenue number was actually “$232 million,” confirming that F5 would beat Wall Street’s consensus estimates. Within minutes of the July 2, 2010 conversation with the F5 employee, KINNUCAN called numerous BBR Clients to provide them with the information. After receiving the F5 Inside Information from KINNUCAN, at least two BBR Clients executed securities transactions in F5 based, in whole or in part, on KINNUCAN’s Inside Information, earning profits and avoiding losses of more than $1.5 million.

In order to attract and retain BBR Clients, and in an effort to hide the true identity of his Public Company Sources, KINNUCAN lied to existing and prospective BBR Clients about the sources of his Inside Information, including by falsely stating that none of his sources was employed at public companies, and that he did not pay his sources.

In an effort to obstruct the ongoing federal criminal investigation, from December 2011 through February 2012, KINNUCAN made nearly 25 threatening telephone calls to prosecutors and agents responsible for the investigation of his unlawful activities. In these telephone calls, KINNUCAN made repeated references to genocide, sexual and other forms of violence, and threatened physical harm to one of the prosecutors handling this matter. He also made multiple telephone calls to one cooperating witness, and attempted to contact another in an effort to intimidate and harass them.

In addition to his prison term, KINNUCAN, 55, of Portland, Oregon, was sentenced to three years of supervised release and ordered to pay a $300 special assessment fee. As part of his plea agreement, KINNUNCAN will forfeit $164,000 to the United States.

During the sentencing proceeding, Judge Batts said, “[Kinnucan] lashed out in anger and made a spectacle of himself [by leaving] obscene, hateful, despicable and repetitive” voicemails for prosecutors, and that “…threatening personally government authorities who are doing their jobs by investigating insider trading cannot be tolerated.”

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation. He thanked the U.S. Securities and Exchange Commission for its assistance 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. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Katherine R. Goldstein, David B. Massey and Christopher L. LaVigne are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, James T. Hayes, Jr., the Special Agent-in-Charge of the New York Field Office of U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), and Kenneth Siegler, Resident Agent-in-Charge of the New York Office of the Defense Criminal Investigative Service (“DCIS”), today announced the arrest of KWOK KUEN LEUNG, a resident of Hong Kong, for selling equipment that had been stolen from the United States military and for smuggling that equipment and other items into the United States. LEUNG was arrested last night at the San Francisco International Airport. He was presented earlier today in federal court in the Northern District of California and ordered detained. The case has been assigned to Judge Alvin K. Hellerstein of the U.S. District Court for the Southern District of New York.

Manhattan U.S. Attorney Preet Bharara said: “Today’s indictment reveals an alleged attempt by Kwok Kuen Leung to operate under the radar to import stolen equipment into the United States that could potentially be used as weapons. Our office remains committed to ensuring that devices intended for the military and other law enforcement authorities do not get into the wrong hands.”

ICE HSI Special Agent-in-Charge James T. Hayes, Jr. said: “Kwok Kuen Leung allegedly made false statements to import and sell stolen military grade equipment. This technology is so sensitive that, if in the wrong hands, it can pose a threat to our national security. This case underscores the threat by those who attempt to circumvent U.S. Customs laws. It strengthens our resolve with our federal law enforcement partners to vigorously pursue violators.”

DCIS Resident Agent-in-Charge Kenneth Siegler said: "This investigation demonstrates the Defense Criminal Investigative Service and fellow agencies’ continued commitment to identifying individuals involved in the theft, sale, and smuggling of U.S. military technology. It is imperative that those involved in trafficking stolen Department of Defense equipment be identified and held accountable for their actions.”

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

On several occasions from January 2005 through March 2005, LEUNG sold infrared laser aiming devices that were stolen from United States military installations. Infrared laser aiming devices are mounted on weapons, and work by projecting an infrared laser beam on a target that cannot be seen with the naked eye, but can be seen with night-vision equipment. Laser aiming devices are generally manufactured under contract with the U.S. Department of Defense for military use or under contract with law enforcement agencies.

In addition, on multiple occasions from 2005 through 2009, LEUNG smuggled military equipment including the stolen laser aiming devices, night-vision scopes, and other items into the United States by making false and fraudulent statements in customs declaration forms. For example, LEUNG falsely stated that the majority of his shipments contained “distance measuring devices.” He also significantly understated the actual dollar value of the shipments and paid substantially less in customs duties than would have been owed if the true value of the equipment had been declared.

LEUNG, 38, resides in Hong Kong. He is charged with eight counts of falsely classifying goods for entry into the United States, eight counts of importing goods through false and fraudulent statements, eight counts of smuggling, and four counts of selling stolen military equipment. He faces a maximum penalty of 142 years in prison on all counts combined.

Mr. Bharara praised ICE HSI and DCIS for their outstanding work in the investigation.

This prosecution is being handled by the Complex Frauds Unit of the United States Attorney’s Office. Assistant United States Attorney Zachary Feingold is 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 Kwok Kuen Leung S1 Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, Brian R. Crowell, the Special-Agent-in-Charge of the New York Field Division of the Drug Enforcement Administration (“DEA”), Raymond W. Kelly, the Commissioner of the New York City Police Department (“NYPD”), and Joseph A. D’Amico, the Superintendent of the New York State Police (“NYSP”), today announced the filing of a Complaint charging 16 alleged members of a Bronx, New York, armed robbery crew who impersonated police officers. The defendants were charged with robbery conspiracy, narcotics conspiracy, and firearms offenses. All 16 of the defendants, who were arrested Wednesday night, were presented yesterday in Manhattan federal court. In connection with the arrests, federal agents seized, among other things, five loaded semi-automatic firearms and a loaded pistol, .45 caliber and .380 caliber ammunition, shirts bearing the word “Police,” tactical gear, and a hydraulic ram similar to those used by law enforcement to break down doors.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, this was a marauding gang of armed and violent thieves in the Bronx who masqueraded as police officers in order to trick their narcotics-dealing targets so they could steal their drugs and their cash. This is the latest in a string of multi-defendant arrests in the Bronx and Manhattan this week that underscore our commitment to making the streets in this district safer for their residents.”

DEA Special-Agent-in-Charge Brian R. Crowell said: “While most New Yorkers were sleeping last night, our Drug Enforcement Task Force arrested and removed alleged members of an extremely violent, armed and sophisticated drug gang. They were the drug world’s version of a James Bond style robbery crew, utilizing fake police equipment, law enforcement badges, replica vehicles complete with emergency lighting and outfitted with complex traps to hide illegal and loaded firearms. As alleged, this crew was comprised of sixteen members who tried to conceal themselves as cops to rob, steal and plunder. This is yet another investigation epitomizing the extreme violence that surrounds drug trafficking and I commend the men and women of our task force from the NYPD, the NYSP, and the DEA for steadfastly wading into harm’s way to protect our citizens.”

NYPD Commissioner Raymond W. Kelly said: “The NYPD and federal partners will continue to crack down on drug dealers and guns in the Bronx and elsewhere, and the NYPD Internal Affairs Bureau will thoroughly investigate any instances of alleged police impersonation. The impersonators will be pursued and prosecuted.”

NYSP Superintendent Joseph A. D’Amico said: “The collaborative efforts of the Drug Enforcement Task Force, including the New York State Police, the Drug Enforcement Administration, and the New York City Police Department, have resulted in the arrests of a number of dangerous individuals. We will not tolerate this type of activity in our state. These individuals allegedly masqueraded as police officers with the intent to commit crimes. Ensuring the public’s continued safety is our ultimate goal. By arresting the alleged members of this dangerous drug gang, our streets are now safer.”

According to the allegations in the Complaint filed yesterday in Manhattan federal court:

On December 17, 2012, JAVION CAMACHO met with a confidential informant (“CI-1”) working at the direction of the DEA. During that meeting, CI-1 told JAVION CAMACHO that a shipment of heroin was going to be arriving in New York City after the holidays, and that he wanted him to use force to steal the shipment. CAMACHO told CI-1 he had a robbery crew of police impersonators who would be able to carry out the robbery for him. During subsequent meetings CAMACHO and his brother JULIO CAMACHO, among others, expressed their interest in robbing the group of drug traffickers and their stash house, which the defendants believed, based on representations made by CI-1, would contain at least 20 kilograms of heroin.

On the evening of January 9, 2013, the defendants – JAVION and JULIO CAMACHO, ALEX CESPEDES, GARY SANCHEZ, MANUEL PIMENTEO, DOMINGO VASQUEZ, BENJAMIN JIMINEZ, RAFAEL HUERTA, OSCAR NORIEGA, VICTOR JOSE GOMEZ, JOSHUA ROMAN, VICTOR E. MORAL, RAMON JIMINEZ, ALI A. HUSAIN, LOUIS BORRERO, and OLIVER F. FLORES – assembled at a location in the Bronx, and then traveled in tandem in five different vehicles to a location identified by CI-1 where they planned to use force in order to rob the purported heroin traffickers.

Upon arriving at the specified location, the defendants were placed under arrest and their vehicles were searched. Two of the vehicles contained secret compartments, or “traps,” designed to conceal contraband. One of the vehicles contained a mechanized device that, when operated by the vehicle’s driver, would cover the vehicle’s license plate with a steel plate. The vehicle searches conducted at the time of arrest resulted in the seizure of six loaded firearms, including a .45 caliber High Point, two .380 caliber semi-automatic firearms for which the make has not been identified, a .9 mm Beretta, a .45 caliber Glock, and a silver pistol. The defendants were also found to be in possession of: shirts bearing the word “Police;” tactical vests similar to those used by law enforcement; a hydraulic ram similar to those used by law enforcement to break down doors; a police scanner; handcuffs; zip-ties similar to those used by law enforcement to handcuff individuals; bolt-cutters; walkie-talkies; a purported law enforcement shield; a baseball bat; a crowbar; ski masks; gloves; GPS units similar to those used by law enforcement to track suspects; and a “rabbit pump” which is a tool used by law enforcement to break down doors.

A chart containing the ages, residency information, and charges against the defendants, as well as the maximum and mandatory minimum penalties that they face, is attached.

Mr. Bharara praised the DEA, the NYPD, and the NYSP for their work in the investigation.

The case is being prosecuted by the Office’s Narcotics Unit. Assistant United States Attorney Rachel Maimin 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. Javion Camacho, et al. Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that MARIA RUSIN, the office manager of Dr. Peter J. Ajemian’s medical practice, GREGORY NOONE, a former Long Island Railroad (“LIRR”) manager of engineering operations, DANIEL DENIS, a former LIRR ticket agent, and REGINA WALSH, a former LIRR director of employee operations, pled guilty to charges related to the allegedly massive fraud scheme in which LIRR workers claimed to be disabled upon early retirement so that they could receive disability benefits to which they were not entitled. RUSIN and WALSH pled guilty today before U.S. Magistrate Judge Henry B. Pitman. NOONE and DENIS pled guilty before Judge Pitman on January 8, 2013 and January 9, 2013, respectively.

According to the Complaint, the Superseding Indictment, the Superseding Informations, and statements made in other public filings and in court:

The LIRR Disability Fraud Scheme

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

Hundreds of LIRR employees have allegedly exploited the overlap between the LIRR pension and the RRB disability program by pre-planning the date on which they would falsely declare themselves disabled so that it would coincide with their projected retirement date. These false statements, made under oath 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 2004 through 2008, 61% of LIRR employees who stopped working and began receiving RRB disability benefits were between the ages of 50 and 55. In contrast, only 7% of employees at Metro-North who stopped working and received disability benefits during the same time period were between the ages of 50 and 55.

Rusin’s Obstruction of Justice

In August 2010, RUSIN participated in a voluntary interview with criminal investigators in the Southern District of New York, and falsely denied knowing that almost all of Dr. Peter Ajemian’s patients from the LIRR were retiring at the same time that they were claiming occupational disability from the United States Railroad Retirement Board. RUSIN also falsely claimed that she was never told that an LIRR patient was planning to retire except when the patient was directed to see her to pay for a narrative, and that this usually occurred at the end of the process of seeing Ajemian—about two weeks to one month prior to the worker’s retirement. In addition, RUSIN falsely claimed to have no understanding about how an occupational disability would affect the payout for an LIRR worker who was retiring.

RUSIN, 57, of Farmingdale, New York, and WALSH, 64, of New Hyde Park, New York will be sentenced by U.S. District Judge Victor Marrero on May 13, 2013 and NOONE, 63, of East Islip, New York, will be sentenced by Judge Marrero on July 12, 2013. DENIS, 60, of East Rockaway, will be sentenced by U.S. District Judge Kimba Wood on July 11, 2013. A chart setting forth the counts to which each defendant pled guilty, as well as the maximum penalties, is attached.

Thirty-two people have been charged in connection with the LIRR disability fraud scheme, 16 of whom have now pled guilty. The charges against the remaining defendants are merely allegations and they are all presumed innocent unless and until proven guilty.

Mr. Bharara praised the RRB-OIG, the FBI, and the MTA-OIG 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, Nicole Friedlander, Danya Perry and Amy Garzon are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and Michele M. Leonhart, the Administrator of the United States Drug Enforcement Administration (“DEA”), announced that RICHARD AMMAR CHICHAKLI, an associate of convicted international arms dealer, Viktor Bout, was arrested yesterday in Australia for, among other things, allegedly conspiring with Bout and others to violate the International Emergency Economic Powers Act (“IEEPA”) by attempting to purchase two aircraft from companies located in the U.S., in violation of economic sanctions that prohibited such financial transactions. In addition, CHICHAKLI is also charged with money laundering conspiracy, wire fraud conspiracy, and six separate counts of wire fraud, in connection with the attempted aircraft purchases. CHICHAKLI, a citizen of Syria and the U.S., was arrested by Australian authorities at the request of the U.S.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Richard Ammar Chichakli consorted with the world’s most notorious arms trafficker in the purchase of aircraft that would be used to transport weapons to some of the world’s bloodiest conflict zones, in violation of international sanctions. Thanks to the cooperative efforts of all of our law enforcement partners, both here and abroad, Chichakli has finally been apprehended and will now face justice.”

DEA Administrator Michele M. Leonhart said: “The international law enforcement community has long recognized Richard Chichakli as a key criminal facilitator in Viktor Bout’s global weapons trafficking regime and his arrest means the world is safer and more secure. Bout merged drug cartels with terrorist enablers, and his close associate, Chichakli, worked to ensure they could ship weapons and conduct illicit business around the world. DEA continues to forge strong partnerships worldwide and applauds our Australian police partners.”

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

Bout is presently serving a 25-year prison term as a result of his November 2011 conviction in this district for conspiring to sell millions of dollars of weapons to the Fuerzas Armadas Revolucionarias de Colombia (the “FARC”), a designated foreign terrorist organization based in Colombia. Prior to his arrest on those charges in March 2008, in Thailand, and since the 1990s, Bout was an international weapons trafficker. Bout carried out his massive weapons-trafficking business by assembling a fleet of cargo airplanes capable of transporting weapons and military equipment to various parts of the world, including Africa, South America, and the Middle East.

The arms Bout has sold or brokered have fueled conflicts and supported regimes in Afghanistan, Angola, the Democratic Republic of the Congo, Liberia, Rwanda, Sierra Leone and Sudan. CHICHAKLI had been a close associate of Bout’s since at least the mid-1990s, assisting in the operations and financial management of his network of aircraft companies. As a result of Bout’s role in pouring arms into these international conflicts, his relationship with CHICHAKLI, and Bout and CHICHAKLI’s close relationship with former Liberian President Charles Taylor, both Bout and CHICHAKLI have been the subject of United Nations Security Council (“UNSC”) sanctions restricting their travel and their ability to conduct business around the world. In addition, more than 25 companies affiliated with Bout and CHICHAKLI have been listed by the UNSC as subject to similar restrictions concerning their assets and financial transactions.

In 2004, consistent with the sanctions previously adopted by the UNSC concerning Liberia, the President of the United States issued an executive order prohibiting any transactions or dealings within the U.S. by individuals affiliated with former President Taylor. Accordingly, the U.S. Department of Treasury, pursuant to its authority under IEEPA, prohibited Bout from conducting any business in the U.S. In 2005, that prohibition was extended to CHICHAKLI.

The United Nations and IEEPA sanctions encumbered CHICHAKLI’s and Bout’s efforts to conduct business within their existing corporate structures. Accordingly, CHICHAKLI and Bout took steps to form new companies, and to register these companies in the names of other individuals in order to create the false appearance that they had no affiliation with them.

One such company – Samar Airlines – was created in 2004, right after the majority of United Nations and IEEPA sanctions became effective. CHICHAKLI and Bout were personally involved in the operational and business affairs and decisions of Samar Airlines, though they held out other individuals as being the officers of the company. In 2007, in violation of the IEEPA sanctions to which they were subject at the time, CHICHAKLI and Bout, acting through Samar Airlines, contracted to purchase two Boeing aircraft from companies located in the U.S.

In connection with the purchase of these aircraft and related services, CHICHAKLI and Bout electronically transferred more than $1.7 million through banks in New York and into bank accounts located in the U.S. They did so through a number of front companies, the assets of which were also owned and controlled by Bout, in order to evade the UNSC’s sanctions regime and IEEPA prohibitions. Upon the discovery that CHICHAKLI was connected to Samar Airlines, the U.S. Treasury Department blocked the funds that had been transferred into the bank accounts of the U.S. aviation companies.

The Superseding Indictment charges CHICHAKLI with nine separate offenses:

• Count One: Conspiracy to violate the International Emergency Economic Powers Act;
• Count Two: Money laundering conspiracy;
• Count Three: Wire fraud conspiracy; and
• Counts Four through Nine: Wire fraud.

If convicted, CHICHAKLI faces a maximum sentence of 20 years in prison on each of the nine counts. The case is assigned to U.S. District Judge William H. Pauley, III.

Mr. Bharara praised the outstanding investigative efforts of the DEA and thanked the Australian Federal Police, the Victoria State Police, the Australian Attorney General’s Department, the U.S. Department of Justice Office of International Affairs, the U.S. Department of State and Interpol for their assistance in this matter.

The case is being handled by the Terrorism and International Narcotics Unit. Assistant United States Attorneys Anjan Sahni, Brendan R. McGuire, Jenna M. Dabbs and Christian R. Everdell 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. Richard Ammar Chichakli S2 Indictment

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”), and Raymond W. Kelly, the Police Commissioner of the City of New York (“NYPD”), today announced charges against 17 members of a criminal organization based in Harlem, New York for conspiring to distribute cocaine, crack cocaine, and marijuana. The Superseding Indictment also charges seven of the defendants with possessing firearms in connection with, and in furtherance of, the drug distribution conspiracy. One defendant, ROGER KEY, was also charged in the original indictment with orchestrating a murder-for-hire conspiracy of an individual at gunpoint.

Of the 16 new defendants charged, 10 were taken into custody last night and early this morning as part of a coordinated operation involving federal and local law enforcement officers. All the defendants who were arrested last night and this morning will be presented in Manhattan federal court this afternoon before U.S. Magistrate Judge Henry B. Pitman. RUBEN DAVIS and RUBEN FERNANDEZ were previously arrested by the NYPD on related state charges and remain detained. STEVEN HERBERT is currently detained on an unrelated federal charge. GEORGE DAVIS is expected to surrender later to law enforcement today, and KEITH PURVIS and CLAYTON MOLLETTE remain at large.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, this pack of gun-toting drug dealers wrought havoc, instilled fear, and peddled highly addictive – and sometimes lethal – narcotics in the Harlem neighborhood in which they operated. With today’s indictment, they are now off the streets, but our work is not finished and we remain committed to shutting these violent drug crews down completely. I want to thank New York County District Attorney, Cyrus Vance and his office, who began the investigation into this alleged narcotics crew and shared the fruits of their investigation with our Office, enabling us to build this case. It is another great example of our Offices working together in a way that best serves the case and the interests of the people of Manhattan.”

FBI Assistant Director-in-Charge George Venizelos said: “For the second time in as many days we are announcing charges in a significant drug trafficking case, and again we see the ever-present link between drugs and guns. If your business is peddling illegal drugs, the business almost always entails violence to protect it. The FBI is committed to teaming with the NYPD in vigorous policing of the illegal drug trade in our mutual effort to reduce violent crime.”

NYPD Commissioner Raymond W. Kelly said: “These arrests are another example of police and their federal partners’ unrelenting pursuit of crews who monetize drugs and violence. I commend the NYPD Manhattan North Narcotics detectives who worked to bring these criminals to justice, to restore some measure of safety to Harlem residents. Their work is among the reasons why New York City experienced a record low in shootings and murder last year.”

As alleged in the Superseding Indictment unsealed today and other documents filed in Manhattan federal court:

From at least 2009 through May 2012, members of the crew sold significant street level quantities of cocaine, crack cocaine, and marijuana in Harlem, New York. Members of the crew used firearms, threats of violence and violence to protect their drug business.

Additionally, in November 2011, KEY and others recruited and hired individuals to shoot and kill a victim. During the assassination attempt, one of KEY’s co-conspirators, however, shot and hit an innocent bystander, who was standing near the intended victim’s car. The innocent bystander survived.

A chart containing the ages, residency information, and charges against the defendants, as well as the maximum penalties they face is attached.

Mr. Bharara praised the outstanding investigative work of the FBI and the NYPD. He also thanked the New York County DA’s Office for sharing evidence that ultimately led to today’s charges. He added that the investigation is continuing.

The prosecution of this case is being overseen by the Office's Violent Crimes Unit. Assistant United States Attorneys Abigail Kurland, Adam Fee, and Santosh Aravind 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.

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U.S. v. Roger Key, et al Superseding Indictment
US v. Roger Key, et al Superseder Chart

Preet Bharara, the United States Attorney for the Southern District of New York, announced that BERTON HOCHFELD, the former Manager of Hochfeld Capital Management, L.L.C. (“Hochfeld Capital”), pled guilty today in Manhattan federal court to securities fraud and wire fraud charges in connection with an investment scheme in which he stole more than $1 million from investors. HOCHFELD pled guilty before U.S. District Judge Paul A. Crotty.

Manhattan U.S. Attorney Preet Bharara said: “Berton Hochfeld may have had all the trappings of being a sophisticated investment adviser in control of a limited liability corporation, a partnership and a hedge fund, but at the end of the day he was simply a thief who stole money from the investors who trusted him. Investment fraud is a serious offense that damages investor confidence and the markets, and we will continue to prosecute it aggressively.”

According to the charging instruments in this case and statements made in open court today at the plea proceeding:

HOCHFELD was the Manager and organizer of Hochfeld Capital, a limited liability company incorporated in Delaware that, at various times, maintained an office in New York, New York. Hochfeld Capital, in turn, served as the General Partner of the Heppelwhite Fund, L.P. (the “Heppelwhite Fund”), a hedge fund that was formed to invest in publicly traded securities, mainly in the technology sector. In connection with the management of the Heppelwhite Fund, HOCHFELD made false representations to investors regarding their investments, and misappropriated their money.

For example, by December 2010, HOCHFELD was aware that Hochfeld Capital’s internal accounting for the Heppelwhite Fund reflected an inflated net asset value (“NAV”), as compared to the value reflected in the books of the prime broker where the fund’s assets were actually located. Despite his knowledge of the disparity, HOCHFELD caused monthly statements to be sent to Heppelwhite Fund investors that reflected the inflated NAV calculated by internal accounting records.

From April 2011 through October 2012, HOCHFELD also withdrew money from the Heppelwhite Fund for his own personal use, ultimately misappropriating more than $1 million. During this period, at HOCHFELD’s direction, monthly account statements were provided to Heppelwhite Fund investors that falsely represented the fund’s value by failing to account for the money that he had withdrawn. At a meeting in October 2012, HOCHFELD admitted to certain investors that he had taken more than $1 million from the Heppelwhite Fund and that he spent portions of that money on antiques and vacations.

HOCHFELD, 66, of Stamford, Connecticut, pled guilty to one count of securities fraud and one count of wire fraud. He faces a maximum sentence of 20 years in prison on each count. The defendant also faces a fine of the greater of $5 million or twice the gross gain or gross loss from the offense on the securities fraud charge, as well as a fine of a lesser amount on the wire fraud charge. In connection with his guilty plea, HOCHFELD agreed to forfeit the illegal proceeds of his crimes and will be ordered to pay restitution to the victims of his offenses.

HOCHFELD is scheduled to be sentenced by Judge Crotty on June 27, 2013, at 3:00 p.m.

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

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

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

Preet Bharara, the United States Attorney for the Southern District of New York, Joseph Anarumo Jr., the Special-Agent-in-Charge of the New York Field Division of the United States Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), and Raymond W. Kelly, the Police Commissioner of the City of New York (“NYPD”), announced the unsealing of a Superseding Indictment charging nine members of a violent armed robbery crew operating in the Bronx, New York, with robbery conspiracy, robbery, carjacking, and firearms offenses. Two defendants, MICHAEL CAMPBELL and PATRICK LEWIS, are also charged with committing a murder in connection with one of the armed robberies.

Four of the defendants charged in the Superseding Indictment were previously charged in October 2011 and November 2012. Specifically, DARREN MORRIS and CAMPBELL were originally charged with robbery and firearms offenses by indictment in October 2011. LEWIS and RASHID TURNER were also charged with robbery and firearms offenses in two separate complaints, both filed in November 2012. All four defendants were remanded on the original charges and remain in custody. Of the five new defendants charged in the Superseding Indictment, JAMAL FRAZER and ERIC BOOTH were arrested today and will be presented before U.S. District Judge John F. Keenan this afternoon, TYRIEK SKYFIELD and ANTHONY FRANCIS were in state custody on other charges, and one defendant, PRINCE WAREHAM, remains at large.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, this was an armed and violent gang responsible for murder, multiple robberies, carjacking, and packing pistols and other weapons. We are committed to taking these violent crews off our streets so that the neighborhoods of our District can be peacefully enjoyed by their residents, and with the 19 defendants we charged today, we are making good on that commitment in the Bronx.”

ATF Special Agent-in-Charge Joseph Anarumo Jr. said: “This investigation exemplifies the importance of inter-agency cooperation. In combining the investigative resources of ATF, NYPD and prosecutors from the Southern District of New York, we have put a stop to the alleged violence caused by this group of individuals - the allegedly heinous acts perpetrated include discharging a firearm at a pursuing Police Officer, armed robbery, carjacking and home invasion. Today’s indictment sends a strong message – We will not tolerate firearms violence in our communities and those responsible for it will be identified and held accountable.”

NYPD Commissioner Raymond W. Kelly said: “Criminals who think they can subdue the efforts of police to preserve peace and safety for Bronx residents are mistaken. NYPD narcotics investigators and others will endure to eliminate violent robbery crews, as an off-duty officer proved last week when he tackled an armed assailant despite having been seriously wounded. I commend the detectives who brought these subjects to justice, supported by the prosecutorial expertise of federal partners in the U.S. Attorney’s office.”

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

Between approximately 2009 and 2012, members of the robbery crew engaged in a series of armed robberies and attempted robberies throughout the Bronx, New York, one of which led to the December 2010 murder of a marijuana dealer, Patrick Woodburn in the Bronx. CAMPBELL and LEWIS stole approximately ten pounds of marijuana from Woodburn, and shot and killed him.

In another armed robbery on July 28, 2010, three of the crew members – FRAZER, SKYFIELD, and FRANCIS – carried out a carjacking in the Bronx, during which cash, jewelry, and a BMW sedan were taken from the victim at gunpoint.

MORRIS and CAMPBELL were also previously charged with a November 2009 home invasion robbery in the Bronx, which targeted suspected dealers of marijuana and marijuana proceeds. During the robbery, MORRIS struck one of the victims in the head with a gun, causing the gun to discharge one round. While fleeing the scene of the robbery, MORRIS also fired several shots at a police officer who pursued him.

A chart containing the ages, residency information, and charges against the defendants, as well as the maximum penalties that they face, is attached.

Mr. Bharara praised the investigative work of the ATF and the NYPD.

The case is being prosecuted by the Office’s Violent Crimes Unit. Assistant United States Attorneys Christopher J. DiMase and Jessica A. Masella are in charge of the prosecution.

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

U.S. v. Patrick Lewis, et al S4 Indictment
US v. Patrick Lewis et al Superseder Chart

Two Defendants Are Charged with Kidnapping at Gunpoint and Torturing Victim

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”), and Raymond W. Kelly, the Commissioner of the New York City Police Department (“NYPD”), today announced charges against 10 members of a criminal organization based on Wyatt Street in the Bronx, New York. Nine of the defendants were charged with conspiracy to distribute crack cocaine and heroin. The crew’s alleged ringleader, ANIBAL RAMOS, and one of its members, ANIBAL SOTO, were charged in the original, July 2012 Indictment with kidnapping, conspiracy to commit kidnapping, and the brandishing of a firearm in connection with, and in furtherance of, the kidnapping. RAMOS and SOTO are alleged to have kidnapped and tortured an individual, including by burning the victim with an iron. The Superseding Indictment adds narcotics charges against RAMOS, and also charges him and three of the new defendants with possessing firearms in connection with, and in furtherance of, the crack cocaine and heroin conspiracy.

All eight of the new defendants charged were taken into custody today as part of a coordinated operation involving federal and local law enforcement officers. RAMOS, who was arrested in August 2012, and SOTO, who was arrested in July 2012, remain detained. All the defendants arrested today will be presented in Manhattan federal court this afternoon.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, for far too long, these defendants were a bloody blight on a Bronx community, contaminating it with poisonous and highly-addictive drugs, and the guns, and brutal violence that are part and parcel of the drug trade. This case demonstrates our commitment to working with our law enforcement partners to identify and prosecute those who engage in this conduct and to expand cases previously charged when we develop new evidence. With the charges we bring today in two separate cases against 19 defendants, the Bronx neighborhoods in which they ran amok are safer places for their residents.”

FBI Assistant Director-in-Charge George Venizelos: “This case highlights once again the dual threat posed to our communities by the illegal drug trade. The drugs themselves are poison, with life-altering and lethal consequences. And violence almost always comes with the territory. We remain committed to restoring our communities to their law-abiding residents.”

NYPD Commissioner Raymond W. Kelly said: “The depraved acts of torture described in the indictment need no further characterization, other than to observe that the nexus between drug trafficking and violence is well-established, and the commitment among police and prosecutors to bring its practitioners to justice is unyielding.”

As alleged in the Superseding Indictment unsealed today and other documents filed in Manhattan federal court:

From at least 2000 through August 31, 2012, RAMOS was the leader of a drug crew that operated on Wyatt Street in the Bronx and sold significant street level quantities of crack cocaine and heroin. In addition, members of the drug trafficking organization used firearms, threats of violence, and violence to secure and enforce their drug territory, including the kidnapping and brutal torture committed by RAMOS and SOTO.

RAMOS, JOEL CABRERA, WILLIAM ZACCHI, CHRISTOPHER HERNANDEZ, MICHAEL AVILES, LATRELL RIDDLES, CHARITZA QUINTANA, YASMINE ZELAYANDIA, and JACQUELINE HERNANDEZ are charged with conspiring to distribute, and possess with the intent to distribute, crack cocaine and heroin.

RAMOS, AVILES, RIDDLES, and ZELAYANDIA are also charged with possessing firearms in connection with, and in furtherance of, the crack cocaine and heroin conspiracy.

A chart containing the ages, residency information, and charges against the defendants, as well as the maximum penalties they face is attached.

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

The prosecution of this case is being overseen by the Office’s Violent Crimes Unit. Assistant United States Attorneys Hadassa Waxman and Timothy D. Sini are in charge of the prosecution.

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

Click here to view chart(s)

Preet Bharara, the United States Attorney for the Southern District of New York, announced that JOSE MOSQUERA-PRADO, a top lieutenant of Colombian drug kingpin Francisco Gonzalez-Uribe, was sentenced today in Manhattan federal court to 280 months in prison for conspiring to import and distribute cocaine and heroin into the United States. MOSQUERA-PRADO was convicted in October 2011 following a two-week jury trial before U.S. District Judge Lewis A. Kaplan, who also presided over the sentencing.

Manhattan U.S. Attorney Preet Bharara said: “Mosquera-Prado, and the Colombian-based narco-trafficking organization in which he was a senior player, were responsible for moving massive quantities of cocaine and heroin from country to country, with the ultimate goal of shipping it to the U.S. Thanks to the outstanding work of, and cooperation between, the DEA and international law enforcement partners, he was thwarted and will now pay with his liberty.”

According to the trial evidence, other documents filed in the case, and statements made during court proceedings:

From 2007 through 2009, MOSQUERA-PRADO was a top lieutenant in Gonzalez-Uribe’s international narcotics-trafficking organization, which shipped tons of cocaine and heroin to various locations in Mexico, the Dominican Republic, Venezuela, and other countries. These narcotics were then transported to the United States and various locations in Europe.

During two undercover operations in early 2009 – with the cooperation and assistance of the governments of Colombia and the Dominican Republic – the U.S. Drug Enforcement Administration (“DEA”) seized large quantities of cocaine and heroin from members of Gonzalez-Uribe’s narco-trafficking organization. MOSQUERA-PRADO was intercepted on recorded telephone calls personally orchestrating the shipment of the cocaine and heroin, which were destined for sale in New York City. The cocaine and heroin that was seized by the DEA during these operations had an estimated wholesale value of approximately $2,000,000.

In numerous additional recorded telephone calls and emails, MOSQUERA-PRADO negotiated and coordinated the shipments of several multi-ton loads of cocaine through South America and the Caribbean to the United States and other countries. MOSQUERA-PRADO also sent two of his criminal associates to the Dominican Republic to examine a remote military landing strip that he intended to use to land aircraft carrying large shipments of cocaine, and sought to use a number of large, private aircraft – including a DC-8, a DC-10, a Grumman 2, and a King Air 300 – to transport massive shipments of cocaine.

In addition to the prison term, Judge Kaplan sentenced MOSQUERA-PRADO, 36, to five years of supervised release, a $25,000 fine, and a $200 special assessment fee.

Gonzalez-Uribe was designated a Consolidated Priority Organization Target (“CPOT”) by the U.S. Department of Justice – a designation that is reserved for federal law enforcement priority drug trafficking targets. Gonzalez-Uribe was arrested in the Dominican Republic in 2009. In 2010, he pled guilty in Manhattan federal court to narcotics importation and distribution conspiracy charges and was subsequently sentenced to 30 years in prison.

Mr. Bharara praised the outstanding efforts of the DEA, and specifically cited the DEA Caribbean Field Division, the DEA Bogotá Country Office, the DEA Cartagena Resident Office, the DEA Santo Domingo Country Office, and the DEA New York Field Division. He also thanked the Office of International Affairs of the Justice Department’s Criminal Division and all other cooperating law enforcement agencies. Mr. Bharara also thanked the Government of the Dominican Republic, the Dominican Direccion Nacional de Control de Drogas, and the Dominican Air Force, and expressed his gratitude to the Government of Colombia and the Colombian Departamento Administrativo de Seguridad for their cooperation and assistance in the investigation and prosecution of Mosquera-Prado.

The case is being handled by the Office's Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Benjamin Naftalis, John P. Cronan, and Randall W. Jackson are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that WESLEY WANG, a former consultant with Trellus Management, was sentenced today to two years of probation for his participation in insider trading schemes in which WANG provided material, nonpublic information (“Inside Information”) about various publicly-traded companies to several individuals, including Doug Whitman, the president and founder of Whitman Capital. WANG pled guilty in July 2012 to two counts of conspiracy to commit securities fraud pursuant to a cooperation agreement with the government. He was sentenced in Manhattan federal court by U.S. District Judge Jed S. Rakoff.

According to the Information, statements made during WANG’s guilty plea proceeding, WANG’s testimony during the criminal trial of Doug Whitman, and the Government’s sentencing submission in WANG’s case:

From 2005 through 2008, WANG provided Whitman, among others, Inside Information on Cisco with the understanding that Whitman would use the Information to trade securities. In exchange for this Inside Information, Whitman provided WANG with Inside Information on other publicly-traded companies, including Marvell and Polycom, which WANG in turn provided to others. In addition, from 2002 to 2005, WANG was involved in a separate conspiracy, in which he exchanged Inside Information about various publicly traded companies with other individuals, with the expectation the information would be used to trade securities.

In addition to his probation, WANG, 39, was ordered to pay a $200 special assessment fee.

Whitman was convicted in a jury trial on August 20, 2012 of four counts of conspiracy and securities fraud.

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

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 case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Christopher L. LaVigne and Jillian Berman are in charge of the prosecution.

“Councilman Larry Seabrook sacrificed the public trust on the altar of greed. He was a flagrant and serial abuser of City Council discretionary funds in a far too familiar New York tale of corruption. Today’s sentence finally vindicates the interests of the constituents whose trust he so casually violated by his fraud. We remain committed to making those who are corrupted by power pay the price, and the public can expect more arrests of politicians who have not learned this lesson.”

Preet Bharara, the United States Attorney for the Southern District of New York, announced that former New York City Council Member LARRY SEABROOK, who represented the 12th Council District in the Bronx, was sentenced today in Manhattan federal court to five years in prison after being convicted on nine counts for public corruption crimes in a July 2012 jury trial. SEABROOK was sentenced by Federal District Judge Deborah A. Batts, who also presided over his trial.

Manhattan U.S. Attorney Preet Bharara stated: “Councilman Larry Seabrook sacrificed the public trust on the altar of greed. He was a flagrant and serial abuser of City Council discretionary funds in a far too familiar New York tale of corruption. Today’s sentence finally vindicates the interests of the constituents whose trust he so casually violated by his fraud. We remain committed to making those who are corrupted by power pay the price, and the public can expect more arrests of politicians who have not learned this lesson.”

According to the Indictment, other court documents, and the evidence presented at trial:

SEABROOK served as a member of the New York City Council (the “Council”) from January 2002 until his July 2012 conviction in this case. In that capacity, his official duties included: voting on legislation, representing and advocating for the interests of his constituents, and allocating New York City funds to non-profit organizations.

The Council Discretionary Funds Scheme

From 2002 through 2009, SEABROOK directed numerous city contracts valued at more than $2 million to purportedly independent non-profit organizations supposedly doing community-benefit work in the north Bronx. In fact, however, SEABROOK controlled these non-profit organizations, negotiating the leasing of their office space, creating their budgets, and making their personnel decisions.

The non-profit organizations SEABROOK controlled were funded exclusively by funds allocated by the Council, primarily at the direction of SEABROOK. Hundreds of thousands of dollars in Council funds received by the non-profit organizations were disbursed among SEABROOK’s girlfriend, brother, two sisters, and nephew.

SEABROOK knew these non-profit organizations were not doing enough legitimate work to justify the funds they were receiving from the Council, so to continue the City’s disbursement of funds, SEABROOK and others made misrepresentations to the City and to the Council. Specifically, they failed to disclose that the non-profit organizations were associated with SEABROOK, that the organizations lacked the ability to perform the contracts being awarded to them, and that the funds allocated to the organizations would benefit SEABROOK’s friends and family. SEABROOK and others also made false and inflated claims to the City and to the Council about the expenses that the non-profit organizations were incurring.

Furthermore, rather than leasing space directly from the landlords of the properties they used, SEABROOK arranged for his non-profit organizations to enter into fraudulent and inflated subleases with another organization he controlled (called the African-American Bronx Unity Day Parade, or the “Unity Day Parade”) which in turn leased the space directly from the actual landlords. Each year, three of SEABROOK’s non-profit organizations paid the Unity Day Parade a substantially greater amount than the rent paid to the actual landlord. In connection with this rent scheme alone, SEABROOK and his co-conspirators defrauded the City of more than $95,000.

The FDNY Diversity Program Scheme

In the summer of 2005, in an effort to increase diversity in the ranks of the New York City Fire Department (the “FDNY”), the Council allocated approximately $1.5 million to, among other things, recruit and train minorities to pass the firefighter examination.

In 2006, SEABROOK recommended to the Council that one of the non-profit organizations he controlled, the North East Bronx Redevelopment Corporation (“NEBRC”), receive approximately $300,000 of funds that the Council had allocated to the FDNY diversity initiative through John Jay College of Criminal Justice (the “College”). The Council allocated $750,000 to the College, and directed the College to subcontract with NEBRC in the amount of $300,000.

SEABROOK made these recommendations even though he knew that the New York Department of Small Business Services (the “NYDSBS”) had audited NEBRC’s contracts to receive Council discretionary funding and found widespread financial mismanagement and accounting improprieties, as well as a failure to achieve the performance goals set by those contracts. Furthermore, SEABROOK and others did not disclose to the Council that the NYDSBS had identified serious problems at NEBRC, that the non-profit was under investigation by the City’s Department of Investigation, or that the funds allocated to NEBRC would benefit individuals close to SEABROOK. Although NEBRC conducted some limited recruitment activity in connection with the FDNY diversity initiative, it did not provide any of the mentoring, training, or physical conditioning that it had represented it would provide. In fact, the Council funds that NEBRC received for the FDNY diversity initiative were disbursed to, among others, SEABROOK’s girlfriend; SEABROOK’s sister, who served as a “consultant” for the initiative and was paid $10,000 to write a six-page report; and SEABROOK’s nephew.

The “Jobs To Build On Program” Scheme

In 2007, the Council allocated millions of dollars to the Jobs To Build On Program (“JTBO”), a job training and employment initiative spearheaded by SEABROOK and others. The Consortium for Worker Education (the “CWE”) was eventually charged with the responsibility of administering JTBO funds.

The CWE sought to identify community-based organizations with which it could partner to more effectively provide employment and training services throughout the City in connection with the JTBO initiative. SEABROOK recommended that the CWE partner with NEBRC, falsely representing that it was an entity with which the CWE could contract to effectively provide recruitment for employment and training services. The CWE entered into a $350,000 contract with NEBRC.

On a number of occasions when a program coordinator for the CWE made an unannounced visit to NEBRC’s office, the office was closed. The CWE also found that NEBRC grossly underperformed the services it was obligated to provide under the contract and provided inadequate or false documentation in support of the services it was allegedly providing and the expenses it was incurring pursuant to its contract. Again, the Council funds that NEBRC received for the JTBO initiative were disbursed to, among others, SEABROOK’s girlfriend and SEABROOK’s nephew.

In addition to his prison term, SEABROOK, 61, of the Bronx, New York, was sentenced to two years of supervised release, and was ordered to pay $619, 715.24 in restitution and to forfeit $418, 252.53, to be returned to the City as part of the restitution. He was also ordered to pay a $100 special assessment fee.

In sentencing SEABROOK, Judge Batts remarked: “[Seabrook] held himself above the law, and betrayed the public trust.”

Mr. Bharara praised the work of the New York City Department of Investigation in this case.

The case is being prosecuted by the Office’s Public Corruption Unit. Assistant United States Attorneys Karl Metzner, Randall Jackson, and Steve Lee are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York announced that Italian citizen ISIDORO “MARIO” GARBARINO was sentenced today in Manhattan federal court to time served – approximately four months in prison – and will be deported for unlawfully importing more than 100,000 pounds of Russian and Iranian caviar, valued at more than $10 million, into the U.S. between 1984 and 1987. GARBARINO was first arrested on these charges in July 1987, but fled the country in July 1989 while he was free on bail. He remained a fugitive until his arrest by the U.S. Marshals in September 2012, and ultimately pled guilty in November 2012. GARBARINO was sentenced today by U.S. District Judge Kevin Thomas Duffy.

According to the Complaint, the Indictment, GARBARINO’s plea agreement, statements made in court proceedings, and other public documents:

At the time of his arrest in 1987, GARBARINO was the president and owner of the now-defunct Aquamar Gourmet Imports, Inc. (“Aquamar”), a company that supplied luxury food items, including Russian and Iranian caviar, to prominent New York City gourmet stores such as Zabar’s, and to some of the world’s largest air and cruise lines. At that time, certain Russian and Iranian goods that were imported into the U.S., including caviar, were taxed at a high rate—approximately 30 percent.

Between 1984 and 1987, GARBARINO and Aquamar used several schemes to avoid the tariffs, which were administered according to the value of the goods being imported. For example, GARBARINO would significantly understate the weight and value of the caviar he was importing by placing orders for thousands of pounds of caviar—with a wholesale value of hundreds of thousands of dollars—while declaring to the United States Customs Service that he was importing a small fraction of that amount. In another scheme, GARBARINO would arrange for Russian or Iranian caviar to land at John F. Kennedy International Airport in New York, purportedly for immediate exportation to customers overseas. Immediate exports, which were never supposed to leave the airport, were exempt from U.S. tariffs. GARBARINO, however, would secretly substitute much cheaper American caviar for the expensive Russian or Iranian caviar that had just arrived. He would then export the domestic goods, and unlawfully import and sell the foreign caviar to his U.S. customers. In so doing, GARBARINO avoided paying the required tariffs to the United States for the expensive foreign caviar, and defrauded his international customers who were paying full price for the imported caviar, but were instead receiving the cheaper American caviar. Through these schemes, GARBARINO was able to unlawfully import more than 100,000 pounds of Russian and Iranian caviar into the United States with a then-wholesale value in excess of $10 million.

Prior to today’s sentencing and as a condition of his plea agreement with the Government, GARBARINO, 69, paid $3 million in restitution to the U.S. Customs and Border Protection which represents the duties, penalties, and accrued interest owed for the unlawfully imported caviar described above.

Mr. Bharara thanked the New York Field Office of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations and its predecessor, the U.S. Customs Service, for their assistance in the investigation.

The case is being handled by the Office’s General Crimes Unit. Assistant United States Attorney Edward B. Diskant is in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that VLADIMIR ZDOROVENIN, a Russian national, was sentenced today in Manhattan federal court to three years in prison in connection with a series of sophisticated international cyber crimes. ZDOROVENIN, who was initially charged in January 2012 with his son, Kirill Zdorovenin, pled guilty in February 2012 to one count of conspiracy to commit wire fraud and one count of wire fraud, for his involvement in the schemes. He was sentenced today by U.S. District Judge Paul G. Gardephe.

Manhattan U.S. Attorney Preet Bharara said: “From his perch halfway across the globe, Vladimir Zdorovenin engaged in a slew of cyber crimes that left multiple victims in the United States. Cybercrime is particularly insidious because there is no need for geographic proximity between perpetrators and their victims, and Zdorovenin’s sentence today should serve as a reminder to others that law enforcement does not require geographic proximity to prosecute these crimes either.”

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

While in Russia between 2004 and 2005, ZDOROVENIN engaged in a series of crimes that victimized citizens of the United States through the use of stolen credit card information, multiple phony websites, and bank accounts in Russia and Latvia. Specifically, he conspired to steal victims’ personal identification information, including credit card numbers, through the use of computer programs that were surreptitiously installed on victims’ computers and that recorded the information as it was entered by the victims. He also conspired to purchase stolen credit card numbers from other individuals, and to use the stolen credit card information to make what appeared to be legitimate purchases of goods from various Internet businesses including Sofeco LLC, Pintado LLC, and Tallit LLC. However, the purchases were fraudulent and were used as a means of deceiving banks, credit card service processors, credit card holders, and others. In fact, ZDOROVENIN stole the money directed to the websites through the fraudulent and unauthorized charges he and a co-conspirator caused to be made on the stolen credit cards.

Additionally, ZDOROVENIN conspired to use the Internet to unlawfully access the financial services accounts of victims located in the United States and then transferred or attempted to transfer hundreds of thousands of dollars from those accounts to bank accounts under his and a co-conspirator’s control. Finally, after taking over victims’ online brokerage accounts, ZDOROVENIN and a co-conspirator bought and sold thousands of shares of certain companies’ stock in an effort to manipulate the prices of those stocks. ZDOROVENIN and the co-conspirator realized profits through this scheme by simultaneously purchasing or selling shares of the same stocks through an online brokerage account, maintained in the name of Rim Investment Management, Ltd.

In addition to his prison term, ZDOROVENIN, 55, of Moscow, Russia, was ordered to forfeit up to $1 million, and pay restitution in an amount to be determined within 90 days.

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 James J. Pastore, Jr. and Thomas G.A. Brown are in charge of the prosecution.

Kirill Zdorovenin, ZDOROVENIN’s son and co-conspirator, remains at large. The charges against Kirill Zdorovenin are merely accusations, and he is presumed innocent unless and until proven guilty.

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), today announced the arrest of MICHAEL VANHISE for conspiracy to commit kidnapping. VANHISE allegedly agreed to pay co-conspirator Gilberto Valle, who was an active-duty New York City Police Officer at the time, to kidnap a woman in New York (the “Victim”), and to bring her to his home in New Jersey, where she would be raped. He also allegedly participated in planning the kidnapping of a female minor. VANHISE was arrested by FBI special agents this morning at his residence in Hamilton, New Jersey, and will be presented later today before U.S. Magistrate Judge Andrew J. Peck in Manhattan federal court.

Manhattan U.S. Attorney Preet Bharara said: “As alleged in the complaint, Michael Vanhise engaged in conduct that reads like a script for a bad horror film, but fortunately, neither he nor his co-conspirators were able to act out the twisted conspiracies described in the complaint in real-life. His arrest today is the second in this bone-chilling case, but we are not finished.”

FBI Assistant Director-in-Charge George Venizelos said “The seriousness of the alleged conspiracy is self-evident. No effort to characterize the defendant’s actions is necessary. The factual allegations more than suffice to convey the depravity of the offense.

According to the allegations in the Complaint filed yesterday in Manhattan federal court, and other public documents:

In a February 2012 email conversation, VANHISE and Valle negotiated and agreed that Valle would kidnap the Victim for $5,000. In those conversations, VANHISE and Valle planned for Valle to render the Victim unconscious, bind her hands and feet, gag her, stuff her into a large suitcase, and deliver her to VANHISE’s home. Valle assured VANHISE that the Victim would be delivered alive, so that he could rape her.

VANHISE also emailed photographs of a female minor, whom VANHISE knew well, to other co-conspirators (“CC-2” and “CC-3”). CC-2 and CC-3 both expressed interest in kidnapping the child, and he provided them with the purported address of the girl, which was in close proximity to the girl’s actual home address.

VANHISE, 22, is charged with one count of conspiracy to commit kidnapping, which carries a maximum sentence of life in prison, and a maximum fine of $250,000 or twice the gross gain or gross loss from the offense.

Valle, 28, of Forest Hills, New York, was charged in October 2012 with one count of kidnapping conspiracy, and one count of intentionally and knowingly accessing a computer without authorization, and exceeding his authorized access, and thereby obtaining information from a department and agency of the United States. His case remains pending.

Mr. Bharara praised the outstanding investigative work of the FBI. He added that the investigation is continuing.

The prosecution of this case is being handled by the Office's Violent Crimes Unit. Assistant United States Attorneys Hadassa Waxman and Randall W. Jackson are in charge of the prosecution.

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

U.S. v. Michael Vanhise Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, Kathryn Keneally, the Assistant Attorney General for the Tax Division of the Department of Justice, and Richard Weber, the Chief of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today the guilty plea of WEGELIN & CO. (“WEGELIN”), a Swiss private bank, for 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 (the “IRS”). One of the managing partners of WEGELIN, Otto Bruderer, appeared on behalf of the bank to enter the guilty plea before U.S. District Judge Jed S. Rakoff. This case represents the first time that a foreign bank has been indicted for facilitating tax evasion by U.S. taxpayers and the first guilty plea by a foreign bank to tax charges.

As part of its guilty plea, WEGELIN agreed to pay approximately $20 million in restitution to the IRS and to pay a $22.05 million fine. In addition, WEGELIN agreed to the civil forfeiture of an additional $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 recovery to the United States of approximately $74 million.

Manhattan U.S. Attorney Preet Bharara said: “There is no excuse for wealthy Americans flouting their responsibilities as citizens of this great country to pay their taxes, and there is no excuse for foreign financial institutions helping them to do so. Wegelin became a haven for U.S. taxpayers seeking to circumvent the tax code by hiding their money in secret off-shore accounts, and the bank willfully and aggressively jumped in to fill a void that was left when other Swiss banks abandoned the practice due to pressure from U.S. law enforcement. Today’s guilty plea is a watershed moment in our efforts to hold to account both the individuals and the banks – wherever they may be in the world – who are engaging in unlawful conduct that deprives the U.S. Treasury of billions of dollars of tax revenue. We will continue our efforts until this practice is eliminated in its entirety.”

Assistant Attorney General Keneally said: “Today, Wegelin was held responsible for unlawfully helping U.S. taxpayers who had fled from UBS and other banks hide their income and assets from the IRS. As I have said, it is a high priority of the Department of Justice to find those who continue to shirk their tax obligations, as well as those who would profit by helping them do so. The best deal now for these folks is to come in and “get right” with the I.R.S., before either the I.R.S. or the Justice Department finds them.”

IRS-CI Chief Richard Weber said: “Today, we witnessed another historic event in the enforcement of offshore tax evasion and foreign banks. Wegelin & Co., Switzerland’s oldest bank, pleaded guilty to tax charges. Banks who facilitate tax evasion face serious consequences, including criminal charges, steep fines and restitution. IRS-CI continues to be vigilant in the investigation of offshore tax evasion.”

According to the Superseding Indictment, the February 2012 civil forfeiture Complaint filed against the funds in WEGELIN’s correspondent bank account, and statements made during WEGELIN’s guilty plea today:

Founded in 1741, WEGELIN is Switzerland’s oldest bank. It provided private banking, asset management, and other services to clients around the world, including U.S. taxpayers living in the Southern District of New York. WEGELIN had no branches outside Switzerland, but it directly accessed the U.S. banking system through a correspondent bank account that it held at UBS AG (“UBS”) in Stamford, Connecticut. As of December 2010, WEGELIN had approximately $25 billion in assets under management.

From 2002 through 2011, WEGELIN conspired with various U.S. taxpayers and others, to hide from the IRS the existence of bank accounts held at WEGELIN, and the income generated in those secret accounts. WEGELIN carried out this scheme through among others, client advisers Michael Berlinka (“Berlinka”), Urs Frei (“Frei”), and Roger Keller (“Keller”), who began working at WEGELIN in 2008, 2006, and 2007, respectively.

In 2008 and 2009, WEGELIN opened and serviced dozens of new undeclared accounts for U.S. taxpayers in an effort to capture clients lost by UBS in the wake of widespread news reports that UBS was being investigated by U.S. authorities for helping U.S. taxpayers evade taxes and hide assets in Swiss bank accounts. By mid-2008, UBS had stopped servicing undeclared accounts for U.S. taxpayers.

In the wake of the U.S. investigation of UBS, members of WEGELIN’s senior management decided to take steps to capture the illegal business that UBS had exited. To capitalize on the business opportunity this presented and to increase its assets under management, and the fees earned from managing those assets, WEGELIN employees told various U.S. taxpayer-clients that their undeclared accounts would not be disclosed to the United States authorities because the bank had a long tradition of secrecy. They also persuaded U.S. taxpayer-clients to transfer assets from UBS to WEGELIN by emphasizing that, unlike UBS, WEGELIN did not have offices outside of Switzerland and was therefore less vulnerable to United States law enforcement pressure. Members of WEGELIN’s senior management approved efforts to capture the clients who were leaving UBS and also participated in some meetings with U.S. taxpayer-clients who were fleeing UBS.

In February 2009, UBS entered into a deferred prosecution agreement with the Department of Justice on charges of conspiring to defraud the United States by impeding the IRS. As part of the deferred prosecution agreement, UBS paid $780 million in fines, penalties, interest, and restitution.

To further the goals of the conspiracy from 2002 through 2011, WEGELIN took steps that included the following:

• Opening and servicing undeclared accounts for U.S. taxpayer-clients in the names of sham corporations and foundations formed under the laws of Liechtenstein, Panama, Hong Kong, and other jurisdictions for the purpose of concealing some clients’ identities from the IRS;
• Accepting documents that falsely declared that the sham entities were the beneficial owners of certain accounts, when in fact the accounts were beneficially owned by U.S. taxpayers, and making them part of WEGELIN’s client files;
• Permitting certain U.S. taxpayer-clients to open and maintain undeclared accounts at WEGELIN using code names and numbers to minimize references to the actual names of the U.S. taxpayers on Swiss bank documents;
• Ensuring that account statements and other mail for U.S. taxpayer-clients were not mailed to them in the United States;
• Communicating with some U.S. taxpayer-clients using their personal email accounts to reduce the risk of detection by law enforcement; and
• Issuing checks drawn on, and executing wire transfers through, its U.S. correspondent bank account for the benefit of U.S. taxpayers with undeclared accounts at WEGELIN and at least two other Swiss banks. In so doing, WEGELIN sometimes separated the transactions into batches of checks or multiple wire transfers in amounts that were less than $10,000 to reduce the risk that the IRS would detect the undeclared accounts.

U.S. taxpayers are required to report the existence of any foreign bank account on their federal income tax returns if it holds more than $10,000 at any time during a given year, as well as any income it earns.

By 2010, the collective maximum value of the assets in undeclared accounts beneficially owned by U.S. taxpayer-clients of WEGELIN was more than $1.2 billion, with many accounts holding more than $10,000 in any one year.

The April 2012 forfeiture of approximately $16.2 million from WEGELIN’s correspondent bank account was the result of a civil forfeiture Complaint filed in February 2012. As alleged in the Complaint, WEGELIN used its correspondent bank account at UBS to help U.S. taxpayers with undeclared accounts repatriate money that they had hidden at WEGELIN. This was often done in a manner designed to evade detection by U.S. authorities. For example, U.S. taxpayers routinely asked WEGELIN to issue and send them checks, which were drawn on WEGELIN’S correspondent bank account, and that represented funds held in their secret accounts at the bank. Further, WEGELIN permitted at least two other Swiss banks to issue checks drawn on its correspondent bank account for the benefit of U.S. taxpayers holding undeclared accounts at these other banks. The sheer volume of transactions in WEGELIN’s correspondent bank account served to conceal the repatriation of money from U.S. taxpayers’ undeclared accounts at WEGELIN and the other banks. On April 24, 2012, U.S. District Judge Laura Taylor Swain entered an order forfeiting over $16.2 million seized from the U.S. correspondent account of WEGELIN. As part of its plea agreement, WEGELIN agreed not to contest the April 2012 forfeiture.

By entering its guilty plea in this case, WEGELIN waived any objections to service of the summons and the Superseding Indictment in this case and agreed, as part of its plea agreement, not to contest service of process in this case in the future.

In entering the guilty plea on WEGELIN’s behalf, Bruderer admitted, among other things, that “[f]rom about 2002 through about 2010, Wegelin agreed with certain U.S. taxpayers to evade the U.S. tax obligations of these U.S. taxpayer clients, who, among other things, filed false tax returns with the IRS.” Bruderer also admitted that “[i]n furtherance of its agreement to assist U.S. taxpayers to commit tax evasion in the United States, Wegelin, among other things, opened and maintained accounts at Wegelin in Switzerland for U.S. taxpayers who did not complete W-9 tax disclosure forms.” A W-9 is an IRS form used through which U.S. taxpayers can identify themselves as such to a bank, thereby causing the bank to report income generated in the U.S. taxpayers’ account to the IRS.

Bruderer further admitted that “Wegelin knew that certain U.S. taxpayers were maintaining non-W-9 accounts at Wegelin in order to evade their U.S. tax obligations, in violation of U.S. law, and Wegelin knew of the high probability that other U.S. taxpayers who held non-W-9 accounts at Wegelin also did so for the same unlawful purpose.” Bruderer also admitted that “Wegelin intentionally opened and maintained non W-9 accounts for [certain U.S.] taxpayers with the knowledge that, by doing so, Wegelin was assisting these taxpayers in violating their legal duties” and that “Wegelin was aware that this conduct was wrong.”

WEGELIN is headquartered in St. Gallen, Switzerland, and, in addition to the payment of restitution, faces a fine of up to approximately $40,000,000, representing twice the gross pecuniary loss to the IRS.

Berlinka, 42, Frei, 52, and Keller, 48 – who all reside in Switzerland – were charged in the Indictment in January 2012 and the Superseding Indictment in February 2012. They each face a maximum term of five years in prison, a maximum term of three years of supervised release, and a fine of the greatest of $250,000, or twice the gross pecuniary gain derived from the offense or twice the gross pecuniary loss to the victims. Berlinka, Frei, and Keller have not been arrested.

WEGELIN is scheduled to be sentenced by Judge Rakoff on March 4, 2013, at 4:00 p.m.

Mr. Bharara praised the outstanding efforts of IRS-CI in the investigation. He also thanked the U.S. Department of Justice’s Tax Division and the U.S. Immigration and Customs Enforcement’s Homeland Security Investigations Miami Foreign Corruption Investigations Group for their significant assistance in the investigation.

This criminal case is being handled by the Office’s Complex Frauds Unit and the civil forfeiture proceedings are being handled by the Office’s Asset Forfeiture Unit. Assistant U.S. Attorneys David B. Massey, Daniel W. Levy, and Jason H. Cowley are in charge of the prosecution and civil forfeiture proceedings.

The charges and allegations contained in the Indictment and Superseding Indictment as against the remaining defendants – Berlinka, Frei, and Keller – are merely accusations, and those defendants are presumed innocent unless and until proven guilty.

U.S. v. Wegelin & Co. S1 Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, Brian Crowell, the Special Agent-in-Charge of the New York Field Division of the U.S. Drug Enforcement Administration (“DEA”), George Longworth, the Commissioner of Westchester County Department of Public Safety, Thomas Zugibe, the Rockland County District Attorney, and Kevin Nulty, the Chief of the Orangetown Police Department, announced the arrest this morning of CRAIG OLEKSOWICZ for illegally distributing oxymorphone, a Schedule II controlled substance, the use of which caused the October 2011 death of another individual, a 21-year-old man in Pearl River, New York. OLEKSOWICZ was additionally charged with illegally distributing codeine, methadone, and Valium pills. OLEKSOWICZ was presented today before U.S. Magistrate Judge George A. Yanthis in White Plains federal court.

U.S. Attorney Preet Bharara stated: “As has been reported, prescription drug trafficking and abuse is an exploding epidemic, claiming the lives of almost 15,000 people a year, more than illegal street drugs like heroin and cocaine combined. As alleged, the defendant was essentially an outlaw pharmacy, and worse, a lethal one. The illegal dealers of prescription drugs will not get any easier treatment from this Office simply because what they are selling can be legally used when properly prescribed. We will not relent in combating this new drug scourge. We commend the teamwork and professionalism of our federal and local partners that led to this arrest.”

DEA Special Agent-in-Charge Brian Crowell stated: “There is zero difference between the local street drug dealer selling heroin to that of a person selling illegally obtained prescription pain medication. Some of these diverted pills, like Opana, are known on the streets as ‘Stop Signs’, due to its shape. The misuse of this and other diverted pain medicine can cause people to become addicts leading to tragic overdoses. Diverted pain pills, not prescribed for the right reasons nor by the right doctor, and sold to people on the street, are the leading cause of overdoses and deaths in our region. Many continue to believe the illegal distribution of pain medications is harmless, this charge and arrest should make clear there is no difference between selling pain medication not prescribed by a doctor and supplying heroin.”

Westchester County Department of Public Safety Commissioner George Longworth stated: “This investigation is another example of the tremendous collaboration that exists among federal, county and local law enforcement agencies in the Hudson Valley. The Department of Public Safety is committed to continuing to work with all our law enforcement partners to combat narcotics trafficking in our communities.”

Rockland County District Attorney Thomas Zugibe stated: “This defendant is accused of trafficking in drugs which are extremely potent and sometimes deadly. Rockland County has seen a huge rise in the use and abuse of prescription painkillers, such as Opana. In fact, the White House Office on National Drug Policy says prescription drug abuse is the nation's fastest-growing drug problem, responsible for the deaths of more Americans than heroin and cocaine combined. My thanks to the members of the Rockland County Drug Task Force, the Orangetown Police Department Detective Bureau and the DEA's Diversionary Unit for partnering in this investigation. All levels of law enforcement must continue working together to battle our growing pill epidemic.”

Orangetown Police Department Chief Kevin Nulty stated: “It was sad for me to see a young man from my own neighborhood in Orangetown die as a result of being illegally sold a prescription narcotic substance. The death was very real to me. I greatly commend the work of the investigators from my department and the US Drug Enforcement Administration who worked very hard in identifying the parties responsible for the drug sale of that caused this death. I am very pleased that this case has been brought to a successful closure. Stopping the epidemic of the sale of and illicit use of prescription drugs is a new challenge for law enforcement agencies across the United States. We will continue to work with our local, state and federal partners in our public education, prevention and enforcement efforts.”

According to the Indictment, which was unsealed today in White Plains federal court, and other public documents:

Between at least February 2011 and October 2011, OLEKSOWICZ, 37, of Pearl River, New York, and others regularly distributed OLEKSOWICZ’s prescription oxymorphone pills for profit. Oxymorphone is a powerful painkiller with a high potential for addiction and abuse, and its improper use may be fatal. In October 2011, the use of oxymorphone pills supplied by OLEKSOWICZ caused the overdose death of a young man residing in Pearl River, New York. Following that death, OLEKSOWICZ continued his illegal distribution of pills, selling codeine, methadone, and Valium pills on at least three separate occasions in February 2012.

If convicted, OLEKSOWICZ faces a mandatory minimum penalty of 20 years in prison, a maximum penalty of life in prison, and a maximum fine of $1 million or twice the gain or loss resulting from the crime.

Mr. Bharara praised the investigative efforts of the DEA, the Westchester County Department of Public Safety, the Rockland County Drug Task Force, and the Orangetown Police Department. He also thanked the Rockland County District Attorney’s Office for its assistance in the case.

The case is being handled by the Office’s White Plains Division. Assistant U.S. Attorneys Christopher J. DiMase and Abigail S. Kurland 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. Craig Oleksowicz Indictment

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 today the indictment of TREVOR WHITTINGHAM, an owner of parking lots in Manhattan, for a scheme in which he allegedly failed to pay more than $245,000 in payroll taxes to the IRS. WHITTINGHAM was arrested this morning at his residence in Fort Lee, New Jersey, in connection with today’s charges and will be presented and arraigned before U.S. District Judge Richard J. Sullivan at 3:30 p.m. this afternoon.

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

WHITTINGHAM owned and controlled two companies, EZ Going Park Here and We Have Cars II, through which he operated parking lots in Harlem and other parts of upper Manhattan, New York. WHITTINGHAM was responsible for collecting, accounting for and paying payroll taxes on behalf of both of these companies. From December 2006 through June 2009, WHITTINGHAM caused EZ Going Park Here and We Have Cars II to deduct and collect payroll taxes from its employees. The majority of those payroll taxes, however, were not paid over to the IRS as required. Instead, WHITTINGHAM used the corporate funds of EZ Going Park Here and We Have Cars II to pay for various personal items and otherwise finance a lavish lifestyle. As a result, from 2005 through 2009 EZ Going Park Here and We Have Cars II accumulated approximately $251,265 in unpaid payroll tax liabilities.

WHITTINGHAM, 63, is charged with 13 counts of failing to pay over payroll taxes to the IRS. He faces a maximum sentence on each count of five years in prison, or a total of 65 years in prison on all counts.

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

This case is being handled by the Office’s Complex Frauds Unit. Special Assistant U.S. Attorney Andrew Young is in charge of the prosecution.

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

U.S. v. Trevor Whittingham Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced that TODD HANSEN, the former President of the United States division of an international outdoor advertising company (the “Company”), was sentenced today in Manhattan federal court to four months in prison, in connection with his participation in a five-year, $19.75 million accounting fraud scheme designed to make it appear that the Company was meeting certain performance targets so that he could receive higher salary increases and bonuses. HANSEN pled guilty in June 2012 to one count of conspiracy to commit wire fraud, and one substantive count of wire fraud. He was sentenced by U.S. District Judge Jed S. Rakoff.

According to the Complaint and the Indictment filed in Manhattan federal court:

From 2004 until 2009, HANSEN served as President of the Company, a wholly-owned subsidiary of a United Kingdom corporation, with its common stock listed on the London Stock Exchange. HANSEN, together with Finance Director, James Buckley, directed the Company’s controller (the “Controller”) to make fictitious accounting entries in the Company’s books and records in order to give the appearance that the Company was meeting its monthly performance targets. To create these inflated income figures, HANSEN directed the Controller to record higher monthly revenues from either false client billings or rebates on certain goods and services that the Company was purportedly receiving from some of its vendors.

The false accounting entries resulted in the preparation of financial statements that reflected artificially inflated monthly income amounts for the Company. HANSEN was thereby able to create the misimpression that the Company was meeting its projected financial performance goals. During this five-year period, the fraudulent entries HANSEN requested resulted in a total overstatement of the Company’s net income by approximately $19.75 million. As a result of meeting these fictitious performance goals, HANSEN was paid approximately $1.1 million in salaries and bonuses over the five-year period.

In addition to the accounting fraud scheme, during this same time period, HANSEN misused tens of thousands of dollars of Company funds to pay for expenses and fees that directly benefitted him, his family, and friends, and that were unrelated to the Company’s legitimate business.

In addition to the prison term, Judge Rakoff sentenced HANSEN, 49, of Bakersfield, California, to three years of supervised release. HANSEN was also ordered to pay $231,000 in restitution and forfeit $173,450.90.

James Buckley, 49, of Westwood, New Jersey, was sentenced by Judge Rakoff on October 16, 2012 to time served, followed by one year of supervised release, and ordered to pay $26,872.22 in restitution.

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

This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Christopher D. Frey and Nicole Friedlander are in charge of the prosecution.

In Largest Single-Year Recovery Since Forfeiture Funds Were Established, Office Collected 68% of the National Total For All Asset Forfeiture Actions

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the Office collected more than $2.98 billion in forfeiture actions in Fiscal Year (FY) 2012, representing the largest amount collected in a given year by any office since the United States’ asset forfeiture funds were established in the 1980s. The office also collected $526.7 million from civil actions and $76.8 million in restitution, criminal fines, and special assessments in FY 2012.

Manhattan U.S. Attorney Preet Bharara said: “Effective law enforcement punishes those who break laws and sends a message of deterrence whenever possible. As part of that effort, it is critical to strip defendants of their ill-gotten money and property, and where appropriate, impose fines and penalties. Our aim is not only to take the profit out of crime and the profit incentive away from civil offenders, but also to compensate victims and put money back into government. As this year’s record-setting asset forfeiture numbers reflect, our commitment to these law enforcement principles is unrelenting. The assets we collected also fund vital law enforcement programs at both the state and local levels. It is extremely gratifying that our Office, teamed with our agency partners, has been so successful at taking away the proceeds of crime and compensating victims.”

U.S. Attorney’s offices nationwide collected $4.389 billion in asset forfeiture actions in FY 2012. Of that $4.389 billion, 68% was collected by the U.S. Attorney’s Office for the Southern District of New York. Forfeited funds are 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 FY 2012, the U.S. Attorney’s Office for the Southern District of New York returned more than $1.24 billion to crime victims, 79% of the national total.

The $526.7 million collected by the Office’s Civil Frauds Unit came primarily from affirmative civil actions in which the Office collected government money lost due to fraud or other misconduct, or collected fines imposed on individuals and/or corporations for violations of federal health, safety, civil rights, or environmental laws.

Nationwide, the U.S. Attorneys’ offices collected $13.1 billion in criminal and civil actions during FY 2012, more than doubling the $6.5 billion collected in FY 2011. A portion of this amount, $5.3 billion, was collected in shared cases in which one or more U.S. Attorneys’ offices or department litigating divisions were also involved. The $13.1 billion represents more than six times the appropriated budget of the combined 94 offices for FY 2012.

Below are summaries of some of the cases in which the Office obtained substantial forfeitures or provided significant restoration to victims in FY 2012:

Madoff Ponzi Scheme

The Asset Forfeiture Unit has collected approximately $2.35 billion to date in connection with the massive fraud perpetrated through Bernard L. Madoff Investment Securities (BLMIS), and continues to preserve and recover assets that ultimately will be used to compensate victims of the massive fraud. The amount collected in FY 2012 - $2.222 billion - came from two major settlements:

Jeffry Picower

$2.2 billion forfeited

In December 2010, the estate of BLMIS longtime, high-wealth customer Jeffry Picower, agreed to the forfeiture of more than $7.2 billion. The Office agreed to credit to the forfeiture a $5 billion payment to settle claims brought by Securities Investor Protection Corporation (“SIPC”) Trustee Irving Picard. In August 2012, the Court of Appeals issued a mandate rejecting the objections to the Picower settlement, making final the forfeiture of approximately $7,209,742,817 from the Picower Estate and providing for the deposit of more than 2.2 billion in the Assets Forfeiture Fund.

Carl Shapiro

$22 million forfeited

In December 2010, BLMIS longtime, high-wealth customer Carl Shapiro, agreed to the forfeiture of $625 million. The Office agreed to credit to the forfeiture a $550 million payment to settle claims brought by Securities Investor Protection Corporation (“SIPC”) Trustee Irving Picard. Approximately $22 million of the remaining forfeiture obligation was collected by the Office and deposited to the Assets Forfeiture Fund in FY2012, bringing the total forfeited by Shapiro to approximately $60 million.

Monies collected by the Office in connection with the Madoff cases will be distributed to victims in accordance with the Department of Justice remission process. Richard C. Breeden was recently retained to serve as Special Master on behalf of the Department to administer that process and we expect the victim claims process to begin shortly.

CityTime Fraud

500.3 million forfeited; $466 million remitted to the City of New York

In March 2012, as part of a Deferred Prosecution Agreement, Science Applications International Corporation (SAIC), the primary contractor on New York City's “CityTime” payroll project, forfeited $500,392,977 in connection with its role in a fraud and kickback scheme. As compensation for its losses on the CityTime project, $466,093,333.53 was remitted to the City. The mayor’s office stated that this compensation enabled the City to fill more than 2,500 teaching positions that were to be eliminated in the budget for the coming fiscal year, while avoiding tax increases or layoffs of police officers or firefighters.

Adelphia Securities Fraud

More than $728.9 million remitted to victims

In April and May 2012, more than $728.9 million forfeited in connection with the Office’s investigation and prosecution of the Adelphia Communications Corporation securities fraud was distributed to victims who suffered financial losses as a direct result of the fraud. In July

2004, John Rigas, the founder and former Chairman and Chief Executive Officer of Adelphia, and Timothy Rigas, the former Chief Financial Officer, were convicted in Manhattan federal court for their participation in a massive securities fraud scheme to defraud investors, creditors, and the public concerning the financial condition and operating performance of Adelphia. Following the convictions of John and Timothy Rigas, the Office negotiated a settlement that created a fund to compensate defrauded investors. As part of the settlement, the Rigases, as well as other members of the family, agreed to forfeit more than 95% of the family’s assets to the Government. The Adelphia distribution is the largest single distribution of forfeited assets to victims in Department of Justice history.

PokerStars

$158.5 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 brought by this Office 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. In order to fully resolve the action, the settlement further provides that PokerStars will acquire the Forfeited Full Tilt Assets from the Government. To date, $158.5 million in funds resulting from the settlement has been received and fully forfeited.

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

Deutsche Bank & MortgageIT Fraud

$202.3 million paid to the United States

In May 2012, the Office reached a settlement with Deutsche Bank and MortgageIt for $202.3 million that resolved a civil fraud Complaint alleging that MortgageIT, and later Deutsche Bank AG, made repeated false certifications to the U.S. Department of Housing and Urban Development (“HUD”) to obtain approval of mortgages that MortgageIT underwriters recklessly endorsed for Federal Housing Administration (“FHA”) insurance. The Complaint also alleged that defendants falsely certified to HUD that MortgageIT maintained a compliant quality control program when it did not. The defendants also admitted, acknowledged, and accepted responsibility for certain misconduct outlined in the Complaint.

CitiMortgage Fraud

$158.3 million paid to the United States

In February 2012, the Office filed, and simultaneously settled, a civil fraud lawsuit for $158.3 million against CitiMortgage, Inc., a subsidiary of CitiBank, N.A., for over six years of misconduct in connection with CitiMortgage’s participation in the FHA’s Direct Endorsement Lender Program. The Complaint alleged that CitiMortgage submitted false certifications stating that certain loans were eligible for FHA mortgage insurance when in fact, they were not. This caused HUD to incur losses when the loans defaulted. In addition, CitiMortgage admitted and accepted responsibility for certain conduct alleged in the Complaint.

City of New York - Personal Care Services Fraud

$70 million paid to the United States

In October 2011, the Office reached a settlement with the City of New York for $70 million in connection with the City’s operation of the Personal Care Services (PCS) program - a Medicaid funded program designed to provide cleaning, shopping, grooming, and basic aid services to eligible Medicaid beneficiaries. The civil health care fraud Complaint alleged that for 10 years, the City improperly overcharged the Medicaid program for the provision of 24-hour personal care services by routinely re-authorizing 24-hour continuous PCS for applicants without the required local medical director assessment; that in some cases, City administrators overruled the findings of the local medical director that PCS services were inappropriate for the patient; and that the City knowingly re-authorized 24-hour care for patients where the nursing and social worker assessments were missing or were not reviewed by the City.

Beth Israel Medical Center Fraud

$13 million paid to the United States

In March 2012, this Office filed, and simultaneously settled, a civil health care fraud lawsuit against Beth Israel Medical Center (“Beth Israel”), recovering $13,031,355 in damages and penalties under the False Claims Act from the hospital. The Complaint alleged that Beth Israel fraudulently inflated its charges to Medicare patients to obtain larger “outlier” reimbursements, which are supplemental reimbursements made in cases where the cost of care is unusually high, from Medicare. In the settlement, Beth Israel admitted, acknowledged, and accepted responsibility for having selectively increased its charges to obtain more outlier payments than it

The Office’s 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 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/.