Southern District of New York

Audrey Strauss, the United States Attorney for the Southern District of New York, Mark J. Lesko, the Acting Assistant Attorney General for National Security, and William F. Sweeney Jr., Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the unsealing of kidnapping conspiracy, sanctions violations conspiracy, bank and wire fraud conspiracy, and money laundering conspiracy charges against ALIREZA SHAVAROGHI FARAHANI, a/k/a “Vezarat Salimi,” a/k/a “Haj Ali,” MAHMOUD KHAZEIN, KIYA SADEGHI, and OMID NOORI, and sanctions violations conspiracy, bank and wire fraud conspiracy, money laundering conspiracy, and structuring charges against NILOUFAR BAHADORIFAR, a/k/a “Nellie Bahadorifar.”  The charges are contained in a Superseding Indictment unsealed today in Manhattan federal court.  The case is pending before U.S. District Judge Ronnie Abrams.  BAHADORIFAR was arrested on July 1, 2021 in California on charges contained in an underlying indictment.  BAHADORIFAR will be arraigned on the charges in the Superseding Indictment by Judge Abrams at a date and time to be set by the Court.  FARAHANI, KHAZEIN, SADEGHI, and NOORI, all of whom are based in Iran, remain at large.     

U.S. Attorney Audrey Strauss said: “As alleged, four of the defendants monitored and planned to kidnap a U.S. citizen of Iranian origin who has been critical of the regime’s autocracy, and to forcibly take their intended victim to Iran, where the victim’s fate would have been uncertain at best.  Among this country’s most cherished freedoms is the right to speak one’s mind without fear of government reprisal.  A U.S. citizen living in the United States must be able to advocate for human rights without being targeted by foreign intelligence operatives.  Thanks to the FBI’s exposure of their alleged scheme, these defendants have failed to silence criticism by forcible abduction.”

Acting Assistant Attorney General Mark J. Lesko said: “Every person in the United States must be free from harassment, threats and physical harm by foreign powers.  Through this indictment, we bring to light one such pernicious plot to harm an American citizen who was exercising their First Amendment rights, and we commit ourselves to bring the defendants to justice.”

FBI Assistant Director William F. Sweeney Jr. said: “This is not some far-fetched movie plot. We allege a group, backed by the Iranian government, conspired to kidnap a U.S. based journalist here on our soil and forcibly return her to Iran. Not on our watch. FBI special agents and analysts will continue to aggressively hunt for foreign operatives who attempt illegal action inside our borders or against our citizens. Working side-by-side with our international partners, the FBI’s reach is global. When we find you, you will be brought here and held accountable under U.S. law.”

According to the allegations contained in the Superseding Indictment, other court filings, and statements made during court proceedings:[1] 

FARAHANI is an Iranian intelligence official who resides in Iran.  KHAZEIN, SADEGHI, and NOORI are Iranian intelligence assets who also reside in Iran.  Since at least June 2020, FARAHANI, and the intelligence network he manages – including KHAZEIN, SADEGHI, and NOORI – have plotted to kidnap a U.S. citizen of Iranian origin (“Victim-1”) from within the United States in furtherance of the Government of Iran’s efforts to silence Victim-1’s criticisms of the regime.  Victim-1 is a journalist, author, and human rights activist, residing in Brooklyn, New York, who has publicized the Government of Iran’s human rights abuses. 

Prior to the plot to kidnap Victim-1 on U.S. soil, the Government of Iran attempted to lure Victim-1 to a third country in order to capture Victim-1 for rendition to Iran.  In approximately 2018, Iranian government officials attempted to induce relatives of Victim-1, who reside in Iran, to invite Victim-1 to travel to a third country for the apparent purpose of having Victim-1 arrested or detained and transported to Iran for imprisonment.  Victim-1’s relatives did not accept the offer.  Iranian intelligence services have previously lured other Iranian dissidents from France and from the United States for the purposes of capturing and imprisoning regime critics and have publicly claimed responsibility for these capture operations.  An electronic device used by FARAHANI contains, among other things, a photo of Victim-1 alongside photos of two other individuals, both of whom were captured by Iranian intelligence, with one later executed and the other imprisoned in Iran, and a caption in Farsi stating, “Gradually the gathering gets bigger...  Are you coming, or should we come for you?”

On multiple occasions in 2020 and 2021, as part of the plot to kidnap Victim-1, FARAHANI and his network procured the services of private investigators to surveil, photograph, and video record Victim-1 and Victim-1’s household members in Brooklyn.  The extensive surveillance that FARAHANI’s network procured included requests for days’ worth of surveillance at Victim-1’s home and the surrounding area, videos and photographs of Victim-1’s family and associates, surveillance of Victim-1 outside Victim-1’s residence, and the installation of and access to a live high-definition video feed depicting Victim-1’s home.  The network repeatedly insisted on high-quality photographs and video recordings of Victim-1 and Victim-1’s household members; a large volume of content; pictures of visitors and objects around the house; and depictions of Victim-1’s body language.  The network procured the surveillance by misrepresenting their identities and the purpose of the surveillance to the investigators, and laundered money into the United States from Iran in order to pay for the surveillance, photos, and video recordings of Victim-1.  SADEGHI acted as the network’s primary point of contact with the private investigators in the United States, and NOORI facilitated payment to the investigators in furtherance of the plot targeting Victim-1.

As part of the kidnapping plot, the FARAHANI-led intelligence network also researched methods of transporting Victim-1 out of the United States for rendition to Iran.  SADEGHI, for example, researched a service offering military-style speedboats for self-operated maritime evacuation out of New York City, and maritime travel from New York to Venezuela, a country whose de facto government has friendly relations with Iran.  KHAZEIN researched travel routes from Victim-1’s residence to a waterfront neighborhood in Brooklyn, the location of Victim-1’s residence relative to Venezuela, and the location of Victim-1’s residence relative to Tehran.    

The network that FARAHANI directs has also targeted victims in other countries, including victims in Canada, the United Kingdom, and the United Arab Emirates, and has worked to procure similar surveillance of those victims.

BAHADORIFAR is originally from Iran and is currently a California resident.  BAHADORIFAR has provided financial and other services from the United States to Iranian residents and entities, including to KHAZEIN, since at least in or about 2015, including access to the U.S. financial system and U.S. financial institutions through the use of card accounts, and has offered to manage business interests in the United States on KHAZEIN’s behalf.  Among other things, BAHADORIFAR caused a payment to be made to a private investigator for surveillance of Victim-1 on KHAZEIN’s behalf.  BAHADORIFAR is not charged with participating in the kidnapping conspiracy, but is alleged to have provided financial services that supported the plot and is charged with conspiring to violate sanctions against Iran, to commit bank and wire fraud, and to commit money laundering.  BAHADORIFAR is also charged with structuring cash deposits totaling more than approximately $445,000.

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ALIREZA SHAVAROGHI FARAHANI, 50, MAHMOUD KHAZEIN, 42, KIYA SADEGHI, 35, and OMID NOORI, 45, all of Iran, have each been charged with: (1) conspiring to kidnap, which carries a maximum sentence of life in prison (Count One), (2) conspiring to violate the International Emergency Economic Powers Act and sanctions against the Government of Iran, which carries a maximum sentence of 20 years in prison (Count Two), (3) conspiring to commit bank and wire fraud, which carries a maximum sentence of 30 years in prison (Count Three), and (4) conspiring to launder money, which carries a maximum sentence of 20 years in prison (Count Four).  NILOUFAR BAHADORIFAR, 46, of California, is charged in Counts Two, Three, and Four, and is further charged with structuring (Count Five), which carries a maximum sentence of 10 years in prison.  The potential maximum sentences in this case are prescribed by Congress and provided here for informational purposes only, as any sentencing of the defendants will be determined by Judge Abrams.

BAHADORIFAR was arrested on charges contained in an underlying indictment on July 1, 2021, and was arraigned by Judge Abrams on that indictment on July 8, 2021.  FARAHANI, KHAZEIN, SADEGHI, and NOORI remain at large. 

Ms. Strauss praised the outstanding investigative work of the FBI’s New York Field Office Counterintelligence-Cyber Division and the New York FBI Iran Threat Task Force.  Ms. Strauss also thanked the New York City Police Department (“NYPD”) and the NYPD Intelligence Bureau, the FBI’s Los Angeles Field Office Orange County Resident Agency, and the Department of Justice’s National Security Division, Counterintelligence and Export Control Section, for their assistance.

This case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Michael D. Lockard, Jacob H. Gutwillig, and Matthew J.C. Hellman are in charge of the prosecution, with assistance from Trial Attorney Nathan Swinton of the Counterintelligence and Export Control Section.

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

 

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[1] As the introductory phrase signifies, the Superseding Indictment, and the description of the Superseding Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that PEDRO VICIOSO DE LIMA, a/k/a “Pep,” a/k/a “Pepo,” was sentenced today in Manhattan federal court to 180 months in prison for leading a drug trafficking organization (the “DTO”) that was responsible for dealing fentanyl-laced heroin that has been tied to multiple suspected fatal and nonfatal overdoses.  VICIOSO DE LIMA previously pled guilty to participating in a conspiracy to distribute heroin, and was sentenced today before U.S. District Judge Colleen McMahon.

U.S. Attorney Audrey Strauss said: “As he previously admitted, Pedro Vicioso De Lima led a Washington Heights drug distribution network that sold fentanyl-laced heroin even after he was aware that customers were overdosing on it.  Vicioso De Lima’s drug peddling and his callous disregard for its consequences have resulted in today’s prison sentence.”

According to the allegations in the Indictment and other filings and statements made in Court:

VICIOSO DE LIMA was the leader of a drug trafficking organization (the “DTO”) that operated in New York, New York, and controlled heroin sales from a building at 501 West 167th Street (the “DTO’s Building”) and the immediately surrounding vicinity (the “DTO’s Drug Territory”).  From July 2016 to October 2018, the DTO is estimated to have distributed more than 85 kilograms of heroin, much of it laced with fentanyl.  VICIOSO DE LIMA controlled and oversaw the operations of the DTO, and together with his trusted second-in-command, Victor Hidalgo, managed stash houses in the DTO’s Drug Territory where the DTO stored its wares.  The defendant directed other members of the DTO on matters ranging from how to handle drugs being sold by the DTO, to managing lookouts who worked for the DTO and surveilled for law enforcement, to handling complaints by customers about the quality of drugs being sold by the DTO. 

No later than May 2018, VICIOSO DE LIMA was told by Hidalgo that the mixture of heroin being sold by the DTO was causing people to “drop[]” – or overdose – outside the DTO’s Building.  Nevertheless, VICIOSO DE LIMA persisted in leading the DTO and selling its potentially fatal narcotics through his arrest in this case in November 2018.

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VICIOSO DE LIMA, 52, of Bergenfield, New Jersey, pled guilty to one count of conspiracy to distribute and possess with intent to distribute one kilogram and more of heroin from July 2016 to October 2018.  In addition to the prison term, VICIOSO DE LIMA was sentenced to 10 years of supervised release.

Hidalgo was previously sentenced to 120 months in prison.

Ms. Strauss praised the outstanding investigative work of Homeland Security Investigations, the Drug Enforcement Administration, and the New York City Police Department.

The prosecution is being handled by the Office’s Narcotics Unit.  Assistant United States Attorneys Jessica Greenwood, Aline R. Flodr, and Dominic Gentile are in charge of the prosecution. 

Audrey Strauss, the United States Attorney for the Southern District of New York, announced today that STEPHEN M. CALK was convicted of financial institution bribery and conspiracy to commit financial institution bribery, for corruptly using his position as the head of a federally-insured bank to issue millions of dollars in high-risk loans to Paul Manafort in exchange for a personal benefit: CALK’s placement on a 2016 presidential campaign and assistance from Manafort in trying to obtain a senior position with the incoming presidential administration.  CALK was convicted following a three-week trial before U.S. District Judge Lorna G. Schofield.

Manhattan U.S. Attorney Audrey Strauss said:  “A unanimous jury convicted Stephen M. Calk of approving millions of dollars in high-risk loans to Paul Manafort in an effort to secure a personal benefit, namely a high-profile spot on the presidential campaign and appointment as Secretary of the Army or another similarly high-level position in the incoming presidential administration.  Calk used the federally-insured bank he ran as his personal piggybank to try and buy himself prestige and power.  Today’s verdict sends the message that corruption at the highest levels of federally regulated financial institutions will be prosecuted by this Office.”

As reflected in the Indictment, documents previously filed in the case, and evidence introduced at trial:

CALK, The Federal Savings Bank, and Paul Manafort

STEPHEN M. CALK was the chairman and chief executive officer of The Federal Savings Bank, a federal savings association headquartered in Chicago, Illinois, with an office in New York, New York (the “Bank”).  The Bank was owned in its entirety by National Bancorp Holdings, a Chicago-based bank holding company (the “Holding Company”), and CALK was the chairman, chief executive officer, and owner of approximately 67% of the Holding Company.

Paul Manafort was a lobbyist and political consultant.  Beginning in or about March 2016, Manafort held a senior role with a 2016 presidential campaign (the “Presidential Campaign”), and from June 2016 through August 2016, he served as chairman of the Presidential Campaign.  After Manafort’s formal role with the Presidential Campaign concluded in or about August 2016, Manafort continued to be informally involved in the campaign.  Beginning in or about November 2016, when the candidate was elected President of the United States, Manafort provided informal input to the presidential transition team (the “Presidential Transition Team”).

The Corrupt Scheme

Between in or about July 2016 and January 2017, CALK engaged in a corrupt scheme to exploit his position as the head of the Bank and the Holding Company in an effort to secure a valuable personal benefit for himself, namely, Manafort’s assistance in obtaining for CALK a senior position in the presidential administration.  During this time period, Manafort sought millions of dollars in loans from the Bank.  CALK understood that Manafort urgently needed these loans in order to terminate or avoid foreclosure proceedings on multiple properties owned by Manafort and Manafort’s family.  Further, CALK believed that Manafort could use his influence with the Presidential Transition Team to assist CALK in obtaining a senior administration position.

CALK thus sought to leverage his control over the Bank and the loans sought by Manafort to his personal advantage.  Specifically, CALK offered to, and did, cause the Bank and Holding Company to extend $16 million in loans to Manafort in exchange for Manafort’s requested assistance in obtaining a high-level position in the presidential administration.  For example, and while Manafort’s loans were pending approval, CALK provided Manafort with a ranked list of the governmental positions he desired, which started with Secretary of the Treasury, and was followed by Deputy Secretary of the Treasury, Secretary of Commerce, and Secretary of Defense, as well as 19 ambassadorships similarly ranked and starting with the United Kingdom, France, Germany, and Italy.

In approving these loans to Manafort, CALK was aware of significant red flags regarding Manafort’s ability to repay the loans, such as his history of defaulting on prior loans.  Moreover, given the size of the loans, Manafort’s debt became the single largest lending relationship at the Bank.  In order to enable the Bank to issue these loans without violating the Bank’s legal limit on loans to a single borrower, CALK authorized a maneuver never before performed by the Bank, in which the Holding Company—which CALK also controlled—acquired a portion of the loans from the Bank.

During the same time period, Manafort provided CALK with valuable personal benefits.  First, in or about the summer of 2016, during the Presidential Campaign—and just days after CALK and the rest of the Bank’s credit committee conditionally approved a proposed $9.5 million loan to Manafort — Manafort appointed CALK to a prestigious economic advisory committee affiliated with the campaign.  And second, in or about late November and early December 2016—after the candidate had been elected President, after Manafort’s first loan from the Bank had been issued, and while a second set of loans worth $6.5 million sought by Manafort was pending approval by the Bank— Manafort used his influence with the Presidential Transition Team to assist Calk, recommending CALK for an administration position.  Due to Manafort’s efforts, CALK was formally interviewed for the position of Under Secretary of the Army on January 10, 2017 at the Presidential Transition Team’s principal offices in New York, New York.  CALK was not ultimately hired.

To conceal the unlawful nature of his scheme, CALK made false and misleading statements to the OCC regarding the loans to Manafort.  For example, CALK falsely stated to the OCC regulators that he had not known that the Manafort’s properties had been in foreclosure prior to issuing the loans.  CALK also stated that he had never desired a position in the presidential administration. 

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CALK, 56, was found guilty of one count of financial institution bribery, which carries a maximum sentence of 30 years in prison, and one count of conspiracy to commit financial institution bribery, which carries a maximum sentence of 5 years in prison.  CALK is scheduled to be sentenced on January 10, 2022.

Ms. Strauss praised the outstanding investigative work of the FBI and FDIC OIG.

This case is being handled by the Office’s Public Corruption Unit.  Assistant U.S. Attorneys Paul M. Monteleoni, Hagan Scotten, and Alexandra N. Rothman are in charge of the prosecution.

Audrey Strauss, United States Attorney for the Southern District of New York, announced the guilty plea today of NAIM ISMAIL relating to his participation in various investment schemes that defrauded victims of over $15 million.  ISMAIL pled guilty before U.S. District Judge Analisa Torres.

Manhattan U.S. Attorney Audrey Strauss said: “In spinning a web of lies, Naim Ismail and his co-conspirators gained, and took advantage of, the confidence of vulnerable individual investors as well as a Manhattan-based business, bilking them of millions of dollars in the process.  With today’s guilty plea, Ismail has admitted to his scheme and now faces a prison term for his conduct.”

According to the allegations in the Indictment, court filings, and statements made during court proceedings:

From February 2007 through July 2016, ISMAIL fraudulently induced individual and corporate victims – including the New York-based subsidiary of an Afghanistan-based bank – to loan large sums of money to entities operated by ISMAIL and others.  ISMAIL did so by claiming that these funds would be used in a particular investment strategy as well as several real estate development projects.  ISMAIL promised investors a generous fixed annual rate of return and promised to return the investors’ principal on a specified timeline.  In fact, ISMAIL and his companies did not invest these funds as promised, nor did ISMAIL repay many of his victims.  Instead, ISMAIL used investor funds to pay the so-called interest payments due to earlier investors in the scheme, as well as for his own personal expenses and investments. 

During the course of the fraudulent scheme, ISMAIL deprived the scheme’s victims of over $15 million. 

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ISMAIL, 60, formerly of Irvine, California, pled guilty to one count of conspiracy to commit wire fraud, which carries a maximum sentence of 20 years in prison.  The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.  Sentencing before Judge Torres is scheduled for November 17, 2021, at 11:00 a.m.

Ms. Strauss praised the outstanding work of the Special Inspector General for Afghan Reconstruction and Homeland Security Investigations on this investigation.

This case is being handled by the Office’s Money Laundering and Transnational Criminal Enterprises Unit.  Assistant U.S. Attorneys Kiersten A. Fletcher and Jonathan E. Rebold are in charge of the prosecution. 

Audrey Strauss, United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today the arrest of ANGEL PEREDA for his role in a scheme to sell forged artworks purportedly created by renowned artists, including Jean-Michel Basquiat and Keith Haring.  PEREDA was arrested in New York on July 9, 2021.

Manhattan U.S. Attorney Audrey Strauss said: “As alleged, Angel Pereda attempted to sell forgeries of artworks by Jean-Michel Basquiat and Keith Haring, among others, as genuine.  If real, such works would be worth millions.  The alleged fakes have little or no value, except potentially as evidence of the alleged crime.  Angel Pereda now faces the prospect of a jury’s appraisal of his alleged conduct.”

FBI Assistant Director William F. Sweeney Jr. said: "As we allege, Mr. Pereda conned art buyers, hoping his victims wouldn’t see the difference between real art and a forgery. He used their trust to his advantage by passing off worthless pieces as priceless works of art. Hopefully, this case provides a lesson to any others hoping to engage in similar behavior – the FBI's Art Crime Team has the resources to distinguish the real from the fake, and its members will ensure you face the consequences of your actions."

According to the allegations contained in the complaint unsealed today in Manhattan federal court[1]:

In or about 2020 and 2021, ANGEL PEREDA engaged in a scheme to sell paintings and other artwork that he marketed for sale as having been painted or created by world-famous artists, including Jean-Michel Basquiat and Keith Haring, among others.  By knowingly and falsely claiming that these fake works were painted by these famous artists, PEREDA tried to trick purchasers into paying millions of dollars for the fake works, which, as the defendant well knew, were essentially worthless.

To deceive his victims, PEREDA falsified the provenance – that is, the ownership history – of the forged artworks.  On one occasion, PEREDA attempted to facilitate the sale of a painting purportedly by Basquiat, which PEREDA referred to as “Glory Boys Kingdom.”  When told by another individual that a particular false provenance had been detected as fraudulent, PEREDA created and sent to an individual in New York new fraudulent provenances, so that the painting could be sold for millions of dollars.  A photograph of “Glory Boys Kingdom” is below:

 

PEREDA is also connected to at least three other works of art purportedly by Basquiat and Haring, which have been determined to be fraudulent.  Photographs of the pieces are below:

 

 

If you believe you have additional information regarding ANGEL PEREDA, also known as “Angel Luis Pereda Eguiluz,” please contact the FBI at 1-800-CALL FBI or NYArtCrime@fbi.gov, and reference this case.

PEREDA, 49, of Mexico, is charged with one count of wire fraud, which carries a maximum sentence of 20 years in prison.

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

Ms. Strauss praised the outstanding efforts of the FBI Art Crime Team in the investigation, which she noted is ongoing.

This case is being handled by the Office’s Money Laundering and Transnational Criminal Enterprises Unit.  Assistant U.S. Attorney Samuel L. Raymond is in charge of the prosecution.

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

 

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[1] As the introductory phrase signifies, the entirety of the text of the Complaint, and the description of the Complaint set forth herein, constitute only allegations, and every fact described herein should be treated as an allegation as to the defendants charged in the Complaint.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that MICHAEL CASTILLO, a/k/a “Squirrel,” pled guilty today in Manhattan federal court in connection with the March 10, 2011, murder of Hector Arias in the Bronx, New York.  U.S. District Judge John G. Koeltl accepted the defendant’s guilty plea.  

U.S. Attorney Audrey Strauss said: “Today, Michael Castillo admitted that he shot and killed Hector Arias in 2011.  This guilty plea shows that law enforcement will relentlessly seek justice for murder victims and their loved ones, regardless of the passage of time.”

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

CASTILLO was a member of a conspiracy to distribute marijuana centered near 193rd Street and Broadway in New York, New York.  CASTILLO was hired by the leader of the conspiracy, David Espinal, a/k/a “D-Block,” to kill Hector Arias, the leader of a rival marijuana business operating in the same area.  On March 10, 2011, CASTILLO shot and killed Arias outside Arias’s home at 712 East Gun Hill Road in the Bronx, New York.  The murder plot arose out of the rivalry between the two marijuana businesses. 

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CASTILLO, 38, pled guilty to one count of murder through the use of a firearm, in violation of 18 U.S.C. § 924(j), which carries a maximum penalty of life in prison and a mandatory minimum penalty of five years in prison.  The statutory maximum and minimum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge.

CASTILLO is scheduled to be sentenced before Judge Koeltl on October 15, 2021, at 10:00 a.m.

On or about December 8, 2020, CASTILLO’s codefendant, Espinal, pled guilty to conspiring to kill Arias, among other offenses.  During his guilty plea, Espinal admitted to hiring a hitman to kill Arias.    

Ms. Strauss praised the outstanding investigative work of the Federal Bureau of Investigation and its Westchester County Safe Streets Task Force in this case. 

This case is being handled by the Office’s Violent and Organized Crime Unit.  Assistant United States Attorneys Jamie Bagliebter, Maurene Comey, Peter Davis, Scott Hartman, Lindsey Keenan, and Jacqueline Kelly are in charge of the prosecution.

Audrey Strauss, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of a criminal indictment and a criminal complaint charging APOSTOLOS TROVIAS, a/k/a “The Bull,” with securities fraud and money laundering in connection with his scheme to solicit and sell stock trading tips and pre-release earnings and deal information regarding public companies.

Manhattan U.S. Attorney Audrey Strauss said: “Today’s charges demonstrate our Office’s continuing commitment to stopping those who pursue and use inside information to gain an illegal edge in the stock market. As alleged, Apostolos Trovias attempted to hide his insider trading scheme behind anonymizing software, screennames, and bitcoin payments. The Indictment and Complaint unsealed today show that committing insider trading using new technologies still produces a decidedly traditional outcome: a criminal indictment.”

FBI Assistant Director William F. Sweeney Jr. said:  “Behind the veil of the Dark Web, using encrypted messaging applications and emails, Trovias created a business model in which he sold—for profit—proprietary information from other companies, stock trading tips, pre-release earnings, and other inside information, as we allege. The FBI operates within the Dark Web too, and as Trovias learned today, we don't stop enforcing the law just because you commit federal crimes from behind a router with your keyboard.”

According to the allegations in the Indictment and Complaint unsealed today in Manhattan federal court:[1]

Since at least in or about December 2016, APOSTOLOS TROVIAS, who identifies himself by the pseudonym “The Bull,” has used websites on the Dark Web and encrypted messaging services to solicit and sell confidential, non-public information about publicly traded companies (“Inside Information”) to enrich himself. TROVIAS’s scheme consisted of multiple related efforts to obtain and monetize confidential nonpublic business information, including (1) the sale of misappropriated stock tips based on confidential customer trading information; (2) the sale of pre-release earnings reports and deal information misappropriated from publicly-traded companies; and (3) the attempted creation of an online marketplace to connect, for a commission, individuals misappropriating Inside Information to individuals willing to pay for and trade on Inside Information.

For example, between in or about December 2016, when he registered for a Dark Web site known as AlphaBay Market, and in or about July 2017, when AlphaBay ceased operations, TROVIAS offered for sale and sold stock tips that were based on non-public inside information about certain securities issuers and which could be purchased individually, or as weekly or monthly subscriptions.

At various times between in or about June 2017 and February 2020, TROVIAS sold Inside Information directly to purchasers, using encrypted messaging and email services to communicate about the sale, rather than exclusively through the marketplace features of the Dark Web forums. For instance, TROVIAS offered for sale and did sell, among other confidential information belonging to various securities issuers, for approximately $5,000 in Bitcoin, at least one pre-release earnings report misappropriated from a publicly-traded company.

In or about 2020, TROVIAS also took steps to design and build a website to facilitate the purchase and sale of material, non-public information for use in stock trading (the “Inside Information Auction Site”). TROVIAS planned to use the Inside Information Auction Site to enrich himself by charging membership fees and commissions from individuals using the Inside Information Auction Site to engage in the unlawful trade of Inside Information.

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TROVIAS, 30, of Athens, Greece, is charged with one count of securities fraud and one count of money laundering.  The securities fraud count carries a maximum penalty of 25 years in prison. The money laundering count carries a maximum penalty of 20 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Ms. Strauss praised the outstanding work of the FBI. Ms. Strauss further thanked the U.S. Securities and Exchange Commission, which today filed a parallel civil action, and the Internal Revenue Service for their cooperation and assistance in this investigation.

The prosecution of this case is being overseen by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorneys Matthew Podolsky and Andrew Thomas are in charge of the case.

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

 

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[1] As the introductory phrase signifies, the entirety of the text of the Indictment and Complaint, and the description of the Indictment and Complaint set forth herein, constitute only allegations, and every fact described should be treated as an allegation. 

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that EMEKA NNAWUBA, a/k/a “Benjamin Alabie,” who is a member of the United States Army Reserves, was sentenced yesterday to 40 months in prison for participating in a scheme to launder over $1 million in proceeds of romance fraud and business email compromise schemes perpetrated against dozens of victims.  NNAWUBA previously pled guilty before United States District Judge Katherine Polk Failla, who also imposed yesterday’s sentence. 

U.S. Attorney Audrey Strauss said:  “Emeka Nnawuba laundered money for a scheme that trolled dating websites in order to steal money from the accounts of unsuspecting women.  He will now spend time in prison and be compelled to make restitution to the victims of the scheme.” 

According to the allegations in the Superseding Indictment, court documents, and statements made in court:

From at least 2016 until 2018, NNAWUBA participated in a scheme to launder the proceeds of frauds perpetrated against dozens of victims.  Among other things, NNAWUBA used false identities and false passports to open bank accounts, received or attempted to receive more than $2 million in fraud proceeds, withdrew tens of thousands of dollars of fraud proceeds in cash, and transferred more than $1 million of fraud proceeds to bank accounts controlled by co-conspirators in an effort to conceal the source of funds. 

The funds laundered by NNAWUBA were procured principally by (a) romance scams, in which members of the scheme trolled dating websites to find unsuspecting women and stole their money on false pretenses, and (b) business compromise scams, in which members of the scheme impersonated individuals, professionals, or businesses in the course of otherwise ordinary financial transactions, and then fraudulently induced the counterparties to those transactions to transfer funds to bank accounts controlled and operated by NNAWUBA or other members of the scheme.

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NNAWUBA, 31, of Fayetteville, Arkansas, pled guilty to and was sentenced on one count of participating in a conspiracy to commit money laundering.  In addition to the prison term, NNAWUBA was sentenced to three years of supervised release and was ordered to forfeit $2,096,248.39 and pay $1,362,528.46 in restitution.

Ms. Strauss praised the outstanding investigative work of the U.S. Secret Service, and thanked Homeland Security Investigations for its assistance. 

The prosecution is being handled by the Office’s General Crimes Unit.  Assistant United States Attorneys Juliana N. Murray and Robert B. Sobelman are in charge of the prosecution. 

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that MICHAEL AVENATTI was sentenced today in Manhattan federal court by United States District Judge Paul G. Gardephe to 30 months in prison for attempting to extort NIKE, Inc., and for defrauding a client.  AVENATTI was previously found guilty on February 14, 2020, following a three-week jury trial.

Manhattan U.S. Attorney Audrey Strauss said:  “Michael Avenatti used illegal and extortionate threats and betrayed one of his clients for the purpose of seeking to obtain millions of dollars for himself.  Not only did Avenatti attempt to weaponize his law license and celebrity to seek to extort payments for himself, he also defrauded his own client.  Avenatti will now serve substantial time in prison for his criminal conduct.”

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

In a scheme that unfolded in less than a week, AVENATTI used threats of economic and reputational harm to seek to extort NIKE, Inc. (“Nike”), while defrauding his client (“Client-1”), by promising to settle potential claims by Client-1 against Nike if Nike agreed to make extortionate payments to AVENATTI.  AVENATTI threatened to hold a press conference on the eve of Nike’s quarterly earnings call and the start of the annual National Collegiate Athletic Association (“NCAA”) basketball tournament at which he would announce allegations of misconduct by employees of Nike.  However, AVENATTI stated that he would refrain from holding the press conference and harming Nike only if Nike made a payment of $1.5 million to Client-1, who was in possession of information potentially damaging to Nike, and further agreed to “retain” AVENATTI and another individual to conduct a supposed “internal investigation” – an investigation that neither Nike nor Client-1 requested – for which AVENATTI demanded to be paid, at a minimum, between $15 million and $25 million.  Alternatively, in lieu of such a retainer, AVENATTI demanded a total payment of $22.5 million from Nike to resolve any claims Client-1 might have and to buy AVENATTI’s silence. 

AVENATTI never told Client-1, among other things, that AVENATTI planned to and did threaten Nike that, unless Nike paid AVENATTI, he would hold the press conference, or that AVENATTI planned to and did seek money for himself separate from, and to the financial detriment of, Client-1.

*                *                *

In addition to the prison sentence, AVENATTI, 50, of Venice Beach, California, was sentenced to three years of supervised release. The Court deferred a determination as to restitution for a later date. 

Ms. Strauss praised the work of the FBI and the Special Agents of the United States Attorney’s Office for the Southern District of New York.

The case is being handled by the Office’s Public Corruption Unit.  Assistant United States Attorneys Matthew Podolsky, Daniel C. Richenthal, and Robert B. Sobelman are in charge of the prosecution.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced today that GORDON FREEDMAN, a doctor who practiced in New York, New York, was sentenced today in Manhattan federal court to 121 months in prison for participating in a scheme to receive bribes and kickbacks in the form of fees for sham educational programs (“Speaker Programs”) from pharmaceutical company Insys Therapeutics in exchange for prescribing millions of dollars’ worth of Subsys, a potent fentanyl-based spray manufactured by Insys, among other offenses (the “Insys Bribery Offenses”).  FREEDMAN was convicted of the Insys Bribery Offenses following a jury trial.  FREEDMAN was also sentenced to 210 months in prison, to run concurrently to the other sentence, for distributing oxycodone and fentanyl to a patient for no legitimate medical purpose (the “Diversion Offense”).  That patient ultimately died of a fentanyl overdose from drugs FREEDMAN illegally prescribed him.  FREEDMAN pled guilty to the Diversion Offense in December 2019.  

FREEDMAN was sentenced by United States District Judge Kimba M. Wood.

U.S. Attorney Audrey Strauss said: “Dr. Gordon Freedman, a prominent Manhattan physician, allowed his medical judgment to be corrupted by hundreds of thousands of dollars in bribes that he accepted from Insys in return for prescribing Subsys, a potent fentanyl painkiller.  These payments were made to appear like legitimate speaker program fees, but as the evidence at Freedman’s trial revealed, the speaker programs were a sham and were simply a way for Insys to line Freedman’s pockets.  In addition, Freedman prescribed excessive quantities of oxycodone and fentanyl to one of his patients for no legitimate medical purpose.  The patient overdosed and died from fentanyl prescribed by Freedman.  Freedman will now be serving a long prison sentence for accepting bribes and prescribing medically unnecessary opioids.”           

According to the allegations contained in the Indictments against FREEDMAN, the evidence presented in Court during the trial related to the Insys Bribery Offenses, and filings in related proceedings:

Insys manufactured Subsys, a powerful painkiller approximately 50 to 100 times more potent than morphine.  The U.S. Food and Drug Administration (“FDA”) approved Subsys only for the management of breakthrough pain in cancer patients.  Prescriptions of Subsys typically cost thousands of dollars each month, and Medicare and Medicaid, as well as commercial insurers, reimbursed prescriptions written by the defendants.  In or about August 2012, Insys launched a “Speakers Bureau,” purportedly aimed at educating practitioners about Subsys.  In reality, however, Insys used its Speakers Bureau to induce doctors to prescribe large volumes of Subsys by paying them Speaker Program fees.  At each Speaker Program, speakers were supposed to conduct a slide presentation for other health care practitioners regarding Subsys.  However, many of the Speaker Programs led by the speakers paid by Insys were predominantly social affairs where no educational presentation occurred.  Attendance sign-in sheets for the Speaker Programs were frequently forged by adding the names and signatures of health care practitioners who had not actually been present.

FREEDMAN, a doctor certified in pain management and anesthesiology, owned a private pain management office on Manhattan’s Upper East Side and was an associate clinical professor at a large hospital in Manhattan (“Hospital-1”).  FREEDMAN received approximately $308,600 in Speaker Program fees from Insys in exchange for prescribing large volumes of Subsys.

In March 2013, a Regional Sales Manager for Insys sent an email to FREEDMAN informing him that he would receive more Speaker Programs in the coming months because Insys wanted prescriptions of Subsys to increase, and urging FREEDMAN to put more patients on Subsys.  FREEDMAN responded, in part, “Got it,” and significantly increased his Subsys prescriptions in the following months, during which he received approximately $33,600 in Speaker Program fees. 

In 2014, FREEDMAN’s prescriptions of Subsys rose even further, and he was the fourth-highest prescriber of Subsys nationally in the final quarter of 2014, accounting for approximately $1,132,287 in overall net sales of Subsys in that quarter.  During 2014, FREEDMAN was the highest-paid Insys Speaker in the nation, receiving approximately $143,000. 

During the period in which FREEDMAN was receiving kickbacks from Insys, he was also distributing powerfully addictive prescription drugs to a particular patient (“Patient-1”) with no legitimate medical purpose.  From in or about 2013 through in or about May 2017, FREEDMAN prescribed enormous quantities of oxycodone and fentanyl to Patient-1.  For example, in 2013 alone, FREEDMAN prescribed Patient-1 approximately 85,427 oxycodone pills –  an average of approximately 234 oxycodone pills per day – containing a total of approximately 2,422,435 mg of oxycodone.  On or about April 13, 2017, FREEDMAN gave Patient-1 prescriptions for approximately 150 doses of a drug containing fentanyl, and for approximately 950 oxycodone pills containing approximately 30 mg of oxycodone per pill.  On or about May 4, 2017, Patient-1 died of a fentanyl overdose after ingesting a quantity of the drug prescribed by FREEDMAN on or about April 13, 2017.

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In addition to the prison sentence, FREEDMAN, 61, of New York, New York, was sentenced to three years of supervised release, ordered to forfeit $308,600 and ordered to pay a total fine across the two cases of $75,000.

FREEDMAN was one of five Manhattan doctors convicted for participating in the Subsys bribery conspiracy.  Todd Schlifstein was convicted upon a guilty plea and sentenced by Judge Wood on October 28, 2019, principally to a term of two years in prison.  Alexandru Burducea was convicted upon a guilty plea and sentenced by Judge Wood on January 27, 2020, principally to a term of 57 months in prison.  Dialecti Voudouris was convicted upon a guilty plea and sentenced by Judge Wood on March 5, 2020, principally to time served.  Jeffrey Goldstein was convicted upon a guilty plea and sentenced by Judge Wood on June 16, 2021, principally to a term of 57 months in prison.

Ms. Strauss praised the outstanding investigative work of the Federal Bureau of Investigation and thanked the U.S. Department of Health and Human Services - Office of the Inspector General for its participation in the investigation.

The cases are being prosecuted by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys Noah Solowiejczyk, David Abramowicz, and Katherine Reilly are in charge of the prosecutions.

Audrey Strauss, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced the arrest today of STEVEN SHORT, the former head of E.M. Systems & Services, LLC, and affiliated companies (“E.M. Systems”), on charges of fraudulently obtaining credit card processing services for his deceptive Florida-based telemarketing operation.  As alleged in a superseding indictment unsealed today, which also contains charges previously announced against Brandon Becker, the former CEO of CardReady, LLC (“CardReady”), SHORT and Becker fraudulently carried out a credit card laundering scheme that provided access to the credit card system for SHORT’s underlying telemarketing scheme.  From about 2012 through 2015, according to the Indictment, SHORT and E.M. Systems generated over $19 million from thousands of customers who received cold calls promising to reduce their overall debt burdens in exchange for fees of up to $1,495.  The telemarketing operation resulted in hundreds of complaints of fraud and deceptive tactics, and requests for millions of dollars in refunds and chargebacks.  The charges include that, from approximately 2012 through 2015, SHORT, Becker and their co-conspirators carried out a fraudulent credit card processing scheme, processing credit card charges for SHORT’s telemarketing operation, even though applicable contracts prohibited the processing of credit card charges for purported “debt consolidation” and “interest rate reduction” services.  SHORT and Becker are charged with accomplishing this processing fraud by creating dozens of sham merchant accounts and false merchant applications, concealing the true nature of SHORT’s telemarketing operation, and defrauding an associated credit card processing company and a federally insured bank into processing more than $19 million in payments for the scheme.

SHORT was arrested this morning in Tampa, Florida, and is scheduled to be presented in Tampa before U.S. Magistrate Judge Sean Flynn.  Becker was originally arrested at Los Angeles International Airport on September 22, 2019.  The case is assigned to Judge Preska, and is scheduled to go to trial on January 31, 2022.

U.S. Attorney Strauss said:  “Steven Short and his codefendant allegedly preyed on people already in debt in order to enrich themselves, using a web of sham companies to perpetuate and conceal their conduct.  As credit cards and electronic payments become an ever more central part of our society and our economy, both consumers and corporations have every right to expect truthfulness and fair dealing in the marketplace – not fraud and deception.”

FBI Assistant Director William F. Sweeney Jr. said: "As alleged, Becker and Short created more than $19 million in illegitimate profits, derived from victims who were deliberately targeted due to their debt-laden status. They entered into this scheme together and will exit in much the same way—facing a federal indictment that carries significant charges of its own."

According to the Indictment unsealed today:[1]

SHORT controlled E.M. Systems and its affiliates, based in Florida.  Beginning in 2012, SHORT sought to use E.M. Systems to carry out a telemarketing scheme targeting people with outstanding debt, and to offer them purported financial services.  In order to charge for such purported services via credit cards, SHORT sought access to the credit card processing market, through Becker and CardReady.  

Becker was the CEO of CardReady, a Los-Angeles based company acting as a sales agent in the credit card processing industry.  As part of its business as a sales agent, CardReady found merchants who wanted credit card processing services, such as SHORT, and submitted merchant applications on behalf of those merchants to an Independent Sales Organization (“ISO”), referred to in the Indictment as the “New York ISO.”  The New York ISO then evaluated the merchant applications, and referred acceptable merchant accounts up the chain to Payment Processor-1 and to Bank-1.  Bank-1 and Payment Processor-1, in turn, processed payments to merchants for purchases by customers who had used credit cards.

In or about 2012, SHORT negotiated a deal with Becker, to obtain credit card processing for SHORT and E.M. Systems.  Under this deal, CardReady would keep approximately one-third of the credit card sale transactions of SHORT and E.M. Systems, in exchange for providing them access to the credit card processing network.  For roughly the next two years, SHORT and E.M. Systems carried out a telemarketing scheme in which they used telemarketers to cold-call consumers, targeting consumers with outstanding credit card debt.  The cold-callers offered the customers services, including debt consolidation and interest rate reduction on their debts, which were prohibited by the applicable guidelines from Bank-1 and associated processing entities (the “Guidelines”), and which – as SHORT and Becker knew – would produce chargebacks from dissatisfied customers far in excess of the number and rate of chargebacks permitted under the Guidelines.

In securing payment card processing for E.M. Systems, SHORT and Becker concealed that E.M. Systems was the true underlying merchant.  Instead, SHORT, Becker and their co-conspirators, over a period of more than 20 months, created approximately 26 sham merchant companies, each headed by a “signer” (the “Sham Merchants” and the “Sham Merchant Accounts”).  The 26 signers for the 26 Sham Merchants typically had no businesses of their own, and knew little or nothing about E.M. Systems’ business.  In return for signing paperwork, the signers were paid a nominal fee from CardReady.  SHORT, Becker, and their co-conspirators prepared and coordinated fraudulent merchant applications for each of the Sham Merchants, through merchant applications that falsely described the Sham Merchants to make them look like legitimate independent businesses and to make it more likely that the associated Sham Merchant Account would be approved for processing by the New York ISO, Payment Processor-1, and Bank-1.  These false merchant applications also concealed the Sham Merchants’ true association with E.M. Systems.

By steering E.M. Systems’ payment processing through these Sham Merchant Accounts, SHORT and Becker accomplished a number of fraudulent purposes.  First, the use of these Sham Merchant Accounts made it possible for E.M. Systems to conceal its identity from Payment Processor-1 and Bank-1 and to maintain payment card processing.  This was particularly relevant as Payment Processor-1 repeatedly required CardReady to close individual Sham Merchant Accounts because of excessive chargebacks and reports of sales of prohibited services.  SHORT and Becker then caused CardReady to quickly replace the closed Sham Merchant Accounts with new Sham Merchant Accounts, precluding Payment Processor-1 from shutting down its processing of Telemarketer-1 and other high-risk merchants.  Second, the fraudulent processing scheme enabled E.M. Systems to spread out its charges, refunds, and chargebacks across multiple Sham Merchant Accounts.  SHORT and Becker thus enabled E.M. Systems to evade chargeback monitoring programs operated by Bank-1, Payment Processor-1, and the New York ISO.

*                *                *

SHORT, 44, of Tampa, Florida, is charged in Counts One and Four of the Indictment, with conspiracy to commit wire fraud and bank fraud, and bank fraud.  Count One and Count Four each carries a maximum sentence of 30 years in prison, and a maximum fine of $1 million or twice the gross gain or loss from the offense.

Becker, 50, of Los Angeles, California, is charged in four counts, conspiracy to commit wire fraud and bank fraud, conspiracy to make false statements to a bank, wire fraud, and bank fraud.  Count One and Count Four each carries a maximum sentence of 30 years in prison, and a maximum fine of $1 million or twice the gross gain or loss from the offense.  Count Two and Count Three each carries a maximum sentence of 20 years in prison, and a maximum fine of $250,000 or twice the gross gain or loss from the offense. 

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

Ms. Strauss praised the extraordinary work of the FBI and thanked the Federal Trade Commission for its assistance.

This case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys David Raymond Lewis and Vladislav Vainberg 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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[1] As the introductory phrase signifies, the entirety of the text of the Indictment, and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced today that RICHARD RUBIN, a disbarred attorney, pled guilty in Manhattan federal court to securities fraud.  RUBIN’s guilty plea results from his involvement in a fraudulent scheme in which he falsely represented that he was a licensed attorney in signing certain attorney opinion letters, which enabled the relevant securities to be sold to the investing public.  In addition, RUBIN engaged in the fraudulent scheme with Thomas Craft, a licensed attorney, who falsely represented that he had undertaken certain legal work in connection with other attorney opinion letters, when in truth and in fact, RUBIN, despite his disbarment, had undertaken all of the legal work attested to in the letters.

RUBIN was arrested on December 2, 2020, and pled guilty today before U.S. District Judge Paul A. Engelmayer. 

Manhattan U.S. Attorney Audrey Strauss said: “As he admitted today, Richard Rubin falsely represented in attorney opinion letters that he was a licensed attorney, giving false comfort to the investing public that an attorney, acting as a gatekeeper, had performed certain work in connection with securities.  Now he stands guilty of securities fraud and awaits sentencing for his crime.”

As alleged in the Indictment filed against RUBIN, as well as his co-conspirator Craft,[1] and other statements made in open court:

Securities Registration Requirements and SEC Rule 144

Under the Securities Act of 1933 (the “Securities Act”), anyone seeking to sell a security must first register that security unless an exemption applies.  See 15 U.S.C. § 77e.  This registration requirement protects investors by promoting disclosure of information pertinent to informed investment decisions. 

A company registering new securities must complete a registration statement known as U.S. Securities and Exchange Commission (“SEC”) Form S-1 before the securities can be listed on a national exchange and publicly traded.  SEC Form S-1 contains information pertinent to informed investment decisions, including, among other things, information on the company’s business operations, the company’s financial condition, and a description of the company’s management.  In connection with SEC Form S-1, the company is required to file an opinion letter (the “Form S-1 Opinion Letter”) from a licensed attorney attesting that the statements in the SEC Form S-1 are true and correct.  A company’s SEC Form S-1 and the Form S-1 Opinion Letter are available to the public on the SEC’s Electronic Data Gathering, Analysis, and Retrieval System (“EDGAR”).

“Restricted securities” refers to securities acquired in unregistered, private sales from the issuing company or from an affiliate of the issuer, with “affiliate” meaning a person who directly or indirectly controls, or is controlled by, or is under common control with, an issuer.  Affiliates can also include an executive officer or a director or large shareholder who is in a relationship of control with respect to the issuing company.  Restricted securities bear a legend indicating that the securities may not be resold in the marketplace unless they are registered with the SEC or are exempt from such registration requirements.

Securities Act Rule 144 (“Rule 144”), codified at 17 C.F.R. § 230.144, provides a registration exemption for restricted securities.  Specifically, it permits the public resale of restricted securities if a number of conditions are met, including conditions relating to how long the securities are held, the way in which they are sold, the public information available to investors about the securities, and the amount that can be sold at any one time.  Pursuant to Rule 144, however, even if these conditions are met, the sale of restricted securities to the public is still not permitted until a transfer agent removes the “restricted” legend from the security. 

The term “transfer agent” refers to a company that keeps track of individuals and entities that own the stocks and bonds of a given company that has publicly traded securities.  Among other things, transfer agents issue and cancel certificates to reflect changes in ownership, serve as the company’s intermediary for payouts, exchanges, or mailings, and handle lost, destroyed, or stolen certificates.  Transfer agents also, when appropriate, remove the “restricted” legend from securities. 

A Rule 144 Seller’s Representation Letter, or “Seller’s Representation Letter,” is a letter from an affiliate seller (that is, a seller in a relationship of control with the issuer, such as an executive officer, a director, or a large shareholder) of restricted securities to a transfer agent to establish certain facts underlying a legal opinion that the securities at issue can be sold publicly pursuant to Rule 144.  The issuer’s consent to the removal of a legend typically comes in the form of an opinion letter from the issuing company’s attorney, the Seller’s Representation Letter, indicating that the securities at issue satisfy the conditions of Rule 144.  Seller’s Representation Letters contain multiple attestations that are required by law prior to the restricted legend being removed.  The transfer agent relies on the Seller’s Representation Letter in determining whether to remove the restricted legend from a security.

Over-the-Counter Securities and OTC Markets Group

Over-the-counter (“OTC”) securities are securities that are traded between two counterparties outside of a formal securities exchange.  OTC Markets Group (“OTC Markets”) is a securities market headquartered in New York, New York, that provides price and liquidity information for OTC securities.

OTC Markets requires issuers seeking to be listed on OTC Markets to hire a licensed attorney to review company records and submit a letter to OTC Markets (an “OTC Markets Attorney Letter”) regarding whether information publicly disclosed by the issuer is in compliance with the condition in SEC Rule 144 governing the public information available to investors about the issuer.  OTC Markets relies on the OTC Markets Attorney Letter to determine whether an issuer’s security may be listed on OTC Markets.  OTC Markets Attorney Letters are available to the public on the OTC Markets website. 

The Scheme to Defraud

From at least in or about 2011 through at least in or about September 2018, RUBIN and Craft participated in a fraudulent scheme in which Craft falsely represented that he had undertaken certain legal work in connection with Seller’s Representation Letters, OTC Markets Attorney Letters, and S-1 Opinion Letters, all of which enabled the relevant securities to be sold to the investing public.  In addition, in connection with the securities of certain issuers, Rubin, the defendant, falsely represented that he was an attorney in Seller’s Representation Letters and OTC Markets Attorney Letters, all of which enabled the relevant securities to be sold to the investing public.  The false representations were in letters pertaining to over a dozen companies.

RUBIN, 79, of Brooklyn, New York, pled guilty to one count of securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff, 17 C.F.R. § 240.10b-5, and 18 U.S.C. § 2, which carries a maximum sentence of 20 years in prison.  The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

RUBIN will be sentenced on November 2, 2021.

*                *                *

Ms. Strauss praised the investigative work of the Office of Inspector General of the SEC and also thanked the SEC Division of Enforcement for its assistance. 

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

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

 

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[1] As the introductory phrase signifies, the entirety of the text of the Indictment, and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.

Audrey Strauss, the United States Attorney for the Southern District of New York, and Dermot Shea, the Commissioner of the New York City Police Department (“NYPD”), announced that LUIS LEE was charged in a criminal complaint unsealed today in Manhattan federal court with narcotics distribution resulting in the death of Pathjrie Roman, who died two days before her 21st birthday.  LEE was arrested today and will be presented this afternoon before United States Magistrate Judge James L. Cott. 

Manhattan U.S. Attorney Audrey Strauss said: “As alleged, Luis Lee peddled a lethal combination of drugs that caused the death of Pathjrie Roman.  Working with the NYPD, we will continue to combat the epidemic of lethal opioids.”

NYPD Commissioner Dermot Shea said: “The NYPD continues to work to end the trafficking of illegal opioids and bring to justice those who profit from their distribution. We commend and thank the detectives and the attorneys of the U.S. Attorney’s Office for the Southern District whose hard work resulted in this arrest.”

As alleged in the Complaint[1]:

On or about September 18, 2020, Pathjrie Roman contacted LEE on Instagram and asked for Xanax and a depressant, or a “downer,” of which heroin is a type.  That evening, LEE met Roman outside her apartment in the Bronx and delivered the Xanax and heroin.  The heroin, however, was mixed with fentanyl.  LEE’s meeting with Roman was corroborated by their contemporaneous Instagram messages, by LEE’s cellphone location, by building surveillance, and by witness information. 

The next day, September 19, 2020, NYPD and emergency medical personnel found Roman deceased at her apartment.  Following an autopsy, the New York City Medical Examiner determined that Roman died of acute intoxication from the combined effects of fentanyl, acetyl fentanyl, heroin, and alprazolam (generic Xanax).  Hidden inside Roman’s phone case were four glassines containing residue of fentanyl, acetyl fentanyl, and heroin. 

On or about September 20, 2020, another Instagram user told LEE that Roman had died.  Within 24 hours, LEE deleted the Instagram account that he had used to communicate with Roman. 

On or about November 11, 2020, NYPD personnel executed a search of LEE’s bedroom and recovered 12 glassines matching the appearance of the glassines inside Roman’s phone case.  The glassines in LEE’s bedroom contained fentanyl. 

*                      *                      *

LUIS LEE, 26, of New York, New York, is charged with narcotics distribution resulting in death, which carries a mandatory minimum sentence of 20 years in prison and a maximum sentence of life in prison.   

The minimum and maximum potential sentences described above are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the assigned judge.

Ms. Strauss praised the outstanding investigative work of the NYPD.  

The case is being handled by the Office’s Narcotics Unit.  Assistant United States Attorney Alexander Li is in charge of the prosecution.

The charge against the defendant is merely an accusation, and he is presumed innocent unless and until proven guilty.

 

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[1] As the introductory phrase signifies, the entirety of the text of the Complaint, and the description of the Complaint set forth herein, constitute only allegations, and every fact described herein should be treated as an allegation as to the defendants charged in the Complaint.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that ARIEL TAVAREZ, a/k/a “A,” a/k/a “Mike,” pled guilty today in Manhattan federal court to conspiring to distribute heroin, cocaine, fentanyl, and a fentanyl analogue, and to distributing narcotics that caused the 2018 death of Colin Kroll, the co-founder of the video hosting service Vine and the trivia game application HQ Trivia.  TAVAREZ pled guilty before United States District Judge Katherine Polk Failla. 

U.S. Attorney Audrey Strauss said: “For years, Ariel Tavarez operated a covert on-demand delivery service for the distribution of highly addictive and dangerous drugs.  Tavarez and his underlings peddled their poison, which Tavarez sometimes secretly laced with deadly synthetic opioids, throughout New York City.  Thanks to the tireless efforts of law enforcement, Mike’s Candyshop is permanently closed.”           

According to the allegations in the Indictment, and statements made in Court:

TAVAREZ was the leader of a drug trafficking organization (the “DTO”) that engaged in a drug delivery service, which identified itself as “Mike’s Candyshop.”  The DTO delivered heroin and cocaine (sometimes laced with fentanyl and a fentanyl analogue) on demand to customers in New York City, and distributed numerous kilograms of heroin and cocaine throughout the course of the conspiracy.  Mike’s Candyshop generally operated seven days per week, from approximately 6:00 p.m. to 12:00 a.m., with the exception of major holidays such as Thanksgiving, New Year’s Eve, and Labor Day. 

Customers of the DTO placed delivery orders via text message to a centralized phone number (the “Candyshop Number”).  The operator of the Candyshop Number was usually TAVAREZ.  Using the Candyshop Number, TAVAREZ accepted customer orders and subsequently arranged for a courier working for the DTO to deliver the narcotics to the customer, usually within hours of the customer texting his or her order to the Candyshop Number.  Certain of the DTO members, including Christian Baez, Luis Meson, a/k/a “Sito,” Gregoris Martinez, a/k/a “Greg,” Kevin Grullon, a/k/a “Kev,” a/k/a “JB,” and Jeffrey Urena, a/k/a “Jeff,” a/k/a “Jay,” served as couriers for the DTO, and regularly delivered and sold narcotics to the DTO’s customers in hand-to-hand drug transactions coordinated through the Candyshop Number. 

The DTO stored heroin, cocaine, a fentanyl analogue, and cash from drug sales in various stash locations maintained by the DTO, including in Brooklyn, New York.  In an effort to avoid law enforcement detection, the DTO sold only to customers who had been referred by existing customers, periodically changed the Candyshop Number, used coded language to discuss narcotics, and delivered narcotics directly to customers at locations specified by the customer.  As a means of marketing its cocaine, and to ensure that the DTO’s customers knew the cocaine provided by the couriers belonged to the DTO, the DTO sold its cocaine in vials sealed with different colored tops. 

On or about December 16, 2018, Colin Kroll, a customer of the DTO, died of a drug overdose in New York, New York.  The narcotics that caused Kroll’s death – cocaine, heroin, fentanyl, and a fentanyl analogue – were purchased from Mike’s Candyshop on the evening of December 14, 2018. 

*                *                *

TAVAREZ pled guilty to one count of conspiring to distribute heroin, cocaine, fentanyl, and a fentanyl analogue, the use of which resulted in the death of Colin Kroll on or about December 16, 2018.  This count carries a statutory mandatory minimum term of 20 years in prison and maximum penalty of life in prison.  The maximum and mandatory minimum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge.

TAVAREZ is scheduled to be sentenced by Judge Failla on November 23, 2021.           

Baez, Meson, Martinez, Grullon, and Urena each previously entered a plea of guilty to participating in the Mike’s Candyshop narcotics trafficking conspiracy.  Martinez was sentenced on June 29, 2021, to 72 months in prison by Judge Failla.  Baez, Meson, Grullon, and Urena will be sentenced later this year by Judge Failla.

Ms. Strauss praised the outstanding investigative work of Homeland Security Investigations, the Drug Enforcement Administration, the New York City Police Department, and the Organized Crime Drug Enforcement Task Force.  This prosecution is part of an Organized Crime Drug Enforcement Task Forces (OCDETF) operation. OCDETF identifies, disrupts, and dismantles the highest-level criminal organizations that threaten the United States using a prosecutor-led, intelligence-driven, multi-agency approach. Additional information about the OCDETF Program can be found at https://www.justice.gov/OCDETF.

The prosecution is being handled by the Office’s Narcotics Unit.  Assistant United States Attorneys Mollie Bracewell, Nicholas W. Chiuchiolo, and Aline R. Flodr are in charge of the prosecution. 

Audrey Strauss, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that SEAN WYGOVSKY, a trader at a large Canadian asset management firm (the “Employer Firm”), was charged in a Complaint in Manhattan federal court with securities fraud and wire fraud in connection with his scheme to steal confidential information about the trade orders of the Employer Firm in order to conduct hundreds of timely, profitable personal securities trades in the same stocks as the Employer Firm.  WYGOVSKY attempted to hide his conduct by trading or causing trading in brokerage accounts held in the names of his close relatives.  WYGOVSKY was arrested this morning in Austin, Texas, and is expected to be presented in federal court this afternoon before a U.S. Magistrate Judge for the Western District of Texas.

Manhattan U.S. Attorney Audrey Strauss said: “As alleged, Sean Wygovsky illegally exploited his access to his employer firm’s yet-to-be-executed trade orders to make numerous trades in anticipation of the bump or dip the firm’s buying or selling would cause.  To conceal the scheme, Wygovsky allegedly made his front running trades through brokerage accounts of certain of his relatives.  As alleged, Wygovsky made or directed over 700 timely transactions that netted him more than $3.6 million in illegal profits.  Now Sean Wygovsky is in custody and facing serious criminal charges.”

FBI Assistant Director William F. Sweeney Jr. said: “Over the course of several years, as alleged, Wygovsky made hundreds of short-term trades based on inside information that ultimately reaped more than $3 million in profits. Schemes like the one alleged here grossly affect the integrity of our financial markets and remain a top priority for our financial fraud investigative teams.”

As alleged in the Complaint unsealed today in Manhattan federal court:[1]

SEAN WYGOVSKY has been employed at the Employer Firm since approximately 2013.  The Employer Firm is an asset management firm based in Toronto, Canada, with at least approximately $19 billion in assets under management.  WYGOVSKY has a number of close relatives who live in the United States, including a relative in North Carolina (“Relative-1”) and two relatives in Virginia (“Relative-2” and Relative-3”) who are married to each other.

The Front Running Scheme

Based on his position as a trader at the Employer Firm, WYGOVSKY had access to the trade information and trade orders of the Employer Firm.  Like most large asset managers, the Employer Firm had rules and regulations concerning employees’ personal trading, including requirements about the confidentiality of client information and prohibitions against insider trading and personal trading in the same securities as the Employer Firm.  The size of the Employer Firm’s trade orders often caused slight, temporary movements in the price of the securities traded.  For example, if the Employer Firm engaged in a large purchase of stock, the increased demand could cause a slight rise in the stock price, and if the Employer Firm engaged in a large sale of stock, the increased supply could cause a slight drop in the stock price.  Because WYGOVSKY had access to the Employer Firm’s trade orders, he knew in advance when a particular stock price would move slightly up or down based on that trading.

WYGOVSKY’s relatives maintained brokerage accounts for the personal purchase and sale of securities.  In particular, Relative-1 maintained at least one brokerage account and Relative-2 and Relative-3 maintained at least four brokerage accounts (the “Subject Accounts”).  From at least 2015 through April 2021, after obtaining information about the Employer Firm’s upcoming trading activity but before those trades were executed, WYGOVSKY caused the Subject Accounts to buy or sell the same securities the Employer Firm would be buying or selling, in order to profit through the subsequent movement of the stock that would often result from the Employer Firm’s trading.  WYGOVSKY would then cause the Subject Accounts to exit those positions once the Employer Firm’s trading was underway, often within hours of when the Subject Accounts had first entered the positions.  For example, if WYGOVSKY knew that the Employer Firm would be buying a particular stock, WYGOVSKY would cause one or more of the Subject Accounts to purchase that stock beforehand in relatively small amounts.  Then, as the Employer Firm made relatively large purchases, the stock price would increase and WYGOVSKY would cause the Subject Accounts to sell their holdings at a profit. 

At times, WYGOVSKY personally conducted the trading on behalf of both the Employer Firm and the Subject Accounts.  For example, on occasion, IP log-ins from the Subject Accounts show the Subject Accounts were being accessed from locations where WYGOVSKY was travelling.  On other occasions, WYGOVSKY would cause others to execute the timely, profitable trading in the Subject Accounts.  Over an approximately five-year period, WYGOVSKY caused the Subject Accounts to engage in more than 700 such short-term timely, profitable trades, resulting in at least over $3.6 million of profits in the Subject Accounts. 

Financial Transfers Back to Wygovsky

During the course of the front running scheme, Relative-2 and Relative-3 caused at least approximately hundreds of thousands of dollars to be sent back to WYGOVSKY from the Subject Accounts.   For example, between 2015 and 2020, Relative-2 and Relative-3 moved millions of dollars from the Subject Accounts to bank accounts that they controlled, and wrote checks to WYGOVSKY and his immediate family members for hundreds of thousands of dollars.  Furthermore, in or about late 2017 and early 2018, Relative-2 and Relative-3 transferred hundreds of thousands of dollars to a Slovenian bank for the benefit of certain relatives of WYGOVSKY’s wife.  

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WYGOVSKY, 40, of Ontario, Canada, is charged with one count of securities fraud, which carries a maximum sentence of 20 years in prison, and one count of wire fraud, which carries a maximum sentence of 20 years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Ms. Strauss praised the work of the FBI.  Ms. Strauss further thanked the U.S. Securities and Exchange Commission, which today filed a parallel civil action, for their cooperation and assistance in this investigation. 

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

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

 

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[1] As the introductory phrase signifies, the entirety of the text of the Complaint, and the description of the Complaint set forth herein, constitute only allegations, and every fact described should be treated as an allegation.

AUDREY STRAUSS, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of an Indictment charging ROBERT JEFFREY JOHNSON, a/k/a “Jeff Johnson,” ROSS BALDWIN, and KATHLEEN HOOK with conspiring to commit wire fraud and wire fraud for defrauding at least approximately 60 investors of at least approximately $8 million in connection with a precious metals leasing program known as the “Silver Lease Program.”  JOHNSON and BALDWIN were further charged with conspiring to commit wire fraud and wire fraud for defrauding insurance companies by making misrepresentations to these insurance companies in connection with obtaining insurance for the purported silver.  BALDWIN was also charged with making false statements to federal officials in connection with lying to officials of the Commodity Futures Trading Commission (“CFTC”) during a sworn deposition.  JOHNSON and HOOK were arrested this morning in Palm Beach, Florida, and were presented today in the United States District Court for the Southern District of Florida.  BALDWIN was arrested this morning in Albany, New York, and was presented today in the United States District Court for the Northern District of New York.

Manhattan U.S. Attorney Audrey Strauss said:  “Robert Jeffrey Johnson, Ross Baldwin, and Kathleen Hook allegedly lied to investors in order to get them to invest millions of dollars in the ‘Silver Lease Program.’  As alleged, these investors were told that they were purchasing silver, that their silver was being securely stored for them at a high-tech storage facility in Florida, and that they would earn a guaranteed monthly dividend payment.  In reality, the defendants’ promises were not worth their weight in silver – or anything else for that matter. Instead of using investors’ money to purchase silver on their behalf, the defendants allegedly misappropriated that money to pay for their own lavish personal expenses and to fund unrelated business ventures.”

As alleged in the Indictment[1] unsealed today in Manhattan federal court:

The “Silver Lease Program”

From in or about 2014 through in or about January 2021, JOHNSON, BALDWIN, and HOOK conspired to defraud investors in the “Silver Lease Program.”  Investors could participate in the Silver Lease Program by either (1) paying funds to purchase silver that the investor then leased back to the operators of the program in return for a fixed monthly dividend payment or (2) providing silver the investor already owned in order to lease that silver to the operators of the program in return for a fixed monthly dividend payment.

While investors were told that they owned a particular quantity of silver that was being stored for them at a specific secure, locked storage facility in Florida (the “Florida Storage Facility”), in reality the purported silver was not being stored at the Florida Storage Facility.  The entity that was supposed to be storing the investors’ silver, Precious Commodities Inc. (“PCI”), which was functionally controlled by JOHNSON, did not even have any storage units at the Florida Storage Facility.  In order to induce investors to invest in the Silver Lease Program, BALDWIN, through his company National Coin Broker (“NCB”) told the investors various other lies, both orally and through websites and brochures that he prepared in order to solicit investors to participate in the program.

Investors in the Silver Lease Program provided millions of dollars in order to purchase silver through the Silver Lease Program.  Unbeknownst to these investors, a substantial portion of their funds were misappropriated to pay for, among other things, personal expenses of JOHNSON, JOHNSON’s wife, and HOOK, as well as to fund other, unrelated business ventures that JOHNSON, JOHNSON’s wife, and other associates of JOHNSON were engaged in.

Misrepresentations to Insurers

In order to induce investors to invest in the Silver Lease Program and so that they would feel secure in their investment, the operators of the Silver Lease Program touted the fact that the investors’ silver would be fully insured.  Investors were ultimately provided with a certificate of insurance showing that PCI held an insurance policy with respect to the investor’s silver.  JOHNSON and BALDWIN caused material misrepresentations to be made to insurance brokers in connection with procuring these insurance policies.  These misrepresentations included lying about BALDWIN’s role with respect to PCI and lying by claiming that the silver the insurers were insuring would be stored at the Florida Storage Facility. 

Dividend Payments Cease and Investors Do Not Receive the Return of their Silver or Funds

Beginning in approximately the Spring of 2019, investors largely ceased receiving their monthly dividend payments.  Many investors eventually demanded the return of their silver and/or the funds they had invested in the Silver Lease Program.  Investors primarily contacted BALDWIN in their efforts to receive the return of their silver and/or their funds, and BALDWIN frequently forwarded these communications from disgruntled investors to JOHNSON. 

Despite the repeated attempts by numerous Silver Lease Program investors to obtain the return of their silver and/or their money, these investors never received the return of either.

BALDWIN’s False Statements to the CFTC

In October 2018, BALDWIN participated in a sworn deposition with the CFTC that occurred in Manhattan, New York.  During that deposition, BALDWIN made numerous material false statements, including by lying about the role he played in obtaining insurance for PCI and by lying about visiting a storage vault at the Florida Storage Facility with an associate of JOHNSON and observing silver, when in reality this associate of JOHNSON’s never had any storage units at the Florida Storage Facility and did not otherwise have access to any storage units at the Florida Storage Facility.

*          *          *

JOHNSON, 55, of West Palm Beach, Florida, is charged with two counts of conspiracy to commit wire fraud and two counts of wire fraud, which each carry, respectively, a maximum sentence of 20 years in prison.  HOOK, 59, of West Palm Beach, Florida, is charged with one count of conspiracy to commit wire fraud and one count of wire fraud, which each carry, respectively, a maximum sentence of 20 years in prison.  BALDWIN, 60, of Miami, Florida, is charged with two counts of conspiracy to commit wire fraud and two counts of wire fraud, which each carry, respectively, a maximum of 20 years in prison, and is also charged with one count of making false statements to federal officials, which carries a maximum sentence of 5 years in prison.

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

Ms. Strauss praised the investigative work of the FBI.  Ms. Strauss also thanked the CFTC, which has filed a civil enforcement action against the defendants.

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

 

 

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[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth herein constitute only allegations, and every fact described should be treated as an allegation.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that VITO NIGRO, a former construction project manager at Turner Construction Company (“Turner”), was sentenced today in Manhattan federal court to 51 months in prison for evading taxes on more than $1.8 million in bribes he received from building sub-contractors, in connection with a number of building projects undertaken for Bloomberg LP (“Bloomberg”).  NIGRO previously pled guilty to those charges, and was sentenced today before U.S. District Judge Analisa Torres. 

In related proceedings, co-conspirator Ronald Olson, a former vice president and deputy operations manager at Turner, was sentenced on June 15, 2021, by the Honorable P. Kevin Castel, to 46 months in prison, for evading taxes on more than $1.5 million in the same scheme; Anthony Guzzone, a former director of global construction at Bloomberg, was sentenced on January 19, 2021, by the Honorable Lewis J. Liman to 38 months in prison, for evading taxes on more than $1.45 million; Michael Campana, a subordinate construction manager at Bloomberg, was sentenced on July 24, 2020, by the Honorable Denise L. Cote to 24 months in prison, for evading taxes on more than $420,000.[1]

U.S. Attorney Audrey Strauss said: “Bribery and tax evasion in the construction industry impose hidden, unfair costs on law-abiding builders, contractors, and fellow taxpayers.  Appropriately, Vito Nigro has been sentenced to prison for his crimes.”

According to the four criminal Informations filed in these federal cases, as well as other public documents and recent court proceedings:

Between 2011 and 2017, NIGRO was a construction project manager at Turner, a construction firm that performed various building projects in New York City and elsewhere for Bloomberg, a global financial firm.  Throughout those years, Guzzone oversaw such building projects at Bloomberg, while NIGRO and Olson worked at Turner.  Beginning in 2013, Campana was also a construction manager at Bloomberg, and a subordinate to Guzzone.  Each of the defendants participated in a scheme to obtain bribes from construction sub-contractors, who paid kickbacks to the defendants in exchange for being awarded various construction contracts and sub-contracts performed for Bloomberg.  Olson and NIGRO also separately schemed to receive kickbacks in connection with construction projects Turner was performing for clients other than Bloomberg.

In all, the defendants have pled guilty to failing to pay taxes, between 2010 and 2017, on bribes exceeding $5.1 million.  The defendants received such bribes in various forms, including millions of dollars in cash, as well as construction projects on their individual homes and properties, and the direct payment of personal expenses.  Such personal expenses included hundreds of thousands of dollars’ worth of repeated renovations and improvement projects at NIGRO’s home in New Jersey and OLSON’s homes on Long Island and Long Beach Island, as well as a sham lease of that beach house, through which OLSON received $20,000 per month in payments that he falsely characterized as rent; Guzzone’s receipts of several sets of Super Bowl tickets, worth approximately $8000 per ticket; and Campana’s receipt of charges related to his 2017 wedding, such as approximately $40,000 paid by sub-contractors to a catering hall in New Jersey, over $13,000 to a photography studio, and over $23,000 to a travel agent for airline tickets purchased in connection with Campana’s honeymoon.  Each of the defendants evaded federal income tax on this bribery income, by failing to declare it on income tax returns for various years between 2010 and 2017.

*                *                *

NIGRO, 60, of Middletown, New Jersey, pled guilty on October 28, 2020, to a single count of tax evasion for the tax years 2011 through 2017.  In addition to the prison term, NIGRO was sentenced to three years of supervised release.  He was also ordered to make full restitution, in an amount to be set by Judge Torres within 30 days.  The Government is seeking $812,108.93 in restitution for unpaid taxes and interest. 

Olson, 54, of Massapequa, New York, pled guilty on July 29, 2020, to a single count of tax evasion for the tax years 2011 through 2017.   He was sentenced on June 15, 2021, to 46 months in prison, three years of supervised release, and ordered to pay restitution of $661,519.57 in unpaid taxes and interest. 

Guzzone, 52, of Middletown, New Jersey, pled guilty on September 29, 2020, to a single count of tax evasion for the tax years 2010 through 2017.  He was sentenced on January 19, 2021, to 38 months in prison, three years of supervised release, and restitution of $574,005.33 in unpaid taxes and interest.

Campana, 35, of Tuckahoe, New York, pled guilty to a tax evasion charge on November 26, 2019, for the tax years 2014 thought 2017, and was sentenced last week, on July 24, 2020, to 24 months in prison, three years of supervised release, restitution of $155,000 in unpaid taxes, and a fine of $10,000. 

Ms. Strauss praised the excellent work of the Internal Revenue Service.

This case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorney David Raymond Lewis, and Stanley J. Okula, Senior Litigation Counsel of the Tax Division of the Department of Justice, are in charge of the prosecution.  

 

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[1]  In addition, all four defendants have pled guilty in New York State Supreme Court, Indictment No. 04038-2018, to participating in the underlying bribery scheme, and are awaiting sentencing.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that DEBORAH MENSAH was sentenced to 70 months in prison for her participation in a conspiracy to launder millions of dollars of fraud proceeds from business email compromises and romance scams that targeted the elderly from at least in or about 2014 through in or about 2018.  MENSAH was extradited from the Republic of Ghana (“Ghana”) to the United States on August 21, 2020.  She pled guilty to conspiring to commit money laundering on April 2, 2021, before U.S. District Judge Denise L. Cote, who imposed today’s sentence. 

Manhattan U.S. Attorney Audrey Strauss said: “Deborah Mensah was a member of an international criminal enterprise that stole millions of dollars from businesses and vulnerable individuals across the United States, and laundered that money through a network of bank accounts in the Bronx.  Having previously been extradited from Ghana, Deborah Mensah has now been sentenced to a term in a U.S. prison for her crime.” 

According to the Indictment and other public filings in the case:

From at least in or about 2014 through in or about 2018, MENSAH was a member of a  criminal enterprise (the “Enterprise”) based in Ghana that committed a series of business email compromises and romance scams against individuals and businesses located across the United States, including in the Southern District of New York. 

The objective of the Enterprise’s business email compromise fraud scheme was to trick and deceive businesses into wiring funds into accounts controlled by the Enterprise.  First, members of the Enterprise created email accounts with slight variations of email accounts used by employees of a victim company or third parties engaged in business with a company to “spoof” or impersonate those employees or third parties.  These fake email accounts were specifically designed to trick other employees of the company with access to the company’s finances into thinking the fake email accounts were authentic.  The fake email accounts were used to send instructions to wire money to certain bank accounts and also included fake authorization letters for the wire transfers that contained forged signatures of company employees.  By using this method of deception, the Enterprise sought to trick the victims into transferring hundreds of thousands of dollars to bank accounts the victims believed were under the control of legitimate recipients of the funds as part of normal business operations, when in fact the bank accounts were under the control of members of the Enterprise, including MENSAH.

The Enterprise conducted the romance scams by using electronic messages sent via email, text messaging, or online dating websites that deluded the victims, many of whom were vulnerable older men and women who lived alone, into believing the victim was in a romantic relationship with a fake identity assumed by members of the Enterprise.  Once members of the Enterprise had gained the trust of the victims using the fake identity, they used false pretenses to cause the victims to wire money to bank accounts the victims believed were controlled by their romantic interests, when in fact the bank accounts were controlled by members of the Enterprise, including MENSAH.  At times, the members of the Enterprise also used false pretenses to cause the victims to receive funds into the victims’ bank accounts, which, unbeknownst to the victims, were fraud proceeds, and to transfer those funds to accounts under the control of members of the Enterprise.  The members of the Enterprise, posing as the romantic interest of the victims, also introduced the victims to other individuals purporting to be, for example, consultants or lawyers, who then used false pretenses to cause the victims to wire money to bank accounts controlled by members of the Enterprise.

MENSAH and her co-conspirators received or otherwise directed the receipt of over $10 million in fraud proceeds from victims of the Enterprise into bank accounts that she and other members of the Enterprise controlled in the Bronx, New York.  MENSAH opened and maintained multiple business bank accounts in the name of an auto sales company to receive funds stolen from victims and launder them to co-conspirators based primarily in Ghana.  She also recruited and directed one co-conspirator to receive and launder fraud proceeds and instructed that co-conspirator on how to set up a business bank account for this purpose to avoid detection. 

*                *                *

MENSAH, 34, a citizen of Ghana, was also sentenced to three years of supervised release.  In addition, MENSAH was ordered to forfeit $202,964 and pay restitution of $1,505,519 to victims. 

Other defendants in this case who have been sentenced include Muftau Adamu, a/k/a “Muftau Adams,” a/k/a “Muftau Iddrissu,” 32, of the Bronx, New York, who was sentenced to 51 months in prison on June 7, 2019; Tourey Ahmed Rufai, a/k/a “Joe Thompson,” a/k/a “Joe Terry,” a/k/a “Rufai A Tourey,” a/k/a “Ahmed Rufai Tourey,” 34, of the Bronx, New York, who was sentenced to 48 months in prison on April 12, 2019; Prince Nana Aggrey, 45, of the Bronx, New York, who was sentenced to 30 months in prison on May 10, 2019; and Assana Traore, 41, of the Bronx, New York, who was sentenced to 15 months in prison on October 8, 2019.   Adamu, Rufai, and Aggrey each pled guilty to one count of conspiracy to commit wire fraud, and Troare pled guilty to one count of conspiracy to receive stolen money.  Each of the defendants was sentenced by Judge Cote.  

Ms. Strauss praised the outstanding investigative work of the Federal Bureau of Investigation and the Internal Revenue Service, Criminal Investigation.  Ms. Strauss also thanked the United States Marshals Service, the FBI Legal Attaché in Accra, Ghana, U.S. Customs and Border Protection, the Ministry of Justice & Attorney General’s Office of Ghana, and Ghana’s Economic and Organised Crime Office, for their assistance in this case.  The U.S. Department of Justice’s Office of International Affairs of the Department’s Criminal Division provided significant assistance in securing the defendant’s extradition from Ghana.

The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant United States Attorneys Sagar K. Ravi and Mitzi Steiner are in charge of the prosecution.

Audrey Strauss, the United States Attorney for the Southern District of New York, and Paul Kiecker, Administrator of the U.S. Department of Agriculture’s (“USDA”) Food Safety and Inspection Service (“FSIS”), announced today the entry of a consent decree against defendants YIN GONG CORP. and YONG XING WANG (“Defendants”) for violations of the Federal Meat Inspection Act at Defendants’ places of business in New York, New York’s Chinatown.

U.S. Attorney Audrey Strauss said:  “Consumers should be able to have confidence in the safety of the food they buy.  Here, Defendants repeatedly sold uninspected pork products to retailers in violation of the Federal Meat Inspection Act, designed to ensure that the food supply is wholesome and unadulterated.  Today’s consent decree protects the public health by requiring Defendants to adopt practices that comply with the law – and imposing significant sanctions if they fail to do so in the future.”

USDA FSIS Administrator Paul Kiecker said:  “Our inspection personnel are on the job daily, verifying that establishments are providing consumers with safe, wholesome, and properly labeled meat products. We will not tolerate a disregard for consumer health and this consent decree ensures Yin Gong Corp. follows food safety laws.”

The Federal Meat Inspection Act protects the public health by imposing strict requirements on food suppliers regarding the inspection, preparation, transportation, and sale of meat products.  These requirements enable American consumers to have confidence that the meat they purchase and consume is wholesome and unadulterated.

According to the complaint filed earlier this week in Manhattan federal court, for years, Defendants repeatedly violated federal law by selling hundreds of pounds of non-federally inspected pork products to retailers located in New York and other states.  For example, in November 2019, Defendants sold approximately 274 pounds of non-federally inspected pork dumplings and pork buns to a grocery store located in Rochester, New York.  That grocery store then sold approximately 167 pounds of those pork products to its customers.  In all, USDA has uncovered over 650 pounds of meat products sold by Defendants in violation of the Federal Meat Inspection Act.  Although USDA compliance investigators repeatedly warned Defendants, they did not conform their conduct to the law.

In the consent decree entered today, Defendants admit, acknowledge, and accept responsibility for the following:

• Defendants have repeatedly sold non-federally inspected meat and meat food products to retailers for resale, in violation of the Federal Meat Inspection Act.  For example, on or about August 6, 2015, March 3, 2016, July 12, 2018, September 22, 2018, November 24, 2019, and November 19, 2020, Defendants prepared, offered for sale, and sold non-federally inspected pork dumplings to other retailers for resale.
   
• Defendants have also repeatedly sold misbranded meat and meat food products, in violation of the Federal Meat Inspection Act and an accompanying federal regulation. 
   
• Defendants have also repeatedly failed to maintain records that fully and correctly disclosed their business transactions, in violation of applicable federal regulations. 

Pursuant to the consent decree, Defendants are enjoined from selling or transporting any uninspected or misbranded meat products required to be inspected and passed by USDA, or engaging in any other conduct that would violate the Federal Meat Inspection Act.  Defendants are subject to additional actions, including civil monetary penalties, termination of exempt status, contempt sanctions, and other relief, if they violate the provisions of the consent decree.

Ms. Strauss thanked the USDA for its investigative efforts in connection with this matter.

This case is being handled by this Office’s Environmental Protection Unit of the Civil Division.  Assistant United States Attorney Charles S. Jacob is in charge of the case.

Yin Gong Corp. and Yong Xing Wang complaint.pdf Yin Gong Corp. and Yong Xing Wang consent decree.pdf

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that WILLIAM BAZEMORE, a/k/a “Yaya,” a/k/a “Nudie,” a/k/a “Jack,” was sentenced to 327 months in prison for sex trafficking by force, fraud, and coercion.  BAZEMORE previously pled guilty to that offense, and was sentenced today before U.S. District Judge Analisa Torres.  

U.S. Attorney Audrey Strauss said: “William Bazemore used violence and coercion to prey on female victims suffering from drug addiction, and he forced a woman to engage in commercial sex for his own financial gain.  His predatory conduct had an irreparable impact on the lives of his victims.  Today, William Bazemore was justly sentenced to more than 27 years in prison for his crimes.”

According to the Indictment, as well as statements made during BAZEMORE’s plea and sentencing proceedings:

In or about 2017, BAZEMORE was the leader of a criminal enterprise (the “Organization”) involved in various criminal acts, including drug distribution and sex trafficking, in and around New York City, Maine, and Connecticut.  Members and associates of the Organization, including BAZEMORE and codefendant Warren Bryant, transported heroin and crack cocaine between New York, Connecticut, and Maine, at times using women suffering from drug addiction as drug couriers to secrete drugs on their persons and transport drugs and drug proceeds in vehicles controlled by the Organization, and to trade sex for access to drugs.  In addition, BAZEMORE and other members and associates of the Organization used force, threats of force, and coercion to cause a female drug customer (“Victim-1”) to engage in commercial sex for their financial gain, and took actions to prevent Victim-1 and others from cooperating with law enforcement against the Organization.  

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In addition to today’s prison sentence, BAZEMORE, 41, of New York, New York, was sentenced to five years of supervised release.

Codefendant Warren Bryant was sentenced by Judge Torres on September 22, 2020, to 125 months in prison for participating in a racketeering conspiracy and a narcotics conspiracy related to the same scheme.

Ms. Strauss praised the outstanding investigative work of the FBI-NYPD New York Child Exploitation and Human Trafficking Task Force, and the Special Agents of the U.S. Attorney’s Office for the Southern District of New York.

This case is being prosecuted by the Office’s Violent and Organized Crime Unit.  Assistant United States Attorneys Jacqueline Kelly and Danielle Sassoon are in charge of the prosecution.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that SALIFOU CONDE was found guilty of bank fraud, wire fraud, and conspiracy to commit bank and wire fraud on June 29, 2021, in connection with his involvement in a years-long scheme to steal over $1.5 million from New York City’s Human Resources Administration (“HRA”), following a four-day jury trial before U.S. District Court Judge Valerie E. Caproni. 

Manhattan U.S. Attorney Audrey Strauss said:  “Salifou Conde was a key participant in a scheme to steal more than 2,400 rent supplement checks worth over $ 1.6 million to the HRA, an agency that provides critical assistance to New Yorkers in need of rental assistance. A Manhattan jury of his peers has found Conde guilty, and he now awaits sentencing for callously targeting a much-needed support system for low income New Yorkers.”

As reflected in the Indictment, public filings, and the evidence presented at trial:

HRA is an agency of the City of New York responsible for administering certain of the City’s public assistance programs.  Among other things, HRA provides rental assistance to low income New Yorkers.  For individuals who qualify, HRA provides rental assistance by sending monthly rent supplement checks to landlords or social services organizations that provide housing or residential treatment to cover a portion of the cost of documented expenses such as rent or storage costs.

During the period charged in the Indictment, HRA rent supplement checks that were undeliverable were sent back to the same P.O. Box at a United States post office in New York, New York.  From there, couriers took the undeliverable checks from the post office and delivered the checks back to HRA.  CONDE worked as one of the couriers and stole checks out of the mail. 

Between approximately 2016 and 2019, CONDE and his co-conspirators were responsible for stealing a total of over 2,400 HRA rent supplement checks worth more than $1.6 million, and fraudulently depositing them into more than 40 bank accounts.  CONDE was a key member of the scheme.  He helped to steal undeliverable HRA rent supplement checks, deposit the checks into a network of bank accounts, and then quickly withdraw the stolen cash. 

*                *                *

CONDE, 31, of New Jersey, was convicted of one count of wire fraud, which carries a maximum punishment of 20 years in prison; one count of bank fraud, which carries a maximum punishment of 30 years in prison; and one count of conspiracy to commit wire fraud and bank fraud, which carries a maximum punishment of 30 years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Ms. Strauss praised the outstanding investigative work of the New York City Department of Investigation, the Federal Bureau of Investigation, and the New York State Commissioner of Taxation and Finance.

The prosecution of this case is being handled by the Office’s General Crimes Unit.   Assistant United States Attorneys Danielle Kudla, Elizabeth Espinosa, Nicholas Folly, and Kedar Bhatia are in charge of the prosecution.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced today that, following a two-week trial presided over by U.S. District Judge Edgardo Ramos, and approximately one hour of deliberations, DONALD BLAKSTAD, the owner and principal of a California-based investment firm, was found guilty on all counts for committing insider trading and a securities offering fraud scheme.  BLAKSTAD’s offenses yielded more than $7 million in criminal profits. 

U.S. Attorney Audrey Strauss said:  “As a unanimous jury found, Donald Blakstad used his connections to a company insider to gather inside information that he and his associates then traded on, raking in more than $6 million in illegal profits.  In addition, Blakstad defrauded investor clients out of more $1 million, funds he purported would be invested but he instead misappropriated, in some cases for personal expenses.  Now Donald Blakstad awaits sentencing for his crimes.”

According to the allegations contained in the Indictment and the evidence presented at trial:

BLAKSTAD was a stock trader and the owner and principal of an investment fund known as Midcontinental Petroleum Inc. (“Midcontinental Petroleum”), which purported to be in the business of soliciting investments in the energy industry.  Martha Bustos was a former certified public accountant who worked in the finance department at Illumina, Inc. (“Illumina”), a San Diego-based biotechnology company whose securities trade on NASDAQ.  By virtue of her employment at Illumina, Bustos had access to material nonpublic information about Illumina’s financial condition, including its earnings. 

On several occasions, from 2016 through 2018, BLAKSTAD obtained inside information about Illumina’s financial condition from Bustos before Illumina publicly announced its earnings and financial results.  As BLAKSTAD knew, Bustos owed a duty to keep inside information about Illumina confidential. 

BLAKSTAD, aware of Bustos’s breach of duty to Illumina, used this inside information to make profitable trades in Illumina securities shortly before Illumina’s earnings announcements.  At times, BLAKSTAD tipped his associates so that they could trade Illumina stock and options based on the inside information.  At other times, in order to avoid detection, BLAKSTAD arranged for his associates to purchase Illumina securities for BLAKSTAD’s benefit in accounts controlled by his associates. 

Following the public announcement of Illumina’s earnings, BLAKSTAD and his associates sold the Illumina securities at a significant profit, sometimes exceeding more than 2,000 percent.  In total, BLAKSTAD and his associates made more than $6 million in profits from purchasing and selling Illumina securities. 

In addition, from at least in or about 2015 through at least in or about 2019, BLAKSTAD devised and operated a securities offering fraud to fraudulently obtain more than a $1 million from a number of investors.  BLAKSTAD fraudulently induced victim investors to make up-front, lump-sum investments for securities issued by Midcontinental Petroleum, which funds BLAKSTAD then misappropriated, in substantial part. 

To facilitate the scheme, BLAKSTAD made false and misleading representations to investor victims regarding how their investment funds would be utilized.  During the scheme, at BLAKSTAD’s direction, victims transmitted their funds, including by wire transfer, into bank accounts that were controlled by BLAKSTAD.  Once he obtained these investor funds, BLAKSTAD did not use them for the purposes he had represented to investors.  Instead, BLAKSTAD diverted a substantial portion of victims’ funds to himself and to co-conspirators.  For example, BLAKSTAD used the funds to pay for a variety of personal expenses and for purposes that were unrelated to the business of Midcontinental Petroleum. 

BLAKSTAD also made a series of false and misleading statements to victims designed to avoid detection, perpetuate the scheme, and keep the victim funds he received as a result of the fraud.

*                *                *           

BLAKSTAD, 62, of San Diego, California, was convicted on all counts of the Indictment.  He was convicted of one count of conspiracy to commit securities fraud, two counts of securities fraud, one count of conspiracy to commit wire fraud, and one count of wire fraud for his participation in the insider trading scheme.  He was also convicted of one count of conspiracy to commit securities fraud and wire fraud and one count of wire fraud for his participation in the securities offering fraud scheme.  The securities fraud counts and the conspiracy to commit wire fraud count each carry a maximum sentence of 20 years in prison.  The conspiracy to commit securities fraud and the conspiracy to commit securities fraud and wire fraud counts each carry a maximum term of five years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the Court.

BLAKSTAD is scheduled to be sentenced before Judge Ramos, who presided over the trial, on October 28, 2021, at 11:00 a.m. 

Bustos pled guilty in June 2019 for her participation in the insider trading scheme.  Bustos, who is cooperating with the Government, has yet to be sentenced.

Ms. Strauss praised the outstanding investigative work of the Federal Bureau of Investigation.  Ms. Strauss also thanked the Securities and Exchange Commission, which brought a separate civil action.

This case is being handled by the Office’s Securities and Commodities Fraud Unit.  Assistant U.S. Attorneys Edward A. Imperatore and Jared Lenow are in charge of the prosecution.  

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that GANGADAI RAMPERSAUD AZIM, a/k/a “Julie Azim,” pled guilty today to a more than decade-long conspiracy to commit bank fraud, defrauding her employer, a Manhattan-based bank, by misappropriating approximately $1.7 million.  AZIM pled guilty before U.S. District Judge Katherine Polk Failla.

Manhattan U.S. Attorney Audrey Strauss said:  “As she admitted today, Gangadai Azim betrayed her position as a trusted bank employee to defraud the bank and misappropriate nearly $1.7 million in client funds over the course of more than a dozen years.  Now Azim awaits sentencing for her crime.”

According to the allegations in the Complaint, court filings, and statements made during plea proceedings:

Between August 2008 and January 2021, AZIM, a long-time employee of a New York, New York-based bank (“Bank-1”), stole approximately $1.7 million from her employer.  Over the course of approximately 12 years, AZIM executed hundreds of wire transfers of Bank-1 funds to co-conspirators and related companies, who then sent portions of the ill-gotten funds to AZIM’s personal bank account. 

In furtherance of her scheme to defraud Bank-1, AZIM repeatedly made false entries in Bank-1’s systems, misappropriating funds paid to Bank-1 by its clients to satisfy outstanding loan obligations and then extending the maturity dates of those loan obligations, making it appear as though the loan obligations had not yet been paid.  When even the fraudulently extended maturity dates came due, AZIM originated new, fraudulent loans to help conceal the scheme.  AZIM utilized the proceeds of those fraudulent loans to satisfy the loans for which she had previously stolen the client payments.  Over the course of the approximately 12 years, AZIM caused approximately 200 improper wire transfers of Bank-1’s funds, each for an amount under $10,000,  to be sent to third party accounts, including those of co-conspirators and related companies, which then returned portions of those funds to AZIM.  In doing so, AZIM abused her position at Bank-1 and enriched herself at the expense of her employer.   

*                *                *

AZIM, 58, of Richmond Hill, New York, pled guilty to one count of conspiring to commit bank fraud, in violation of 18 U.S.C. §1349, which carries a maximum sentence of 30 years in prison.  The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

AZIM is scheduled to be sentenced by Judge Failla on October 19, 2021, at 3:30 p.m.

Ms. Strauss praised the outstanding investigative work of the Federal Bureau of Investigation in this case.

The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorney Katherine Reilly is in charge of the prosecution.

Audrey Strauss, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the unsealing today of a 15-count superseding indictment charging DOV MALNIK and TOMER FEINGOLD with offenses relating to their roles as securities traders in a wide-ranging international insider trading ring who made millions of dollars in illicit profits by trading based on misappropriated inside information.  MALNIK, a citizen of Israel and Lithuania, was arrested in Switzerland on October 7, 2020, was extradited on June 10, 2021, from Switzerland, and pled guilty today before U.S. Magistrate Judge Stewart D. Aaron.  FEINGOLD remains at large.  The case is assigned to U.S. District Judge Victor Marrero.

Manhattan U.S. Attorney Audrey Strauss said:  “Today’s charges represent another step in our Office’s pursuit of transnational insider trading.  Our Office, along with the FBI and our other law enforcement partners, will vigorously protect the integrity of our nation’s capital markets, regardless of where in the world the inside information is stolen and where tips are illegally passed.”

FBI Assistant Director William F. Sweeney Jr. said:  “Whether it happens inside or outside our borders, trading securities based on misappropriated insider information that affects our financial markets in any way will ultimately lead to federal criminal charges here in the U.S.  Protecting the integrity of our markets from threats both at home and abroad remains a top priority of our white collar crime division.”

As alleged in the Indictment unsealed today in Manhattan federal court:[1]

DOV MALNIK, a citizen of Israel and Lithuania, and TOMER FEINGOLD, a citizen of Israel, were business partners and securities traders who traded in their own names and managed various companies and investment funds.  From at least 2013 through 2017, MALNIK and FEINGOLD participated in a large-scale, international insider trading ring.  Through the scheme, MALNIK and FEINGOLD received material, nonpublic information (“MNPI”) concerning acquisitions and potential acquisitions of publicly traded companies from a securities trader who resided in Switzerland (“CC-1”).  MALNIK and FEINGOLD both knew that this MNPI was obtained by CC-1 directly and indirectly from individuals who were insiders at publicly traded companies and investment banks.  These insiders breached their fiduciary duties and shared MNPI with others, including CC-1, in exchange for compensation, who in turn shared that information with MALNIK and FEINGOLD.  MALNIK and FEINGOLD used that information to place timely, profitable securities trades resulting in millions of dollars of profits.

MALNIK and FEINGOLD began obtaining MNPI from CC-1 in approximately 2013.  During that summer, CC-1 met MALNIK and FEINGOLD and explained to them that CC-1 had numerous sources of MNPI and CC-1 could share that MNPI with MALNIK and FEINGOLD.  In return, MALNIK and FEINGOLD agreed to compensate CC-1 by buying additional securities on CC-1’s behalf and transmitting the profits from those trades to CC-1.  Soon after meeting MALNIK and FEINGOLD, CC-1 explained to them the importance of CC-1 being paid CC-1’s share of the profits in cash because CC-1 needed cash to pay his sources of MNPI.  MALNIK and FEINGOLD agreed to this arrangement and obtained MNPI about numerous companies from CC-1.  Specifically, CC-1 obtained MNPI which was subsequently shared with MALNIK and FEINGOLD from numerous sources, including MNPI that was stolen by investment bank insiders from two different global investment banks.

Throughout the conspiracy, MALNIK and FEINGOLD, as well as the investment bank insiders, CC-1, and others involved in this scheme, took numerous steps to conceal their unlawful enterprise, including through the use of encrypted messaging applications and multiple unregistered “burner” cellphones to communicate with each other.  MALNIK and FEINGOLD also attempted to avoid detection by engaging in securities trading through numerous offshore corporate entities.  For example, in 2011, MALNIK incorporated a British Virgin Islands entity based in Geneva, Switzerland, and subsequently opened trading and/or bank accounts in that shell company’s name.  During the insider trading scheme, MALNIK and FEINGOLD’s offshore companies traded in the stocks of companies about which MALNIK and FEINGOLD had received MNPI – often with multiple of those companies trading in the same stock and on the same days.

MALNIK and FEINGOLD also used these entities to transfer a portion of the profits of their illegal insider trading to CC-1 as per MALNIK and FEINGOLD’s agreement with CC-1.  At first, MALNIK and FEINGOLD instructed their banks to send the funds to an account at a financial institution in Switzerland that agreed to hold the funds for the benefit of CC-1.  After a short time, however, MALNIK and FEINGOLD’s banks questioned the purpose of the transactions and requested justification for the transfer of funds.  Accordingly, in order to deceive the banks, MALNIK, FEINGOLD, and CC-1 agreed that CC-1 would issue fake invoices for consulting services to MALNIK and FEINGOLD’s various offshore entities.  The offshore entities would then send the funds to CC-1’s account pursuant to the fake invoices.

To date, the investigation has also resulted in the conviction of other individuals who were involved in this global insider trading scheme, including investment banker Bryan Cohen, who pled guilty on January 7, 2020, to illegally passing MNPI related to his bank’s corporate clients, and entrepreneur and pharmaceutical company executive Telemaque Lavdias, who was convicted on January 15, 2020, of illegally passing MNPI related to Ariad Pharmaceuticals, Inc.

*                *                *

MALNIK, 43, an Israeli and Lithuanian citizen and resident of Switzerland, pled guilty to one count of securities fraud, which carries a maximum sentence of 20 years in prison.  Sentencing before Judge Marrero will take place on a date to be determined.

FEINGOLD, 42, an Israeli citizen, is charged with conspiracy to commit securities fraud, which carries a maximum sentence of five years in prison; conspiracy to commit securities fraud and wire fraud, which carries a maximum sentence of 25 years in prison; securities fraud under Title 15, which carries a maximum sentence of 20 years in prison; tender offer fraud, which carries a maximum sentence of 20 years in prison; wire fraud, which carries a maximum sentence of 20 years in prison; securities fraud under Title 18, which carries a maximum sentence of 25 years in prison; and money laundering, which carries a maximum sentence of 20 years in prison.

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

Ms. Strauss praised the investigative work of the FBI and also thanked the Securities and Exchange Commission for its assistance.  Ms. Strauss also thanked the Office of International Affairs of the Department of Justice’s Criminal Division and the Swiss Federal Office of Justice for their assistance in the arrest and extradition of MALNIK.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorneys Richard Cooper and Daniel Tracer are in charge of the prosecution.

 

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[1] As the introductory phrase signifies, the entirety of the text of the Indictment, and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that JOSEPH MELI was sentenced today to 37 months in prison in connection with MELI’s participation in a fraudulent Broadway ticket investment scheme wherein MELI purported to use investor funds to purchase tickets to Broadway shows for resale on the secondary market, but instead misappropriated those funds for his personal use.  MELI previously pled guilty before U.S. District Judge Ronnie Abrams, who imposed today’s sentence. 

U.S. Attorney Audrey Strauss said:  “Joseph Meli, a recidivist fraudster, spun the web of lies that buttressed this scheme while on pretrial release in a prior theatre ticket investment fraud case in this District.  With today’s sentencing, the curtain has come down on Joseph Meli’s act.”   

According to the Complaint, the Indictment, and other court documents, as well as statements made in public court proceedings:

Beginning in at least March 2017 through in or about June 2018, MELI falsely represented to partners in a business entity, Indio Entertainment, LLC (“Indio”), that MELI owned a large number of tickets to live events, or intended to purchase a large number of tickets to live events.  MELI further falsely represented that he would sell those tickets to Indio in exchange for investor money that Indio had solicited for the purpose of reselling the tickets on the secondary market for profit.  MELI, in turn, caused Indio principals to represent to investors that investor funds would be used to purchase bulk tickets to live shows without disclosing MELI’s involvement, and promised investors a share of these profits.  In fact, MELI failed to invest the investor monies as promised, and failed to supply Indio with bulk tickets, but rather diverted investor monies to his own personal use, including sending $455,000 to a close relative of MELI’s in part to pay off credit card debt incurred by MELI, $500,000 to an individual completely unrelated to the entertainment or ticket industry, and $220,000 to a residential management company that managed an apartment MELI was leasing.

This was not MELI’s first involvement in such a scheme.  MELI is currently serving a 78-month sentence imposed by U.S. District Judge Kimba M. Wood in September 2018, resulting from MELI’s involvement in a similar Broadway ticket investment scheme.  Indeed, MELI participated in the present scheme while on pretrial release in the case in front of Judge Wood.

*                *                *

MELI, 46, of New York, New York, will serve 25 of the 37 months of the prison sentence concurrently with the prison sentence he is already serving.  In addition to his prison sentence, MELI was sentenced to three years of supervised release, two years of which will run concurrently with the term of supervised release previously imposed by Judge Wood.  MELI was also ordered to pay a forfeiture penalty of $2,082,425 and restitution in the amount of $1,909,146.

Ms. Strauss praised the work of the Special Agents from the U.S. Attorney’s Office for the Southern District of New York and thanked the Securities and Exchange Commission for its assistance.  

This case is being handled by the Office’s General Crimes Unit.  Assistant U.S. Attorneys Sarah Mortazavi and Micah Fergenson are in charge of the prosecution.

Audrey Strauss, the United States Attorney for the Southern District of New York, and Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced today that OFER ABARBANEL was arrested this morning in Los Angeles, California, and charged with securities fraud and wire fraud in connection with ABARBANEL’s scheme to defraud investors in a mutual fund he founded and controlled.

Manhattan U.S. Attorney Audrey Strauss said:  “As alleged, Ofer Abarbanel conducted a bait-and-switch, promising investors safe and liquid investments but instead transferring their money to risky counterparties to trade for his own benefit and that of his confederates.  His alleged scheme has now been uncovered and he will have to answer for his alleged lies.”

USPIS Inspector-in-Charge Philip R. Bartlett said:  “Postal Inspectors remind investors to thoroughly review all lucrative offers as well as their fund managers.  In this case, as alleged, Mr. Abarbanel devised a scheme to defraud investors with bogus claims of liquidity and collateral, when in fact he did not use investors’ funds as promised and did not acquire the promised collateral.  Our advice is to trust your gut, and remember that where there is high reward, there is high risk.”

According to the Complaint[1] unsealed today Manhattan federal court:    

From at least in or about 2018 through the present, ABARBANEL engaged in a scheme to defraud investors in a mutual fund he founded and controlled (the “Fund”).  ABARBANEL falsely represented to an investment adviser to a group of investors (the “Investor Group”) that investments in the Fund would be placed “primarily” in short-term United States Treasury Securities having maturities less than or equal to three months.  Contrary to these representations, the vast majority of the investors’ funds were not invested in short-term treasuries.  Instead, immediately after the Investor Group’s investment was received by the Fund, ABARBANEL and his confederates transferred the investor funds to counterparties controlled by or otherwise closely associated with ABARBANEL, for use, among other things, in trading not authorized by the Fund’s offering documents and for the benefit of ABARBANEL and the counterparties.

ABARBANEL further represented that, in order to enhance income, the Fund intended to invest in securities lending transactions as well as repurchase and reverse repurchase agreements.   ABARBANEL represented, as to these transactions, that the Fund would receive, in its possession and control, safe and secure collateral, in the form of treasury securities that could be quickly liquidated in the event a counterparty defaulted on its obligations.  ABARBANEL, however, failed to obtain for the Fund the promised collateral to secure the investments. Nonetheless, ABARBANEL repeatedly represented, in substance, that the Fund had possession of the collateral.  

In or about May and June 2021, ABARBANEL failed to honor a redemption request by the Investor Group for all of its outstanding investment, totaling more than $100 million, instead placing conditions on the redemption that were contrary to the Fund’s offering document and to the Fund’s practices with respect to prior redemptions.  On or about June 16, 2021, the Fund transferred more than $10 million in investor funds from the Fund to a personal brokerage account of an attorney working with the Fund. 

ABARBANEL will be presented later today in federal court in Los Angeles.

*                *                *

ABARBANEL, 46, a dual U.S.-Israeli citizen who resides in Woodland Hills, California, is charged with one count of securities fraud and one count of wire fraud.  The securities fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $5,000,000 or twice the gross gain or loss from the offense.  The wire fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense. 

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

Ms. Strauss praised the investigative work of the USPIS and thanked the SEC, which has filed civil charges against ABARBANEL in a separate action.  She added that the criminal investigation is ongoing.

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

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

 

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[1] As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth herein constitute only allegations and every fact described should be treated as an allegation.

 

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that HUBERT DUPIGNY, a/k/a “Fox,” was sentenced to 300 months in prison for sex trafficking of minors and conspiracy to commit sex trafficking of minors.  DUPIGNY was previously convicted of those offenses, following an eight-day jury trial, on January 24, 2020, before U.S. District Judge Jesse M. Furman.

Manhattan U.S. Attorney Audrey Strauss said:  “Hubert Dupigny trafficked minor victims who were runaways from the foster care system – victims who were half his age and did not have permanent homes or families to take care of them.  Dupigny victimized, and violently abused, some of the most vulnerable members of our society for his own financial gain.  His predatory conduct irreparably damaged the lives of his victims.  Today, Hubert Dupigny was justly sentenced to 25 years in prison for his callous exploitation of those minor victims.”

According to the allegations contained in the Indictment and evidence presented during the trial in Manhattan federal court:

From at least in or about August 2016 through in or about May 2017, HUBERT DUPIGNY, a/k/a “Fox,” the defendant, engaged in a conspiracy to commit sex trafficking of minors.  The defendant recruited two minor victims (“Victim-1” and “Victim-2”) to engage in commercial sex acts when they were living in foster care facilities or homes in New York City.   The defendant took photographs of Victim-1 and Victim-2 in lewd positions, used Backpage.com to post advertisements of them for commercial sex, and then directed Victim-1 and Victim-2 to meet customers to engage in commercial sex out of an abandoned home in Brooklyn, New York.  Victim-1 and Victim-2 saw as many as ten to fifteen customers each day.  The defendant took all of the proceeds from their commercial sex acts, forcing Victim-1 and Victim-2 to be reliant on him for food and clothing.

*                *                *

In addition to today’s prison sentence, DUPIGNY, 38, of Brooklyn, New York, was sentenced to 10 years of supervised release.

Ms. Strauss thanked the FBI and the New York City Police Department for their outstanding work in this matter, particularly the FBI-NYPD New York Child Exploitation and Human Trafficking Task Force.

Any individuals who believe they have information that may be relevant to this investigation should contact the Federal Bureau of Investigation at (212) 384-1000 or https://tips.fbi.gov/.

This case is being handled by the Office’s General Crimes Unit.  Assistant United States Attorneys Mollie Bracewell, Elinor Tarlow, Jacob Gutwillig, and Michael Herman are in charge of the prosecution. 

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that JOEL DAVIS was sentenced to 156 months in prison for enticing a child to engage in illegal sexual activity, 60 months for possession of child pornography, and 60 months for distribution and receipt of child pornography, all to be served concurrently.  DAVIS previously pled guilty on January 16, 2020, before United States District Judge George B. Daniels, who also imposed the sentence.

U.S. Attorney Audrey Strauss said: “As he previously admitted, Joel Davis, founder of a non-profit called ‘Youth to End Sexual Violence,’ admitted to engaging in the very abhorrent behavior he had publicly pledged to fight.  Davis, who also claims to be a Nobel Prize nominee for his work with his organization, engaged in sex acts with a minor, recording them, and distributing that recording to others – including an undercover FBI agent. Sex with minors is obviously never permissible, acceptable, or justifiable, and by virtue of his non-profit work, Joel Davis was acutely aware of the irreparable harm these crimes inflict on victims. Davis will now serve a lengthy time in federal prison, where he can no longer victimize minors.”

According to the Information and other documents filed in the case to which DAVIS pled, as well as statements made during the plea proceeding:

In or about June 2018, DAVIS used a dating application on his iPhone to entice a fifteen-year-old boy (the “Victim”) to engage in sexual activity with him.  On June 13, 2018, DAVIS invited the Victim to his apartment building in Manhattan and engaged in sexual activity with the Victim, despite knowing that the Victim was a minor.  DAVIS used his smartphone to film a portion of that conduct and sent the video to at least two others, including an undercover FBI agent. 

In addition, between at least in or about May 2018 and June 2018, DAVIS possessed more than 3,700 images and more than 330 videos of child pornography, including numerous images of prepubescent minors who had not attained 12 years of age, and received and distributed material containing child pornography using a cellphone.  DAVIS was arrested on June 26, 2018.

*          *          *

In addition to today’s prison sentence, DAVIS, 25, of New York, New York, was sentenced to five years of supervised release.

Ms. Strauss praised the outstanding investigative work of the FBI in this investigation.

Any individuals who believe they have information concerning the exploitation of children may contact the Federal Bureau of Investigation at 1-212-384-1000 or https://tips.fbi.gov/.

This case is being handled by the Office’s General Crimes Unit.  Assistant United States Attorneys Matthew J.C. Hellman and Juliana N. Murray are in charge of the prosecution.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced today the conviction in Manhattan federal court of FREDERICK L. SCHEININ for attempted production of child pornography, attempted receipt of child pornography, and attempted enticement of a minor.  The jury convicted SCHEININ today following a five-day trial before U.S. District Judge Jed S. Rakoff.    

U.S. Attorney Audrey Strauss said:  “As a DEA investigator, Frederick Scheinin was tasked with the important job of protecting the public from the illegal diversion and abuse of prescription drugs, but he betrayed the public trust by spending months trying to prey on a minor for his sexual pleasure.  Scheinin now stands convicted of these heinous crimes.  This office and our law enforcement partners will continue to work tirelessly to detect and apprehend those who pose a threat to children.”

Up until the time of his arrest, SCHEININ was an investigator in the New York Field Office of the Drug Enforcement Administration (“DEA”).  According to the Indictment, documents previously filed in the case, and evidence introduced at trial:

Between October 2019 and January 2020, SCHEININ communicated with an undercover law enforcement officer (“UC‑1”) who was posing as a 14-year-old boy.  During the course of hundreds of graphic text communications and multiple real-time conversations, SCHEININ repeatedly sent sexually explicit images and videos to UC-1 in an attempt to persuade UC-1 to transmit sexually explicit images, photos, and live visual depictions of UC-1 to SCHEININ.  In particular, SCHEININ repeatedly asked UC-1 to transmit images and videos of UC-1’s penis and anus.  SCHEININ also attempted to arrange a meeting with UC-1 at which SCHEININ planned to have sex with UC-1.  Law enforcement arrested SCHEININ on January 16, 2020, in New York, New York, at the location where SCHEININ said he would meet UC-1.  SCHEININ was in possession of a condom and lubricant at the time of his arrest. 

SCHEININ, 33, was remanded to the custody of the U.S. Marshals following the return of the verdict.  Attempted production of child pornography carries a mandatory minimum sentence of 15 years in prison and a maximum sentence of 30 years in prison; attempted receipt of child pornography carries a mandatory minimum sentence of five years in prison and a maximum sentence of 20 years in prison; and attempted enticement of a minor carries a mandatory minimum sentence of 10 years in prison and maximum sentence of life in prison.  SCHEININ is scheduled to be sentenced on September 23, 2021, at 4:00 p.m.

*                      *                     *

Ms. Strauss praised the outstanding investigative work of the New York City Police Department and the Cyber Investigations Office of the United States Department of Justice Office of the Inspector General.  Ms. Strauss also thanked the New York Office of the DEA and the DEA Office of Professional Responsibility for their assistance in the matter.

The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant United States Attorneys Nicholas W. Chiuchiolo and Daniel G. Nessim are in charge of the prosecution.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that HAMID AKHAVAN, aka “Ray Akhavan,” was sentenced on Friday to 30 months in prison, and codefendant RUBEN WEIGAND was sentenced to 15 months in prison, for participating in a scheme to deceive U.S. issuing banks and credit unions into effectuating more than $150 million of credit and debit card purchases of marijuana by disguising those transactions as purchases of other kinds of goods, such as face creams and dog products.  AKHAVAN and WEIGAND were found guilty of bank fraud in March 2021, following a four-week jury trial before U.S. District Court Judge Jed. S. Rakoff, who imposed Friday’s sentence.

Manhattan U.S. Attorney Audrey Strauss said:  “Ray Akhavan and Ruben Weigand orchestrated an elaborate web of lies to deceive U.S. banks and credit card companies into processing more than $150 million in marijuana transactions, in violation of those institutions’ strict policies against such payments.  This massive fraud undermined the fundamental integrity of the U.S. financial system, which relies on banks’ ability to identify the nature of the transactions they process.  Now Akhavan and Weigand have rightly been sentenced to prison for their crimes.”

According to the evidence presented at trial:

AKHAVAN and WEIGAND, working with others, including principals from one of the leading on-demand marijuana delivery companies in the United States (the “Company”), planned and executed a scheme to deceive United States banks and other financial institutions into processing over $150 million in credit and debit card payments for the purchase and delivery of marijuana products (the “Scheme”).

The Scheme involved the deception of virtually all of the participants in the payment processing network, including issuing banks in the United States (the “Issuing Banks”) and Visa and MasterCard.  The primary method used by AKHAVAN, WEIGAND, and other co-conspirators to deceive the Issuing Banks involved the purchase and use of shell companies that were used to disguise the marijuana transactions through the use of phony merchants (the “Phony Merchants”).  The shell companies were used to open offshore bank accounts with merchant acquiring banks and to initiate credit card charges for marijuana purchases made through the Company.  AKHAVAN and WEIGAND worked with other co-conspirators to create these phony merchant accounts – including phony online merchants purportedly selling dog products, diving gear, carbonated drinks, green tea, and face creams – and established Visa and MasterCard merchant processing accounts with one or more offshore acquiring banks.  They then arranged for more than a dozen Phony Merchants to be used by the Company to process debit and credit card purchases of marijuana products.  Many of the Phony Merchants purported to be based in the United Kingdom, but, despite being based outside the United States, claimed to maintain U.S.-based customer service numbers.

To facilitate the Scheme, webpages were created and deployed to lend legitimacy to the Phony Merchants.  The Phony Merchants typically had web pages suggesting that they were involved in selling legitimate goods, such as carbonated drinks, face cream, dog products, and diving gear.  Yet these companies were actually being used to facilitate the approval and processing of marijuana transactions.  The defendants’ scheme even involved fake visits to those websites to make it appear as though the websites had real customers and were operating legitimate online businesses.

The defendants’ scheme also involved the use of online tracking pixels.  Because the descriptors listed on Company customers’ credit card statements often were the URLs for the Phony Merchant websites, Company customers were sometimes confused and did not recognize the transactions on their credit card statements.  The defendants and their co-conspirators were concerned that confused customers would call their Issuing Banks and inadvertently reveal the Scheme by indicating that they had purchased marijuana products and/or that they had made a purchase through the Company.  To lessen the risk that customers would be confused, the defendants used a number of techniques, including online tracking pixels to track which users had visited the Company’s website.  If a Company customer had visited the Company’s website and went to the URL listed on the customer’s credit card statement, the customer would automatically be re-routed to a webpage connected to the Company so that the customer would understand what the real purchase had been for (i.e., from the Company).  However, in order to hide the Scheme, the defendants ensured that if a third-party such as a bank or credit card company investigator visited a URL for a Phony Merchant, they would not be re-routed, and would therefore be unable to discern any connection between the Phony Merchant website and the Company and/or the sale of marijuana products. 

Over $150 million in marijuana credit and debit card transactions were processed using the Phony Merchants.  Some of the merchant websites listed for those transactions included: diverkingdom.com, desirescent.com, outdoormaxx.com, and happypuppybox.com.  Moreover, none of the Phony Merchant website names listed for those transactions referred to the Company or to marijuana.  AKHAVAN, WEIGAND, and others also worked with and directed others to apply incorrect merchant category codes (“MCCs”) to the marijuana transactions in order to disguise the nature of those transactions and create the false appearance that the transactions were completely unrelated to marijuana.  Some of the MCCs/categories listed for the transactions included freight carrier, trucking; clock, jewelry, watch, and silverware; stenographic services; department stores; music stores/pianos; and cosmetic stores.            

AKHAVAN was the leader of the transaction laundering scheme and WEIGAND was responsible for interfacing with the acquiring banks regarding the offshore bank accounts used by the Phony Merchants. 

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In addition to the prison term, AKHAVAN, 43, of, California, was sentenced to three years of supervised release, and ordered to pay a fine of $100,000 and forfeiture in the amount of $17,183,114.57. 

WEIGAND, 38, of Germany, was also sentenced to three years of supervised release, and ordered to pay a fine of $50,000 and forfeiture in the amount of $384,000. 

Ms. Strauss praised the outstanding investigative work of the Federal Bureau of Investigation.

The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit and the Money Laundering and Transnational Criminal Enterprises Unit.  Assistant United States Attorneys Nicholas Folly, Tara La Morte, and Emily Deininger are in charge of the prosecution.

Audrey Strauss, the United States Attorney for the Southern District of New York (“USAO”), announced that MEYYA MEYYAPPAN, a senior National Aeronautics and Space Administration (“NASA”) scientist, was sentenced today to 30 days in prison for making false statements to the Federal Bureau of Investigation (“FBI”), NASA’s Office of Inspector General (“NASA OIG”), and the USAO. MEYYAPPAN pled guilty on January 13, 2021, before U.S. District Judge P. Kevin Castel, who also imposed today’s sentence.

U.S. Attorney Audrey Strauss said:  “As a senior NASA scientist with access to sensitive and confidential U.S. government technologies and intellectual property, Meyya Meyyappan was understandably subject to restrictions regarding outside employment and compensation.  When questioned by the FBI and NASA, Meyyappan gave false statements regarding his employment by a Chinese government-funded program that recruited individuals with access to foreign technologies and intellectual property. The privilege of access to cutting edge U.S. technologies and intellectual property comes with the critical responsibility of protecting their secrecy. Meyyappan betrayed that trust, by failing to disclose his foreign activities and then compounding his mistakes by lying to the FBI and NASA.  He has now been sentenced to time in federal prison for his unlawful conduct.”

According to the allegations in the Information and other proceedings in this case:

From in or about 1996 through in or about 2021, MEYYAPPAN was employed by NASA, an independent U.S. government agency responsible for the civilian space program, as well as aeronautics and aerospace research.  Beginning in or about 2006, MEYYAPPAN was the Chief Scientist, Exploration Technology at the Center for Nanotechnology, at NASA’s Ames Research Center at Moffett Field in Silicon Valley, California.

In his position at NASA, MEYYAPPAN was subject to certain statutory, regulatory, and agency restrictions and reporting requirements regarding, among other things, outside employment, travel, and compensation.  Notwithstanding these prohibitions, MEYYAPPAN participated in China’s Thousand Talents Program, a program established by the Chinese government to recruit individuals with access to or knowledge of foreign technology or intellectual property, and held professorships at universities in China, South Korea, and Japan, and failed to disclose these associations and positions to NASA and the U.S. Office of Government Ethics. 

On or about October 27, 2020, MEYYAPPAN was interviewed by the FBI, NASA OIG, and the USAO, in New York, New York.  During that proffer session, MEYYAPPAN falsely stated, among other things, that he was not a member of the Thousand Talents Program and that he did not hold a professorship at a Chinese university.  In truth and in fact, MEYYAPPAN was a member of the Thousand Talents Program and held a professorship at a Chinese university, funded by the Chinese government.

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MEYYAPPAN, 66, of Pacifica, California was also ordered to pay a fine of $ 100,000.

Ms. Strauss praised the outstanding work of the FBI and NASA OIG. 

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

Audrey Strauss, the United States Attorney for the Southern District of New York, announced today that JEFFREY GOLDSTEIN, a doctor who practiced in New York, New York, was sentenced today in Manhattan federal court to 57 months in prison for conspiring to violate the Anti-Kickback Statute, in connection with a scheme to prescribe Subsys, a potent fentanyl-based spray, in exchange for bribes and kickbacks from Subsys’s manufacturer, Insys Therapeutics.  GOLDSTEIN previously pled guilty, on August 16, 2019, before U.S. Magistrate Judge Henry B. Pitman, and was sentenced today by U.S. District Judge Kimba M. Wood.

U.S. Attorney Audrey Strauss said:  “Jeffrey Goldstein, an Upper East Side Manhattan doctor, prescribed Subsys, a powerful fentanyl opioid, in return for nearly $200,000 in bribes from the drug’s manufacturer, Insys Therapeutics.  Goldstein put his own patients at risk in order to satisfy his own greed, and will now spend time in federal prison for recklessly prescribing this highly addictive and powerful opioid.  This sentence sends a loud and clear signal to the medical community that if you take bribes in return for prescribing, you will be prosecuted to the full extent of the law and risk significant prison time.”           

According to the allegations contained in the Indictment against GOLDSTEIN and filings in related proceedings: 

The Insys Speakers Bureau 

Subsys, which is manufactured by Insys, is a powerful painkiller approximately 50 to 100 times more potent than morphine.  The FDA approved Subsys only for the management of breakthrough pain in cancer patients.  Prescriptions of Subsys typically cost thousands of dollars each month, and Medicare and Medicaid, as well as commercial insurers, reimbursed prescriptions written by GOLDSTEIN.

In or about August 2012, Insys launched a “Speakers Bureau,” a roster of doctors who would conduct programs (“Speaker Programs”) purportedly aimed at educating other practitioners about Subsys.  In reality, Insys used its Speakers Bureau to induce the doctors who served as speakers to prescribe large volumes of Subsys by paying them Speaker Program fees.  Speakers were supposed to conduct an educational slide presentation for other health care practitioners at each Speaker Program.  In reality, many of the Speaker Programs were predominantly social affairs where no educational presentation about Subsys occurred.  Attendance sign-in sheets for the Speaker Programs were frequently forged by adding the names and signatures of health care practitioners who had not actually been present.

Goldstein’s Participation in the Scheme

GOLDSTEIN was a doctor of osteopathic medicine who owned a private medical office on the Upper East Side.  GOLDSTEIN received approximately $196,000 in Speaker Program fees from Insys in exchange for prescribing large volumes of Subsys.  After GOLDSTEIN began prescribing a competitor painkiller, Insys pressured him to stop doing so and switch patients back to Subsys, which GOLDSTEIN did.

GOLDSTEIN also received other items of value from Insys in order to induce him to prescribe.  For example, Insys employees took GOLDSTEIN and Todd Schlifstein, who co-owned a private medical office with GOLDSTEIN, to a Manhattan strip club where Insys spent approximately $4,100 on a private room, alcoholic drinks, and “lap dances” for GOLDSTEIN and Schlifstein.  GOLDSTEIN also arranged for Insys to pay for the annual holiday party for his private medical office.

In 2014, GOLDSTEIN was approximately the fifth-highest-paid Insys Speaker nationally.  He was the sixth-highest prescriber of Subsys in the last quarter of 2014, accounting for approximately $809,275 in overall net sales of Subsys in that quarter.

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In addition to the prison sentence, GOLDSTEIN, 51, of New Rochelle, New York, was sentenced to two years of supervised release and ordered to forfeit $196,600.

GOLDSTEIN was one of five Manhattan doctors convicted for participating in the Subsys bribery conspiracy.  Todd Schlifstein was convicted upon a guilty plea and sentenced by Judge Wood on October 28, 2019, principally to a term of two years in prison.  Alexandru Burducea was convicted upon a guilty plea and sentenced by Judge Wood on January 27, 2020, principally to a term of 57 months in prison.  Dialecti Voudouris was convicted upon a guilty plea and sentenced by Judge Wood on March 5, 2020, principally to time served.  Gordon Freedman was convicted following a jury trial in December 2019 and is scheduled to be sentenced before Judge Wood on July 8, 2021.

Ms. Strauss praised the investigative work of the Federal Bureau of Investigation, and thanked the U.S. Department of Health and Human Services, Office of the Inspector General, for its participation in the investigation.

The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys Noah Solowiejczyk, David Abramowicz, and Katherine Reilly are in charge of the prosecution.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that ROMANA LEYVA pled guilty today to participating in a conspiracy that for several years exploited elderly victims by remotely accessing their computers and convincing victims to pay for computer support services they did not need, and which were never actually provided.  In total, the conspiracy generated more than $10 million in proceeds from at least approximately 7,500 victims.  LEYVA pled guilty to conspiracy to commit wire fraud and conspiracy to intentionally damage victims’ computers, before U.S. District Judge Paul A. Crotty, to whom her case is assigned.  

U.S. Attorney Audrey Strauss said:  “As she admitted today, Romana Leyva was a leader of a conspiracy that caused pop-up windows to appear on victims’ computers – pop-up windows that claimed, falsely, that a virus had infected the victims’ computers.  Through this and other misrepresentations, this fraud scheme deceived thousands of victims, including some of society’s most vulnerable members, into paying a total of more than $10 million.  Leyva now awaits sentencing for her crimes.”

According to the allegations contained in the Superseding Information, court filings, and statements made during plea proceedings:

From approximately February 2015 through December 2018, LEYVA was a member of a criminal fraud ring (the “Fraud Ring”) based in the United States and India that committed a technical support fraud scheme that exploited elderly victims located across the United States and Canada, including in the Southern District of New York.  The Fraud Ring’s primary objective was to trick victims into believing that their computers were infected with malware, in order to deceive them into paying hundreds or thousands of dollars for phony computer repair services.  Over the course of the conspiracy, the Fraud Ring generated more than $10 million in proceeds from at least 7,500 victims.

The scheme generally worked as follows:  First, the Fraud Ring caused pop-up windows to appear on victims’ computers.  The pop-up windows claimed, falsely, that a virus had infected the victim’s computer.  The pop-up window directed the victim to call a particular telephone number to obtain technical support.  In at least some instances, the pop-up window threatened victims that, if they restarted or shut down their computer, it could “cause serious damage to the system,” including “complete data loss.”  In an attempt to give the false appearance of legitimacy, in some instances the pop-up window included, without authorization, the corporate logo of a well-known, legitimate technology company.  In fact, no virus had infected victims’ computers, and the technical support phone numbers were not associated with the legitimate technology company.  Rather, these representations were false and were designed to trick victims into paying the Fraud Ring to “fix” a problem that did not exist.  And while the purported “virus” was a hoax, the pop-up window itself did cause various victims’ computers to completely “freeze,” thereby preventing these victims from accessing the data and files in their computer – which caused some victims to call the phone number listed on the pop-up window.  In exchange for victims’ payment of several hundreds or thousands of dollars (depending on the precise “service” victims purchased), the purported technician remotely accessed the victim’s computer and ran an anti-virus tool, which is free and available on the Internet.  The Fraud Ring also re-victimized various victims, after they had made payments to purportedly “fix” their tech problems.

LEYVA’s roles in the scheme included (1) creating several fraudulent corporate entities that were used to receive fraud proceeds from victims, (2) recruiting others (including through misrepresentations) to register fraudulent corporate entities that became part of and facilitated the activities of the Fraud Ring, and (3) assisting others in setting up fraudulent corporate entities and bank accounts, including coaching them to make misrepresentations to bank employees where necessary.  As she acknowledged as part of her guilty plea, LEYVA was a leader or organizer in this conspiracy.

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LEYVA, 37, of Las Vegas, Nevada, pled guilty to one count of conspiracy to commit wire fraud, which carries a maximum penalty of five years in prison; and one count of conspiracy to intentionally damage a protected computer, which carries a maximum penalty of five years in prison.  The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as LEYVA’s sentence will be determined by the judge.  LEYVA’s sentencing is scheduled for September 15, 2021, at 12:00 p.m.

Ms. Strauss praised the New York Office of Homeland Security Investigations’ (“HSI”) El Dorado Task Force, Cyber Intrusion/Cyber Fraud Group, for its outstanding work on the investigation.  Ms. Strauss also thanked the New York City Police Department for its assistance on this case. 

This matter is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant United States Attorney Michael D. Neff is in charge of the prosecution.

Audrey Strauss, the United States Attorney for the Southern District of New York, John B. DeVito, the Special Agent in Charge of the New York Field Division of the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), Dermot Shea, the Commissioner of the New York City Police Department (“NYPD”), and Daniel A. Nigro, Commissioner of the New York City Fire Department (“FDNY”), announced that DANIEL MELAMED, a/k/a “Danny,” a real estate developer in New York City, was sentenced to 66 months in federal prison for participating in a conspiracy to commit arson in which he directed that multiple fires be set at residential buildings whose occupants he wished to vacate in order to develop the premises.  MELAMED previously pled guilty to participating in a conspiracy to commit arson, before United States District Judge Lewis A. Kaplan who imposed today’s sentence.

U.S. Attorney Audrey Strauss said:  “Almost a decade ago, Daniel Melamed decided that he could use his power and influence as a real estate developer to burn families out of their homes, homes that he wanted to develop and flip at a profit.  As he learned when he was first arrested almost two years ago and was reminded again today, we will fight fire with fire and together with our partners in the ATF, the NYPD, and the FDNY bring to justice anyone who seeks to terrorize the members of this community through arson.  And if you are a real estate developer in this city and think that you are above the law, then think again, unless you want to see your own plans go up in smoke.”

ATF Special Agent in Charge John B. DeVito said:  “Arson is inherently dangerous, and we simply cannot allow it. I hope this sentencing acts as a significant deterrent for others who may consider committing this heinous crime. We are thankful that Melamed’s criminal actions did not cost anyone their life and that justice can be served in this case. ATF will continue to work with our law enforcement partners at the federal, state, and local levels to investigate and prosecute individuals who show a callous disregard for the safety of our community.”

FDNY Commissioner Daniel A. Nigro said: “Setting fires in residential buildings while occupants are sleeping is a truly despicable crime. These fires endangered the lives of the innocent residents and the Firefighters who bravely responded to save them. I applaud our Fire Marshals, members of the NYPD and ATF, and the U.S. Attorney’s office for their efforts to bring this individual to justice.” 

According to the allegations contained in the Superseding Indictment, other court filings, publicly-available information, and statements made in public court proceedings:

Between 2011 and 2013, MELAMED directed his co-defendant and co-conspirator, Curtis Williams, to set multiple fires at residential buildings that MELAMED wished to develop and was planning to acquire or had recently acquired.  The purpose of the fires was to terrorize and thereby drive out the occupants of these residential buildings, whose lawful removal achieved through eviction or voluntary buyout payments proved too burdensome for MELAMED, either because of the time or cost involved to achieve a vacant premises otherwise deemed ripe for development.  MELAMED paid Williams to set the fires, and in turn, Williams retained another individual to set the fires, which were uniformly set at night when the occupants of the targeted properties were asleep.  Ultimately, the investigation into these fires determined that MELAMED had directed Williams to use fire to vacate at least three occupied residential buildings at which a total of five separate fires were set.  Although no person was physically harmed as a result of these fires, certain of the fires resulted in substantial damage, particularly in the case of a single-family home in Albertson, New York, which was largely incinerated and from which the members of the family who lived there escaped with their lives but not any of their multiple pets, who were burned alive, or their belongings, which were largely destroyed.  As late as 2019, in video-recorded meetings between MELAMED and Williams, MELAMED discussed with Williams vacating another occupied residential building, which MELAMED owned, by either illegally cutting its utility lines or setting fire to it, the latter option being discussed using the term “milk” or the phrase “pour milk,” which was MELAMED’s coded terminology for using fire to vacate the occupants of a building.  Following these meetings, MELAMED was arrested and ordered detained in November 2019. 

*                      *                     *

In addition to his prison term, MELAMED, 43, of Great Neck, New York, was sentenced to 3 years of supervised release and was ordered to forfeit $500,000 and pay a further fine of $50,000.

Curtis Williams, 52, pled guilty to participating in a conspiracy to commit arson, and multiple counts of arson, on April 14, 2021.  A sentencing date has not yet been set.

Ms. Strauss praised the dogged and outstanding investigative work of the New York City Arson Explosives Task Force.  The New York City Arson Explosives Task Force comprises Special Agents and Task Force Officers from multiple federal, state, and local law-enforcement agencies, including the ATF, NYPD, and FDNY.  Ms. Strauss also thanked the Kings County District Attorney’s Office for its substantial contributions and ongoing assistance to the investigation culminating in MELAMED’s conviction and sentence.

This case is being handled by the Office’s General Crimes Unit.  Assistant United States Attorneys Kyle Wirshba and Thomas John Wright are in charge of the prosecution.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that RONALD OLSON, a former vice president and deputy operation manager at Turner Construction Company (“Turner”), was sentenced today in Manhattan federal court to 46 months in prison for evading taxes on more than $1.5 million in bribes he received from building sub-contractors, in connection with a number of building projects undertaken for Bloomberg LP (“Bloomberg”).  OLSON previously pled guilty before U.S. District Judge P. Kevin Castel, who imposed sentenced today. 

In related proceedings, co-conspirator Anthony Guzzone, a former director of global construction at Bloomberg, was sentenced on January 19, 2021, by the Honorable Lewis J. Liman to 38 months in prison, for evading taxes on more than $1.45 million in the same scheme; Michael Campana, a subordinate construction manager at Bloomberg, was sentenced on July 24, 2020, by the Honorable Denise L. Cote to 24 months in prison, for evading taxes on more than $420,000.  In addition, Vito Nigro, a construction manager at Turner, has pled guilty to evading taxes on more than $1.8 million in bribes that he received in the same scheme, and is scheduled to be sentenced on July 1, 2021, before U.S. District Judge Analisa Torres.[1]

U.S. Attorney Audrey Strauss said:  “Bribery and tax evasion impose hidden, unfair costs on law-abiding customers, employers, and taxpayers.  The type of criminality uncovered in this case undermines a just society.  Appropriately, Ronald Olson has been sentenced to prison for his crime.”

According to the four criminal Informations filed in these federal cases, as well as other public documents and recent court proceedings:

Between 2011 and 2017, OLSON was vice president and deputy operations manager at Turner, a construction firm that performed various building projects in New York City and elsewhere for Bloomberg, a global financial firm.  Throughout those years, Guzzone oversaw such building projects at Bloomberg, while Nigro worked at Turner as a subordinate to OLSON.  Beginning in 2013, Campana was also a construction manager at Bloomberg, and a subordinate to Guzzone.  Each of the defendants participated in a scheme to obtain bribes from construction sub-contractors, who paid kickbacks to the defendants in exchange for being awarded various construction contracts and sub-contracts performed for Bloomberg.

In all, the defendants have pled guilty to failing to pay taxes, between 2010 and 2017, on bribes exceeding $5.1 million.  The defendants received such bribes in various forms, including millions of dollars in cash, as well as construction projects on their individual homes and properties, and the direct payment of personal expenses.  For OLSON, such personal expenses included hundreds of thousands of dollars’ worth of repeated renovations and improvement projects at OLSON’s home on Long Island and his beach house on Long Beach Island, New Jersey, which were fraudulently documented through a series of false invoices.  Projects included home improvements, the cutting and installation of marble, gardening, and the repaving of OLSON’s driveway.  OLSON also used a sham lease for his beach house, through which he falsely characterized $20,000 per month in bribe payments as rent.  Other payments included Guzzone’s receipts of several sets of Super Bowl tickets, worth approximately $8,000 per ticket; and Campana’s receipt of charges related to his 2017 wedding, such as approximately $40,000 paid by sub-contractors to a catering hall in New Jersey, over $13,000 to a photography studio, and over $23,000 to a travel agent for airline tickets purchased in connection with Campana’s honeymoon.  Each of the defendants evaded federal income tax on this bribery income, by failing to declare it on income tax returns for various years between 2010 and 2017.

*                *                *

OLSON, 54, of Massapequa, New York, pled guilty on July 29, 2020, to a single count of tax evasion for the tax years 2011 through 2017.   In addition to the prison term, OLSON was sentenced today to three years of supervised release, and ordered to pay restitution of $661,519.57 in unpaid taxes and interest. 

Guzzone, 52, of Middletown, New Jersey, pled guilty on September 29, 2020, to a single count of tax evasion for the tax years 2010 through 2017.  He was sentenced on January 19, 2021, to 38 months in prison, three years of supervised release, and restitution of $574,005.33 in unpaid taxes and interest.

Campana, 35, of Tuckahoe, New York, pled guilty to a tax evasion charge on November 26, 2019, for the tax years 2014 thought 2017, and was sentenced on July 24, 2020, to 24 months in prison, three years of supervised release, restitution of $155,000 in unpaid taxes, and a fine of $10,000. 

Nigro, 60, of Middletown, New Jersey, pled guilty on October 28, 2020, to a single count of tax evasion for the tax years 2011 through 2017.  He is scheduled to be sentenced on July 1, 2021.  The charges against Nigro carry a maximum sentence of five years in prison, a maximum fine of $250,000 or twice the gross gain or loss from the offense, and an order of restitution. 

Ms. Strauss praised the excellent work of the Internal Revenue Service.

This case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorney David Raymond Lewis, and Stanley J. Okula, Senior Litigation Counsel of the Tax Division of the Department of Justice, are in charge of the prosecution.  

 

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[1]  In addition, all four defendants have pled guilty in New York State Supreme Court, Indictment No. 04038-2018, to participating in the underlying bribery scheme, and are awaiting sentencing.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that MUGE MA, a/k/a “Hummer Mars,” a Chinese national who resided in New York, New York, pled guilty today in connection with a fraudulent scheme to obtain over $20 million in Government-guaranteed loans designed to provide relief to small businesses during the novel coronavirus/COVID-19 pandemic.  In connection with loan applications for relief available from the Paycheck Protection Program (“PPP”) and the Economic Injury Disaster Loan (“EIDL”) Program, MA falsely represented to the U.S. Small Business Administration (“SBA”) and at least five financial institutions that his companies, New York International Capital LLC (“NYIC”) and Hurley Human Resources LLC (“Hurley”), had hundreds of employees and paid millions of dollars in wages to those employees, when, in fact, MA appears to have been the only employee of his companies.  MA was previously arrested on May 21, 2020, and has been detained since his arrest.  He pled guilty today before U.S. District Judge Richard M. Berman and is scheduled to be sentenced on September 22, 2021, at 11:00 a.m.

Manhattan U.S. Attorney Audrey Strauss said:  “As he admitted in court today, Muge Ma attempted to secure over $20 million in Government-guaranteed loans intended for businesses devastated by the coronavirus/COVID-19 pandemic.  In furtherance of the scheme, Ma falsely represented to banks and the SBA that he owned two companies with hundreds of employees to whom he paid millions in wages.  In truth, Ma appears to be the only employee of either company and he had no legitimate claim to the funds for which he applied.  Small businesses are facing uncertainty and unprecedented challenges, the least of which should be opportunists attempting to loot the federal funds meant to assist them.  Now Muge Ma awaits sentencing for his admitted criminal skulduggery.”

According to the allegations contained in public filings in Manhattan federal court:

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act is a federal law enacted on March 29, 2020, designed to provide emergency financial assistance to the millions of Americans who are suffering the economic effects caused by the COVID-19 pandemic.  One source of relief provided by the CARES Act was the authorization of hundreds of billions of dollars in forgivable loans to small businesses for job retention and certain other expenses through the SBA’s PPP.  Pursuant to the CARES Act, the amount of PPP funds a business is eligible to receive is determined by the number of employees employed by the business and their average payroll costs.  Businesses applying for a PPP loan must provide documentation to confirm that they have previously paid employees the compensation represented in the loan application.  The CARES Act also expanded the separate EIDL Program, which provided small businesses with low-interest loans of up to $2 million that can provide vital economic support to help overcome the temporary loss of revenue they are experiencing due to COVID-19. 

From at least in or about March 2020 through at least on or about May 15, 2020, MA applied to the SBA and at least five banks for a total of over $20 million in Government-guaranteed loans for his companies NYIC and Hurley (together, the “Ma Companies”) through the SBA’s PPP and EIDL Program.  In connection with these loan applications, MA represented, among other things, that he was the sole owner and executive director of the Ma Companies, that the Ma Companies were located on the sixth floor of his luxury condominium building in New York, New York, and that NYIC and Hurley together had hundreds of employees and paid millions of dollars in wages to those employees on a monthly basis.  In fact, however, MA appears to have been the only employee of NYIC since at least in or about 2019, and Hurley does not appear to have any employees.  In order to support the false representations made by MA in the loan applications about the number of employees at, and the wages paid by, the Ma Companies, MA submitted fraudulent and doctored bank records, tax records, insurance records, payroll records, and/or audited financial statements to five different banks, and also provided links to the Ma Companies’ websites, which describe them as purportedly “global” companies.  In the course of these loan applications, MA also misrepresented that he was a United States citizen, when, in fact, he is a Chinese national with lawful permanent resident status in the United States.  MA also used the name and identity of another person in connection with the submission of a fraudulent loan application and supporting documentation to at least one financial institution.

Before the discovery of the fraudulent conduct by MA, the SBA approved a $500,000 EIDL Program loan for NYIC and a $150,000 EIDL Program loan for Hurley, and at least a $10,000 loan advance was provided to NYIC.  In addition, a bank approved and disbursed over approximately $800,000 in PPP loan funds for Hurley, which were frozen in connection with this investigation.  As a result, MA sought to withdraw his loan applications from the banks and return the funds.

*                *                *

MA, 37 of New York, New York, pled guilty to one count of bank fraud, which carries a maximum sentence of 30 years in prison, and one count of aggravated identity theft, which carries a mandatory minimum sentence of two years to be run consecutively to any other sentence imposed.  The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Ms. Strauss praised the investigative work of the FBI’s Financial Cybercrimes Task Force, SBA-OIG, and IRS-CI.  Ms. Strauss also thanked the New York City Police Department, the Office of the New York State Comptroller, and the New York State Department of Labor for their assistance with the investigation.

The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant United States Attorney Sagar K. Ravi is in charge of the prosecution.    

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that JUSTIN RIVERA, a/k/a “Denzel Rivera,” a/k/a “Bangout,” a/k/a “Jackie Chan,” was found guilty of conspiracy to commit sex trafficking on Friday, June 11, 2021, following an eight-day jury trial before U.S. District Judge Paul A. Engelmayer.  RIVERA is scheduled to appear for sentencing before Judge Engelmayer on November 9, 2021, at 10:00 a.m.

U.S. Attorney Audrey Strauss said: “As a unanimous jury swiftly determined, Justin Rivera conspired to force vulnerable victims into prostitution using cruel physical violence, threats of violence, the ruse of romantic relationships, and the exploitation of a victim’s severe heroin addiction.  Rivera now faces life in prison for his reprehensible conduct.”

As reflected in the Indictment, public filings, and the evidence presented at trial:

In or about 2015, RIVERA and his co-conspirators used an abandoned house in Bohemia, New York (the “Bohemia House”), as a base of operations for sex trafficking of at least two adult victims.  RIVERA and his co-conspirators recruited the victims through, among other means, false promises of romance, and forced the victims into continued prostitution by creating a climate of fear through violent beatings, sexual assaults, and multiple threats of gun violence directed at the victims and their family members. 

On one instance, for example, RIVERA threatened with a gun the mother of a victim (“Victim-1”) who came to the Bohemia House in an attempt to rescue her daughter. 

RIVERA also coerced a second victim (“Victim-2”), who was addicted to heroin, to engage in commercial sex acts on his behalf by manipulating Victim-2’s access to heroin.  At times, for example, RIVERA provided Victim-2 with heroin to reward her for engaging in commercial sex acts for his benefit; at other times, RIVERA withheld heroin from Victim-2 as punishment unless she engaged in commercial sex acts at his direction and for his profit.

*                *                *

RIVERA, age 31, of Amityville, New York, was convicted of one count of conspiracy to commit sex trafficking, which carries a maximum sentence of life in prison. 

Ms. Strauss praised the outstanding work of the Suffolk County Police Department, the FBI’s New York Child Exploitation and Human Trafficking Task Force, and the Special Agents from the U.S. Attorney’s Office for the Southern District of New York.

The prosecution of this case is being handled by the Office’s General Crimes Unit.  Assistant United States Attorneys Daniel H. Wolf, Thomas S. Burnett, and Negar Tekeei are in charge of the prosecution. 

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that MARC LAWRENCE was sentenced in Manhattan federal court to 55 months in prison for securities fraud and wire fraud in connection with his participation in a scheme to perpetrate a Ponzi-like investment scheme through a number of corporate entities (collectively referred to as “Downing”).  LAWRENCE, the President of Downing entities, and his co-defendant DAVID WAGNER, the Chairman and CEO of Downing entities, solicited almost $10 million from approximately 40 Downing investors through materially false and misleading statements.   LAWRENCE previously pled guilty to these charges, and was sentenced today before U.S. District Judge Alvin K. Hellerstein.  WAGNER was previously sentenced by Judge Hellerstein to 72 months in prison.    

Manhattan U.S. Attorney Audrey Strauss said:  “ Marc Lawrence and his co-defendant fraudulently induced employee-investors to invest over $8 million in return for sales, operations, and management expertise in profitable business operations.  Unfortunately for their investors, Downing generated virtually no returns, and was little more than a vehicle for Lawrence and Wagner to syphon employee-investor funds to pay Wagner’s personal expenses or pay off other investors in Ponzi-like fashion.  Lawrence’s sentence of over four years in federal prison signifies the seriousness of his conduct and the consequence that assuredly awaits those who commit Ponzi-like frauds.”  

According to the Indictment filed in Manhattan federal court:

From at least in or about December 2013 through at least in or about 2017, WAGNER, the Chief Executive Officer of Downing, and MARC LAWRENCE, the President of several Downing entities, solicited investments in Downing, a purported venture capital firm that would invest in healthcare start-ups referred to as “portfolio companies” and provide sales, operations, and management expertise to the portfolio companies in order to bring their products to market and generate returns for Downing investors, who also worked for Downing (the “employee-investors”).  WAGNER and LAWRENCE, and others acting at their direction, solicited almost $10 million in investments in Downing from employee-investors located across the United States, including in the Southern District of New York, as a requirement of employment with Downing. 

After making the required investment of between $150,000 and $250,000 in Downing and starting their employment at Downing, employee-investors soon learned, among other things, that contrary to representations made by WAGNER and LAWRENCE, and others acting at their direction, Downing did not have access to millions of dollars in funding, often could not make payroll, had virtually no products to sell, and that employee-investments were the overwhelming source of funding.  Employee-investors also learned that WAGNER and LAWRENCE had misrepresented the companies in Downing’s portfolio, their product readiness, and ability to generate revenue.  While the particular formulation of these misrepresentations shifted over time, WAGNER and LAWRENCE systematically sought and obtained employee-investor money through materially false and misleading statements.

Beginning in or about May 2016, after several employee-investors had brought lawsuits against WAGNER and LAWRENCE, and several Downing entities, alleging claims based on, among other things, fraud, WAGNER and LAWRENCE continued the scheme by recruiting employee-investors into a new company called Cliniflow Technologies, LLC (“Cliniflow”), through materially false and misleading statements about Cliniflow’s cash reserves, portfolio companies, and exposure to litigation.  In fact, Cliniflow purportedly held majority ownership in the same primary portfolio company as other Downing entities and was simply a new name used by WAGNER and LAWRENCE to solicit investments from new employee-investors that was not tainted by the lawsuits filed against Downing entities.  A majority of the over $1.5 million raised by WAGNER and LAWRENCE through Cliniflow was transferred to other Downing entities and used to pay for, among other things, WAGNER’s personal expenses and the repayment of prior investors.

*                      *                      *

LAWRENCE, 54, of Clearwater, Florida, pled guilty to two counts of securities fraud and one count of wire fraud, which each carry a maximum sentence of 20 years in prison.  In addition to the prison term, Judge Hellerstein ordered LAWRENCE to serve 3 years of supervised release, and to pay forfeiture in the amount of $150,000 and restitution in the amount of $4,450,000 to victims of his criminal conduct.

Ms. Strauss praised the work of the FBI, and thanked the United States Securities and Exchange Commission and the Enforcement Section of the Massachusetts Securities Division for their assistance. 

This case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys Jilan J. Kamal and Sagar K. Ravi are in charge of the prosecution.  

Audrey Strauss, the United States Attorney for the Southern District of New York, and Peter C. Fitzhugh, the Special Agent-in-Charge of Homeland Security Investigations (“HSI”) in New York, announced today that GUILLERMO PEREZ was arrested this morning for defrauding businesses and individuals of more than $2.2 million through business email compromise and bank fraud schemes.  PEREZ will be presented tomorrow in the United States District Court for the Southern District of Texas.

According to the allegations contained in the Indictment[1] unsealed today:

From at least in or about October 2018 through at least in or about October 2019, GUILLERMO PEREZ participated in a scheme to defraud businesses by impersonating individuals and businesses in the course of otherwise ordinary financial transactions, thereby fraudulently inducing counterparties to those transactions to transfer funds to bank accounts controlled by PEREZ and his co-conspirators (the “Business Email Compromise Scheme”).  To facilitate this scheme, PEREZ conspired to deceive federally insured banks into opening business bank accounts (the “Fraudulent Bank Accounts”) by providing the banks with false and misleading information regarding PEREZ’s co-conspirators’ affiliations. 

In reliance on the foregoing false and misleading misrepresentations, the victims of the Business Email Compromise Scheme wired more than $2.2 million into the Fraudulent Bank Accounts.  PEREZ and his co-conspirators, knowing the money represented fraud proceeds, transferred those fraud proceeds out of the Fraudulent Bank Accounts in transactions designed to conceal and disguise their source, ownership, and control.

*                *                *

GUILLERMO PEREZ, 26, of Houston, Texas, is charged with (1) conspiracy to commit wire fraud and bank fraud, which carries a maximum sentence of 30 years in prison, and (2) conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison.

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

Ms. Strauss praised the investigative work of HSI.  The prosecution of this case is being handled by the Money Laundering and Transnational Criminal Enterprises Unit.  Assistant United States Attorneys Emily Deininger and Tara La Morte 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.

 

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[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth herein constitute only allegations, and every fact described should be treated as an allegation.

Audrey Strauss, the United States Attorney for the Southern District of New York, and William F. Sweeney, Jr., Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced the unsealing of a Complaint charging JOSHUA HALL with fraud and identity theft offenses for impersonating family members of the then-President of the United States on social media to fraudulently raise funds for a fictitious political organization.

HALL was arrested this morning and will be presented later today in Harrisburg federal court before United States Magistrate Judge Susan E. Schwab.

Manhattan U.S. Attorney Audrey Strauss said:  “Joshua Hall allegedly impersonated family members of the then-President of the United States on social media to fraudulently induce hundreds of victims to donate to a political organization that did not exist, and then pocketed those funds for his own use.  We thank the FBI for their partnership in the investigation of this case, and we remain dedicated to rooting out and prosecuting fraud wherever we find it.”

FBI Assistant Director-in-Charge William F. Sweeney, Jr., said: “Hall led hundreds of people to believe they were donating to an organization that didn’t exist by pretending to be someone he wasn’t, as alleged. As we continue to investigate fraud in all its many forms, we urge the public to remain aware of the prevalence of online scams and exercise due diligence when making donations online.”

According to the allegations in the Complaint[1]:

HALL defrauded hundreds of victims by making false representations in the course of raising funds for a purported political affinity organization (“the Fictitious Political Organization”), for the ostensible purpose of supporting the reelection of the individual who was at that time serving as President of the United States (“the President”).  However, the Fictitious Political Organization did not exist and HALL used the funds for his own personal living expenses.

Central to the scheme was the impersonation by HALL of members of the President’s family, including the President’s minor child, among others, through his creation and use of social media accounts bearing those family members’ names and photographs.  HALL used those accounts to amass more than 100,000 followers on social media and obtain media coverage, a public platform he then exploited to confer on himself and the Fictitious Political Organization a false imprimatur of close ties with the President’s family and to encourage victims to make monetary contributions to the Fictitious Political Organization.

In total, the scheme devised and executed by HALL yielded thousands of dollars from hundreds of victims located throughout the United States, including in the Southern District of New York. 

*                      *                      *

HALL, 22, of Mechanicsburg, Pennsylvania, is charged with wire fraud, which carries a maximum sentence of 20 years of imprisonment, and aggravated identity theft, which carries a mandatory consecutive sentence of 2 years of imprisonment.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.  

Ms. Strauss praised the outstanding investigative work of the FBI.

This case is being handled by the Office’s Public Corruption Unit.  Assistant United States Attorney Robert B. Sobelman is in charge of the prosecution. 

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

 

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[1] As the introductory phrase signifies, the entirety of the text of the Complaint, and the description of the Complaint set forth herein, constitute only allegations, and every fact described should be treated as an allegation.

Audrey Strauss, United States Attorney for the Southern District of New York, and William F. Sweeney, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation, announced today the unsealing of a complaint charging LUKA KLASINC, a former Olympic ice skater, with bank fraud and aggravated identity theft in connection with his use of falsified documents during his attempts to gain access to over $1.5 million in funds disbursed pursuant to fraudulent U.S. Small Business Administration (“SBA”) Economic Injury Disaster Loans. KLASINC, a Slovenian national, was arrested Monday afternoon in Manhattan, and will be presented today before Judge Kevin Nathaniel Fox.

Manhattan U.S. Attorney Audrey Strauss said:  “As alleged, at a time when U.S. small businesses were struggling because of the COVID-19 pandemic, Klasinc thought he could scam his way to easy money. As alleged, Klasinc used false documents to try and obtain over a million dollars in funds intended to help hard working Americans but, thanks to the diligence of the FBI, his plans have been put on ice.  He will now be held accountable for his alleged brazen lies.”

FBI Assistant Director-in-Charge William F. Sweeney, Jr., said:  “Loans issued on behalf of the SBA were intended to provide relief for businesses struggling during the pandemic. Time and again we see instances of fraud and abuse of this program. We will investigate all instances of alleged SBA loan fraud and hold accountable those who take advantage of this program for personal gain.”  

According to the allegations in the Complaint[1]:

KLASINC is the sole owner of a company named BOB77, LLC. KLASINC claimed that BOB77, LLC (“BOB77”) is an event management company that, in conjunction with its global partners, stages major ice-themed amusement park style events around the world. Beginning in or around 2019, BOB77 opened three business bank accounts (the “BOB77 Accounts”) with an international financial institution (“Bank-1”). Between July 2020 and September 2020, the BOB77 Accounts received a total of $1,595,800 from the SBA, pursuant to eleven Economic Injury Disaster Loans. In the same period, there were numerous wire transfers from the BOB77 Accounts to international beneficiaries.  In late September 2020, after identifying potential fraud, Bank-1 froze all funds in the BOB77 Accounts and contacted KLASINC for additional information regarding the account activity. In response, KLASINC provided documentation — including a falsified document purporting to be a letter from the U.S. Small Business Administration — intended to legitimize the SBA deposits and persuade Bank-1 to release the funds. In or around June 2021, KLASINC traveled to the United States and appeared at in person at a New York branch of Bank-1, where he again attempted to persuade Bank-1 to release the funds by claiming that the SBA deposits were “investments” and not associated with a loan.

*                      *                      *

KLASINC, 48, of Slovenia, is charged with one count of bank fraud, which carries a maximum sentence of 30 years in prison, and with one count of aggravated identity theft, which carries a mandatory two-year prison term. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. 

Ms. Strauss praised the outstanding investigative work of the FBI.

This case is being handled by the Office’s General Crimes Unit.  Assistant United States Attorney Ashley C. Nicolas is in charge of the prosecution.

 

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[1] As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth in this release constitute only allegations, and every fact described should be treated as an allegation.

 

Audrey Strauss, United States Attorney for the Southern District of New York, announced that MICHAEL PEARSE, an Australian national who was extradited to the United States from Australia in January 2021, pled guilty today to conspiracy to commit wire fraud stemming from his participation in a fraudulent scheme to charge hundreds of thousands of mobile phone customers millions of dollars in monthly fees for unsolicited, recurring text messages about topics such as horoscopes, celebrity gossip, and trivia facts, without the customers’ knowledge or consent – a practice to which the conspirators referred as “auto-subscribing.”  PEARSE played a key role in the scheme as CEO of a company that created the computer program that was used to enroll victims into the text message services without their knowledge or consent.  PEARSE pled guilty before United States District Judge Analisa Torres. 

U.S. Attorney Audrey Strauss said:  “As he admitted in court today, Michael Pearse played a vital role in an international consumer fraud conspiracy that swindled hundreds of thousands of mobile phone customers out of more than $50 million.  Thanks to IRS Criminal Investigation and the FBI, as well as our international partners, Pearse now awaits sentencing for his crime.”

According to the allegations contained in the Indictment, evidence presented at the trial of co-conspirator Darcy Wedd, court filings, and statements made during plea proceedings:

From in or about 2011 through in or about 2013, PEARSE and his co-conspirators engaged in a multimillion-dollar scheme to defraud consumers by placing unauthorized charges for premium text messaging services on consumers’ cellular phone bills.  To carry out the scheme, PEARSE and others caused unsolicited and recurring text messages to be sent to mobile phone users containing content such as horoscopes, celebrity gossip, or trivia facts.  The victims of the fraud scheme never ordered these services, which were known in the industry as premium text messaging (“PSMS”) services, but were fraudulently “auto-subscribed” and billed for them at a rate of $9.99 per month.  The $9.99 charge recurred each month unless and until consumers noticed the charges and took action to unsubscribe.  Even then, consumers’ attempts to dispute the charges and obtain refunds were often unsuccessful.

During the relevant period, co-conspirator Lin Miao operated a company called Tatto Inc., a/k/a “Tatto Media” (“Tatto”), which offered PSMS services to mobile phone customers.  PEARSE was the CEO of a company called Bullroarer, which was affiliated with Tatto.  To enable Tatto to auto-subscribe consumers to unwanted PSMS services, PEARSE and co-defendant Yongchao Liu, a/k/a “Kevin Liu,” who worked as a Java Development Engineer for Bullroarer, agreed to build a computer program that could spoof the required consumer authorizations – i.e., a program that could generate the text message correspondence that one would ordinarily see with genuine PSMS subscriptions.  PEARSE and Liu agreed to build the program (the “Auto-Subscription Platform”), which was operational by in or about the middle of 2011.  PEARSE, Liu, and Miao then used the Auto-Subscription Platform to fraudulently auto-subscribe hundreds of thousands of mobile phone customers, using phone numbers provided by co-conspirators at Mobile Messenger, a U.S. aggregation company operated by Darcy Wedd that served as a middleman between content providers such as Tatto and mobile phone carriers.  Through their successful orchestration of the fraudulent scheme, PEARSE and his co-conspirators generated more than $50 million in fraud proceeds for themselves.    

*                *                *

PEARSE, 52, of Australia, pled guilty to one count of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349, which carries a maximum penalty of 20 years in prison.  As part of his plea agreement, PEARSE agreed to forfeit $10,162,937.96, as well as his interest in three real properties in Australia and other assets, representing proceeds traceable to the fraud that PEARSE personally obtained.

The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as the sentence of PEARSE will be determined by the Court.

To date, nine defendants, Liu, Miao, Andrew Bachman, Michael Pajaczkowski, Erdolo Eromo, Jonathan Murad, Francis Assifuah, Jason Lee, and Christopher Goff have pled guilty in connection with their participation in the fraud.  Two additional defendants, Darcy Wedd and Fraser Thompson, were convicted in 2017 following jury trials.

Ms. Strauss praised the outstanding investigative work of the Internal Revenue Service, Criminal Investigation and the Federal Bureau of Investigation.  In addition, Ms. Strauss thanked law enforcement partners in Australia, as well as the U.S. Department of Justice’s Office of International Affairs, for their support and assistance with the extradition of PEARSE and co-defendant Liu.

This case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys Jilan Kamal and Olga I. Zverovich are in charge of the prosecution.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that U.S. District Judge Jed S. Rakoff entered an order today permanently barring RAFAEL ALVAREZ (“ALVAREZ”) and ATAX New York LLC (“ATAX NEW YORK”) from, among other things, preparing federal tax returns for others.  In its civil complaint, the United States alleged that ALVAREZ and ATAX NEW YORK had prepared and filed fraudulent tax returns on behalf of their customers in which they falsely reduced their customers’ tax liabilities and generated tax refunds to which those customers were not entitled.  According to the complaint, ATAX NEW YORK filed over 36,000 tax returns on behalf of its customers from 2016 to 2019.

Manhattan U.S. Attorney Audrey Strauss said: “This Office will take appropriate actions to shut down tax preparation businesses that prepare and file fraudulent returns and unfairly shift the tax burden to honest American taxpayers.”

After the Government filed its complaint, ALVAREZ and ATAX NEW YORK consented to the entry of a permanent injunction and admitted, among other things, that:

• Between 2016 and 2019, they prepared and filed many federal income tax returns for ATAX NEW YORK’s customers that included claims of expenses, losses, or “head of household” status that lacked adequate supporting information or documentation.
   
• These unsupported entries caused the customers’ tax liabilities to be substantially understated.
   
• They had no adequate basis for including these entries on their customers’ returns.

The Government’s complaint also asked the Court to order disgorgement of the net profits that ALVAREZ and ATAX NEW YORK earned for preparing federal tax returns in which they made reckless or fraudulent claims with respect to their customers’ federal income tax liability.  As part of today’s court-ordered resolution, ALVAREZ and ATAX NEW YORK agreed to pay $159,600 to the United States in disgorgement.

Ms. Strauss thanked the Internal Revenue Service’s Small Business/Self-Employed Division for its invaluable assistance in this matter.

The case is being handled by the Office’s Tax and Bankruptcy Unit.  Assistant United States Attorneys Charles S. Jacob and Ilan Stein are in charge of the case.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that KAREEM DAVIS, a/k/a “Reem,” was sentenced today to life in prison for the April 18, 2011, murder of Bolivia Beck.  Ms. Beck, 20, was killed by a bullet while standing next to her boyfriend in the Mill Brook Houses in the Bronx, New York.  DAVIS was aiming for Beck’s boyfriend, a rival gang member, but struck Beck instead.  On December 17, 2019, DAVIS was convicted of conspiring to commit racketeering, murder in aid of racketeering, and murder through the use of a firearm after a one-week trial before U.S. District Judge Lorna G. Schofield.

U.S. Attorney Audrey Strauss said:  “On April 18, 2011, Bolivia Beck was murdered while meeting her boyfriend’s grandparents on a sidewalk in the Mill Brook Houses.  What should have been a happy moment ended in tragedy, when she was shot by Kareem Davis.  For his role in this horrific and senseless act of violence, Davis will now spend the rest of his life in a federal prison.  We extend our deepest condolences to the members of Bolivia’s family.  We thank our partners at the NYPD, who worked to achieve this measure of justice for Bolivia and her family.  This Office remains committed to investigating and prosecuting gang violence and seeking justice for all victims of violent crime.”

According to the allegations in the Indictment and the evidence at trial:

On April 18, 2011, Bolivia Beck was struck and killed by a bullet while standing next to her boyfriend in the Mill Brook Houses, where she lived at the time.  KAREEM DAVIS was a member of Killbrook, a violent street gang based in the “Down the Block” section of the Mill Brook Houses.  Since at least 2007, Killbrook had been engaged in a violent rivalry with “MBG,” a gang based in the “Up the Block” section of Mill Brook.  

On the night of April 18, 2011, DAVIS and his brother planned to kill a rival MBG member as part of the broader gang rivalry.  DAVIS and his brother, each armed with a gun, walked “Up the Block” in Mill Brook looking for their target, who was standing next to Beck and introducing her to his grandparents.  At that point, DAVIS and his brother started shooting, firing at least 12 shots from their guns.  Tragically, Beck was struck by one of the bullets and killed.

DAVIS also committed other crimes in connection with his membership in Killbrook, including drug dealing and robbery.

*                *                *

In addition to his prison term, KAREEM DAVIS, 32, of the Bronx, New York, was sentenced to five years of supervised release.

Ms. Strauss praised the outstanding investigative work of the New York City Police Department.  

The case is being prosecuted by the Office’s Violent and Organized Crime Unit.  Assistant United States Attorneys Christopher Clore, Jordan Estes, and Alexandra Rothman are in charge of the prosecution. 

Audrey Strauss, the United States Attorney for the Southern District of New York, Miriam E. Rocah, Westchester County District Attorney, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today the arrest of CHRISTOPHER NUNEZ for persuading, inducing, enticing, and coercing a 15-year-old minor to engage in sexual activity.   NUNEZ was arrested yesterday in Miami, Florida, and will be presented today in Miami federal court.

Manhattan U.S. Attorney Audrey Strauss said:  “This case underlines the urgent need for law enforcement to continue its efforts to protect children from those who prey on them.  As today’s arrest shows, we will use every tool available to law enforcement to investigate and prosecute those alleged to have sexually exploited children.” 

Westchester County District Attorney Miriam E. Rocah said:  “This case highlights the dangers present online that can turn very real for minors in Westchester and elsewhere.  We will work together with our law enforcement partners at every level in every jurisdiction to protect our children.  I am grateful for the partnership of the SDNY and the FBI in this investigation, which will help identify perpetrators and victims around the country.”

FBI Assistant Director William F. Sweeney Jr. said:  “As alleged, we believe Mr. Nunez has chatted and possibly had contact with other victims.  We’re asking for everyone to take note of his social media username ‘PLMV23’ and call 1-800-CALL-FBI or go to tips.fbi.gov if you recognize it.  Parents and guardians are the first line of defense in keeping sexual predators from getting access to children, so please pay attention to what your children are doing online.  Ask questions about with whom they’re chatting, and make sure you know how to use the security features on all their devices.  A conversation with a child today may protect them from a trauma which will last a lifetime.”

According to the Complaint[1] filed on June 1, 2021, in White Plains federal court and unsealed today:

Between in or about early March 2021 up to and including on or about May 1, 2021, NUNEZ communicated online with a 15-year-old minor (“Victim-1”) and persuaded Victim-1 to meet NUNEZ in person to engage in sexual activities with him.   NUNEZ used various social media platforms to communicate with Victim-1, including Discord and Snapchat.  In his communications with Victim-1 on Discord, NUNEZ used the social media user name, “PLMV23.”

On or about April 30, 2021, and May 1, 2021, NUNEZ travelled to New York from Miami, Florida, to meet with Victim-1 in person in Westchester County, New York, to engage in sexual activity with her.

On or about May 2, 2021, CHRISTOPHER NUNEZ was charged in the Town of North Salem, New York, with Rape in the Third Degree and Endangering the Welfare of a Child.  The Westchester County District Attorney’s Office will be prosecuting these charges.

Anyone who may have encountered CHRISTOPHER NUNEZ (who may have been using the social media user name “PLMV23”), or whose child may have had any communications with NUNEZ, is asked to contact the FBI at 1-800-CALL-FBI (225-5324).           

*                *                *

NUNEZ, 26, of Miami, Florida, is charged with one count of coercion and enticement, which carries a mandatory minimum sentence of 10 years in prison and a maximum sentence of life in prison.  The statutory maximum sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Ms. Strauss praised the efforts of the FBI, the Westchester County District Attorney’s Office, and the New York State Police in connection with this investigation.  She added that the investigation is ongoing.                     

This case began as an investigation in the Special Prosecutions Division Child Abuse Bureau of the Westchester County District Attorney’s Office by Assistant District Attorney Charlotte Gudis, working jointly with the New York State Police.  The federal prosecution is being handled by the White Plains Division of the U.S. Attorney’s Office.  Assistant United States Attorney Marcia S. Cohen is in charge of the prosecution.  

 

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[1] As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth herein constitute only allegations, and every fact described should be treated as an allegation.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that NATALIE MAYFLOWER SOURS EDWARDS, a/k/a “Natalie Sours,” a/k/a “Natalie May Edwards,” a/k/a “May Edwards,” a former Senior Advisor at the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), was sentenced to six months in federal prison for unlawfully disclosing Suspicious Activity Reports (“SARs”) and other sensitive information.  EDWARDS previously pled guilty to participating in a conspiracy to disclose SARs before United States District Judge Gregory H. Woods, who imposed today’s sentence.

U.S. Attorney Audrey Strauss said: “Today’s sentence demonstrates that public servants who abuse the power entrusted to them will face steep consequences for their actions.  Maintaining the confidentiality of SARs, which are filed by banks and other financial institutions to alert law enforcement to potentially illegal transactions, is critical to preserve the integrity of myriad investigations, and the financial privacy of individuals.  Government employees entrusted with such highly sensitive information owe a duty to safeguard that information.  The defendant abused that trust to serve her own purposes, broke the law, and now faces time in a federal prison for her actions.”

According to the allegations contained in the Complaint, Information, other court filings, publicly-available information, and statements made in public court proceedings:

The mission of FinCEN is to “safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.”[2]  Among other things, FinCEN manages the collection and maintenance of SARs regarding potentially suspicious financial transactions, which, under the Bank Secrecy Act (“BSA”), U.S. financial institutions and other parties are required by law to generate and deliver to FinCEN.  Under the BSA and its implementing regulations, willful disclosure of a SAR or its contents by government employees or agents except as necessary to fulfill official duties is a felony.

Beginning in approximately October 2017, and lasting until her arrest in October 2018, EDWARDS agreed to and did unlawfully disclose numerous SARs to a reporter (“Reporter-1”), the substance of which were published over the course of approximately 12 articles by a news organization for which Reporter-1 worked.  The illegally disclosed SARs pertained to, among other things, Paul Manafort, Richard Gates, the Russian Embassy, Maria Butina, and Prevezon Alexander.  EDWARDS had access to each of the pertinent SARs and saved them—along with thousands of other files containing sensitive government information—to a flash drive provided to her by FinCEN.  She transmitted the SARs to Reporter-1 by means that included taking photographs or images of them and texting the photographs or images to Reporter-1 over an encrypted application.  In addition to disseminating SARs to Reporter-1, EDWARDS sent or described to Reporter-1 internal FinCEN emails or correspondence appearing to relate to SARs or other information protected by the BSA, and FinCEN non-public memoranda, including Investigative Memos and Intelligence Assessments published by the FinCEN Intelligence Division, which contained confidential personal information, business information, and/or security threat assessments.

* * *

In addition to her prison term, EDWARDS, 43, of Quinton, Virginia, was sentenced to three years of supervised release.  

Ms. Strauss praised the outstanding investigative work of the Treasury Department’s Office of Inspector General and the Federal Bureau of Investigation.

This case is being prosecuted by the Office’s Public Corruption Unit.  Assistant U.S. Attorneys Kimberly J. Ravener and Daniel C. Richenthal are in charge of the prosecution.

 

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[2] www.fincen.gov/about/mission

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that SAAED MOSLEM and his father, MEHDI MOSLEM, were found guilty in White Plains federal court today of conspiring to commit bank fraud and to defraud the Internal Revenue Service (“IRS”) in connection with their operation of Exclusive Motor Sports, a used car dealership in Central Valley, New York.  SAAED MOSLEM was also found guilty of aggravated identity theft, bankruptcy fraud, and additional bank fraud charges.  The jury returned its verdict after a two-week trial before U.S. District Judge Cathy Seibel.

U.S. Attorney Audrey Strauss said:  “Mehdi and Saaed Moslem for years provided false financial information and fabricated tax returns to their lenders, while at the same time cheating on their taxes.  Saaed Moslem also hid assets from his creditors and stole a customer’s identity.  Now the wheels have come off the father-son fraud business, and they await sentencing for their multiple crimes.”

According to the Indictment and the evidence presented at trial:

From 2009 through 2018, MEHDI MOSLEM and SAAED MOSLEM conspired to defraud the United States by concealing profits relating to their car dealership, Exclusive Motor Sports, from the IRS.  To falsely lower their business income, MEHDI MOSLEM and SAAED MOSLEM caused their accountant to prepare partnership tax returns that significantly understated Exclusive Motor Sports’ inventory.  The fraudulent business income figures passed through to MEHDI MOSLEM’s and SAAED MOSLEM’s personal tax returns, resulting in a substantial underreporting of the amount of tax due. 

From 2011 through 2019, MEHDI MOSLEM and SAAED MOSLEM also conspired to commit bank fraud by providing falsely inflated net worth statements and fabricated tax returns in connection with loan applications, including for a $1.5 million mortgage on the Exclusive Motor Sports property in Central Valley, New York.  SAAED MOSLEM then made numerous false statements to conceal his assets from financial institutions and other creditors when he filed for bankruptcy in 2015.  In 2019, SAAED MOSLEM committed aggravated identity theft by using a customer’s personal identifying information in connection with a fraudulent car loan application.

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MEHDI MOSLEM, 72, and SAAED MOSLEM, 37, both of Central Valley, New York, were each convicted of one count of bank fraud conspiracy, which carries a maximum sentence of 30 years in prison, and one count of conspiracy to defraud the United States and the IRS, which carries a maximum sentence of five years in prison.  SAAED MOSLEM was also convicted of one count of bank fraud and one count of making a false statement to a lender, each of which carries a maximum sentence of 30 years in prison, one count of bankruptcy fraud, which carries a maximum sentence of five years in prison, and one count of aggravated identity theft, which carries a mandatory sentence of two years in prison that must run consecutively to any other sentence of imprisonment.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

SAAED MOSLEM and MEHDI MOSLEM are scheduled to be sentenced by Judge Seibel on October 1, 2021, at 10:00 a.m.

Ms. Strauss praised the outstanding investigative work of the IRS-Criminal Investigation, and the Federal Bureau of Investigation.  She also thanked the Orange County District Attorney’s Office for its assistance.

This case is being handled by the Office’s White Plains Division.  Assistant United States Attorneys Daniel M. Loss, Nicholas S. Bradley, and James McMahon are in charge of the prosecution.

Audrey Strauss, the United States Attorney for the Southern District of New York, William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Jonathan D. Larsen, Special Agent in Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today the arrest of CHARLES ONUS for charges in connection with a scheme to conduct cyber intrusions of multiple user accounts maintained by a company that provides human resources and payroll services to employers across the United States, in order to steal payroll deposits.  ONUS was previously arrested on April 14, 2021, in San Francisco and detained, and he will be presented later today in Manhattan federal court before Magistrate Judge Sarah L. Cave.  The case is assigned to U.S. District Judge Paul G. Gardephe.  

Manhattan U.S. Attorney Audrey Strauss said:   “Charles Onus allegedly participated in a scheme that stole nearly $1 million by hacking into a payroll processing company’s system to access user accounts and divert payroll to prepaid debit cards he controlled.  As alleged, Onus did this as effectively as someone who commits bank burglary, but with no need for a blowtorch or bolt-cutters.  Thanks to the FBI and IRS-CI, Onus is in custody and facing serious federal charges.”

FBI Assistant Director William F. Sweeney Jr. said:  “Cyber intrusions ripple through everything our society relies upon – this one impacted people’s paychecks.  The FBI’s goal is to prevent cyber criminals from causing harm and holding them accountable, but we can’t do it alone.  Companies need to continuously improve their cyber hygiene and awareness.  Taking steps like training the workforce to protect and frequently change passwords, and to use different login credentials across platforms, can have an impact.  Each one of us, from the individual citizen to the biggest corporation, plays a critical role in defending the nation from cyberattacks.”

IRS-CI Special Agent in Charge Jonathan D. Larsen said:  “IRS Criminal Investigation will always work with our law enforcement partners to track down those who try to breach our country’s tax and financial infrastructure.  We will continually endeavor to bring to justice criminals who think they can comfortably steal from victims in America while hiding behind their computer screens.”

According to allegations in the Indictment filed in federal court[1]: 

From at least in or about July 2017 through at least in or about 2018, ONUS participated in a scheme to conduct cyber intrusions of multiple user accounts maintained by a company that provides human resources and payroll services to employers across the United States (the “Company”), in order to steal payroll deposits processed by the Company.

During the course of the scheme, unauthorized access was obtained to over 5,500 Company user accounts through a cyber intrusion technique referred to as “credential stuffing.”  During a credential stuffing attack, a cyber threat actor collects stolen credentials, or username and password pairs, obtained from other large-scale data breaches of other companies.  The threat actor then systematically attempts to use those stolen credentials to obtain unauthorized access to accounts held by the same user with other companies and providers, to compromise accounts where the user has maintained the same password.

After ONUS successfully gained unauthorized access to a Company user account, he changed the bank account information designated by the user of the account so that ONUS would receive the user’s payroll to a prepaid debit card that was under ONUS’s control. 

From at least in or about July 2017 through at least in or about 2018, at least approximately 5,500 Company user accounts were compromised and more than approximately $800,000 in payroll funds were fraudulently diverted to prepaid debit cards, including those under the control of ONUS.  The compromised Company user accounts were associated with employers whose payroll was processed by the Company, including employers located in the Southern District of New York.

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ONUS, 34, a resident and national of the Federal Republic of Nigeria, was charged with one count of  computer fraud for causing damage to a protected computer, which carries a maximum sentence of 10 years in prison; one count of computer fraud for unauthorized access to a protected computer to further intended fraud, and one count of receipt of stolen money, each of which carries a maximum sentence of five years in prison; one count of wire fraud, which carries a maximum sentence of 20 years in prison; and one count of aggravated identity theft, which carries a mandatory sentence of two years in prison to be served consecutively to any other sentence imposed. 

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

Ms. Strauss praised the outstanding investigative work of the FBI and IRS-CI.  Ms. Strauss also thanked the New York City Police Department, the FBI New York Cyber Task Force, U.S. Customs and Border Protection, and the FBI Field Office in San Francisco for their assistance in the investigation of this case.

The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant United States Attorney Sagar K. Ravi is in charge of the prosecution.

 

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[1] As the introductory phrase signifies, the entirety of the Indictment and the description of the Indictment set forth herein constitute only allegations, and every fact described should be treated as an allegation.

Audrey Strauss, the United States Attorney for the Southern District of New York, and Scott J. Lampert, Special Agent in Charge of the New York Regional Office of the U.S. Department of Health and Human Services, Office of the Inspector General (“HHS-OIG”), announced today that the United States has filed a civil healthcare fraud lawsuit against ISSAC LAUFER, TAMI WHITNEY, MONTCLAIR CARE CENTER, INC., EAST ROCKAWAY CENTER LLC, EXCEL AT WOODBURY FOR REHABILITATION AND NURSING, LLC, LONG ISLAND CARE CENTER INC., TREETOPS REHABILITATION & CARE CENTER LLC, SUTTON PARK CENTER FOR NURSING & REHABILITATION, LLC, SUFFOLK RESTORATIVE THERAPY & NURSING, LLC, OASIS REHABILITATION AND NURSING, LLC, FOREST MANOR CARE CENTER, INC., SURGE REHABILITATION & NURSING LLC, QUANTUM REHABILITATION & NURSING LLC, and PARAGON MANAGEMENT SNF LLC (collectively the “Defendants”).  The lawsuit seeks damages and civil penalties under the False Claims Act for fraudulently billing Medicare for unreasonable and unnecessary services provided to patients at eleven skilled nursing facilities located in New York (the “Facilities”).

The complaint alleges that, during the period from at least January 2010 through September 2019, Defendants systematically kept patients at the Facilities longer than necessary in order to maximize the amount billed to Medicare for the patients’ stays.  During those stays, the Facilities systematically put patients on higher levels of rehabilitation therapy than necessary based on their actual clinical needs in order to bill Medicare at the highest rate.  ISSAC LAUFER, who is a part owner of ten of the eleven Facilities and operates all eleven Facilities through PARAGON MANAGEMENT SNF LLC, and TAMI WHITNEY, the Coordinator of Rehabilitation Services for the Facilities, instructed and pressured staff to engage in these fraudulent practices.  As a result, according to the complaint, the Facilities submitted, or caused to be submitted, false claims for payment for rehabilitation services that were unreasonable and unnecessary, or in some cases, did not even involve the provision of skilled therapy.  

U.S. Attorney Audrey Strauss said: “As alleged, ISSAC LAUFER, TAMI WHITNEY and the skilled nursing facilities ISSAC LAUFER owns and/or operates prioritized profits above their obligation to focus on their patients’ actual medical needs.  In clear violation of the governing regulations, the Defendants fraudulently inflated their Medicare reimbursements by unnecessarily prolonging patient stays and billing for therapy that offered little or no clinical benefit.  This Office will continue vigorously to pursue companies and individuals who engage in these practices at the expense of the public fisc.”

HHS-OIG Special Agent in Charge Scott J. Lampert said: “The Medicare program is designed to protect both beneficiaries and taxpayers.  When medical providers bill for unnecessary or improper services, patient care is put at risk and the financial integrity of our federal health care system is compromised.  Working with our law enforcement partners, we will continue to ensure that medical providers are held accountable for their billing practices and the services they provide.”               

The following allegations are based on the Complaint that was filed in White Plains federal court today: 

The eleven facility defendants are skilled nursing facilities located in the New York metropolitan area.  LAUFER is a part owner of ten of the eleven Facilities and operates all eleven Facilities through PARAGON MANAGEMENT SNF LLC.  WHITNEY is the Coordinator of Rehabilitation Services for the Facilities and as such is involved in decisions regarding the provision of, and billing for, rehabilitation services.

From at least January 2010 through September 2019, the Defendants systematically kept Medicare patients at the Facilities longer than reasonable or necessary, and put those patients on higher levels of rehabilitation therapy than reasonable or necessary.  These practices were designed to increase the amounts billed to Medicare beyond what was justified based on patients’ clinical needs.  In some instances, the Facilities went so far as to intentionally limit patients’ progress in order to create the appearance of a continued need for services.  In one instance, WHITNEY reported to LAUFER that the Facilities should not allow patients to go to the bathroom by themselves because they would then “think they are ready to go home.”  

LAUFER and WHITNEY directed the Facilities to engage in this conduct.  Specifically, WHITNEY carefully tracked the length of stay for each Medicare patient and expected staff at the Facilities to justify discharges scheduled to take place before the patient’s stay approached 100 days—the maximum compensable by Medicare.  Together with management at the Facilities, WHITNEY devised strategies for extending patient stays, including giving patients unnecessary tests to gauge their balance proficiency at the point they were ready for discharge to create a pretext for extending their stays.  WHITNEY reported on the success of these “discharge prevention” measures to Laufer, noting both areas where these measures succeeded and those where the Facilities had to work harder to prolong patient stays—such as for patients who were “younger and smarter” or “high level.”  LAUFER, in turn, received daily updates from the Facilities reporting the number of Medicare patients who had been discharged, and, on a number of occasions, instructed WHITNEY to curb discharges.  LAUFER gave these instructions without any information about the patients’ clinical needs and made explicit that they were designed to increase revenue. 

WHITNEY, with LAUFER’S knowledge, also instructed the Facilities to provide virtually all Medicare patients with therapy at the “Ultra High”—i.e., highest billing—level, without regard to the patients’ needs or whether, due to their conditions, they could benefit from this intense therapy.  To qualify for the Ultra High level, a patient must receive at least 720 minutes of skilled therapy services (i.e., physical, occupational or speech therapy requiring the services of a trained therapist) per week.  Employees understood that there was virtually no wiggle room when it came to determining how much rehabilitation therapy a patient would receive.  The pressure to provide this level of therapy in turn led the Facilities to bill for services that did not actually qualify as skilled therapy and thus were not eligible for Medicare reimbursement (such as simply moving the limbs of patients with severe cognitive impairments or assisting with routine self-care tasks).

LAUFER and WHITNEY’S efforts to keep Medicare patients at the Facilities for as close as possible to 100 days and to provide almost all patients, without regard to need, with therapy at the Ultra High level succeeded.  During the relevant period, the Facilities were significant outliers, compared to other skilled nursing facilities, with respect to Medicare patients’ average length of stay and levels of rehabilitation therapy.

These practices resulted in the Facilities submitting claims to Medicare for rehabilitation therapy that was not reasonable or necessary, was billed at a higher rate than appropriate, or did not involve the provision of skilled services and, accordingly, were ineligible for payment.  In addition, the Facilities made or used false statements and records that were material to false claims submitted to Medicare for payment for rehabilitation therapy that was unreasonable, unnecessary, or unskilled.

The Government intervened in a private whistleblower lawsuit before the Honorable Cathy Seibel that had previously been filed under seal pursuant to the False Claims Act.

Ms. Strauss thanked HHS-OIG for its assistance with the case.

The case is being handled by the Office’s Civil Frauds Unit.  Assistant U.S. Attorneys Jacob Bergman and Rachael Doud are in charge of the case.

Audrey Strauss, the United States Attorney for the Southern District of New York, and Brian C. Gallagher, Acting Special Agent in Charge of the U.S. Department of Transportation Office of Inspector General Northeastern Region (“DOT-OIG”), announced today that the United States filed and settled a civil fraud lawsuit against NAUGHTON ENERGY CORPORATION (“NAUGHTON ENERGY”) and two of its owners, its president, MARIETTE NAUGHTON, and her husband, JOSEPH NAUGHTON (collectively, “Defendants”).  NAUGHTON ENERGY, a Pennsylvania-based fuel distributor, supplied diesel fuel to vehicles and equipment used in connection with the federally funded New NY Bridge Project (the “NNYB Project”), a construction project to replace New York’s Governor Malcolm Wilson Tappan Zee Bridge.  The settlement resolves the United States’ allegations in a False Claims Act lawsuit that Defendants fraudulently caused the submission of false claims by causing the prime contractor on the NNYB Project (the “Prime Contractor”) to misrepresent compliance with Disadvantaged Business Enterprise (“DBE”) rules, which require participation of businesses owned by women and minorities.  Specifically, the United States alleged that NAUGHTON ENERGY, MARIETTE NAUGHTON, and JOSEPH NAUGHTON misrepresented to the Prime Contractor that NAUGHTON ENERGY was solely performing millions of dollars of work on the NNYB Project when in fact much of that work was performed by a non-DBE subcontractor.  As part of the settlement approved yesterday by U.S. District Judge Valerie E. Caproni, NAUGHTON ENERGY, MARIETTE NAUGHTON, and JOSEPH NAUGHTON admit and accept responsibility for conduct alleged in the Government’s complaint and, pursuant to the terms of a settlement based on their ability to pay, have agreed to pay $692,000 over the next five years to the United States.

Manhattan U.S. Attorney Audrey Strauss said:  “DBE participation goals create opportunities for DBEs to work on federally funded construction projects.  When DBEs fail to disclose the involvement of non-DBEs in their work, they effectively divert resources to ineligible firms and undermine the DBE program’s goal of creating an environment in which businesses owned by women and minorities can compete fairly for United States Department of Transportation-assisted contracts.”

USDOT-OIG Acting Special Agent in Charge Brian C. Gallagher, said:  “The settlement reached today only strengthens our resolve in pursuing those whose spurious actions prevent the legitimate participation of disadvantaged enterprises (DBE) in federally funded transportation projects.  While the integrity of DOT’s DBE program was compromised in this instance, we remain steadfast working alongside our law enforcement and prosecutorial partners to ensure funds designated to support disadvantaged small businesses are used for their intended benefit and purpose.”

As alleged in the Complaint, from August 1, 2013, through January 16, 2020, Defendants caused the submission of false claims for payment to the United States Department of Transportation (the “DOT”).  Specifically, Defendants represented that NAUGHTON ENERGY, a certified DBE, provided fuel, trucking, and manpower services without assistance from a subcontractor.  The Complaint alleges that, from the outset of their involvement on the NNYB Project, Defendants represented that they could deliver diesel fuel to the work site wholly independently.  However, Defendants lacked both a fuel truck with sufficient capacity and employees with the necessary union affiliation to effectively make these deliveries.  Defendants, therefore, arranged for a non-DBE subcontractor (“Subcontractor Y”) to supply the required fuel delivery truck (the “Project Truck”) and union personnel.  In exchange, Defendants shared half of their profits from the NNYB Project with Subcontractor Y.  Defendants never disclosed this arrangement to the Prime Contractor, and instead, made concerted efforts to give the false appearance that NAUGHTON ENERGY performed the work unassisted.  These efforts included: (1) arranging a sham transaction wherein Subcontractor Y transferred ownership of the Project Truck, worth over $10,000, to NAUGHTON ENERGY for a mere $1; and (2) placing the owner of Subcontractor Y on NAUGHTON ENERGY’s payroll, to give the false impression that NAUGHTON ENERGY employees performed all of the services at issue.  Even after the Prime Contractor’s DBE program manager directly inquired as to Subcontractor Y’s involvement, Defendants continued to falsely state that NAUGHTON ENERGY performed its work without any subcontractor involvement.

As part of the settlement, Defendants admitted conduct alleged in the Complaint, including that:

*   Prior to beginning work on the project, Defendants contacted a non-DBE company, Subcontractor Y, to assist NAUGHTON ENERGY with providing diesel fuel services to the Prime Contractor.

*   NAUGHTON ENERGY used Subcontractor Y to provide diesel fuel services on the project because: (1) absent an agreement with Subcontractor Y regarding the use of its truck, NAUGHTON ENERGY did not have a fuel delivery truck with sufficient capacity to effectively provide diesel fuel services for the project; and (2) NAUGHTON ENERGY lacked the affiliation with the requisite union necessary to have its own staff work on the project

*   Defendants did not disclose this arrangement to the Prime Contractor.  Instead, Defendants took the following actions that made it appear that no subcontractor was involved in providing NAUGHTON ENERGY’s services: (1) Defendants negotiated with Subcontractor Y to transfer title of the Project Truck to NAUGHTON ENERGY for $1; and (2) Defendants placed an owner of Subcontractor Y on NAUGHTON ENERGY’s payroll.

*   Defendants failed to disclose Subcontractor Y’s involvement in the work performed on the project.

Ms. Strauss praised the outstanding investigative work of DOT-OIG.  She also thanked the New York State Office of the Inspector General for its assistance.  This case is being handled by the Office’s Civil Frauds Unit.  Assistant U.S. Attorney Jessica Jean Hu is in charge of the case.