Southern District of New York

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 that JOSEPH CIMINO, the founder of an Orange County-based tequila company, was arrested this morning and charged with securities fraud and wire fraud arising out of his fraudulent solicitation of investments for the company.  CIMINO will be presented before United States Magistrate Judge Judith C. McCarthy in White Plains federal court later today.

U.S. Attorney Audrey Strauss said:  “Joseph Cimino allegedly raised nearly $1 million in investor funds for his start-up tequila company by lying about the company’s finances, and then spent a significant portion of that money to finance his own lifestyle.  Now Cimino faces the sobering reality of federal securities and wire fraud charges.”

FBI Assistant Director William F. Sweeney Jr. said:  “Through falsely inflating capital, misleading investors, and lying about other aspects of his tequila company, Cimino, as alleged, raised nearly $1 million in furtherance of his fraudulent scheme.  While his alleged illegal activity continued over a period of four years, today’s arrest has effectively shattered any hopes he may have had of continuing to scam innocent investors.”

According to the allegations contained in the Complaint[1] unsealed today in White Plains federal court:

From 2014 to 2018, CIMINO raised approximately $935,000 from at least 25 investors ostensibly to fund a tequila company that he founded (the “Tequila Company”).  Throughout this period CIMINO made numerous false and misleading representations in an effort to attract and maintain investors.  For example, in multiple communications with prospective investors, CIMINO falsely inflated the amount of capital that the Tequila Company had raised from other investors, and falsely represented that certain individuals were investors in the Tequila Company, when in reality they had not invested any funds.  CIMINO also fabricated or falsely inflated the Tequila Company’s sales in a number of investor communications.  In December 2015, CIMINO made statements in an email to a prospective investor falsely implying that the Tequila Company already had sales, when in fact, the company’s initial sales did not occur until 2017.  In July 2017, CIMINO falsely represented in an investor report and quarterly profit and loss (“P&L”) statement that the Tequila Company’s year-to-date sales totaled 3,410 cases, when its actual sales totaled only 350 cases.  Then, in October 2017, CIMINO falsely represented that the Tequila Company’s year-to-date sales totaled 6,035 cases, when its actual year-to-date sales totaled barely 20 percent of that number.  CIMINO further claimed to investors in October 2017 that the Tequila Company would receive reimbursement for 800 cases of tequila that were supposedly destroyed at a distributor’s warehouse in Puerto Rico as a result of Hurricane Maria.  That statement was a fabrication.  In reality, the Tequila Company had no insurance and none of its inventory had been destroyed in the hurricane.

In addition to deceiving investors about the Tequila’s Company’s financial condition, CIMINO used investor money for personal expenses, including groceries, pet supplies, and personal entertainment.  From 2014 to 2018, CIMINO transferred approximately $472,000 of investor money from the Tequila Company into his personal bank account, and used a significant portion of those deposits for personal living expenses, contrary to the operating agreements provided to investors.

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CIMINO, age 56, of Warwick, New York, is charged with one count of securities fraud and one count of wire fraud.  Each charge 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 a judge.

Ms. Strauss praised the investigative work of the FBI Hudson Valley White Collar Crime Task Force and Orange County Sheriff’s Office.  Ms. Strauss also thanked the Securities & Exchange Commission for its assistance in the investigation.

In a related case, the Securities & Exchange Commission brought a civil action today against CIMINO in U.S. District Court in White Plains.

The criminal case is being prosecuted by the Office’s White Plains Division.  Assistant U.S. Attorneys Benjamin Gianforti and Daniel Loss are in charge of the prosecution.

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

Audrey Strauss, U.S. Attorney for the Southern District of New York, and New York Police Department Commissioner Dermot Shea, announced that RICKEY JOHNSON, a/k/a “Nigel Dawn Defarren,” was arrested last night based on a criminal Complaint filed in Manhattan federal court charging JOHNSON with making threatening interstate communications and threatening United States officials.  JOHNSON allegedly posted public videos on Instagram in which he threatened to kill a United States Senator, a member of the United States House of Representatives, other current and former elected officials, and several cable news broadcasters. JOHNSON will be presented before United States Magistrate Gabriel W. Gorenstein in Manhattan federal court today.

Manhattan U.S. Attorney Audrey Strauss said:  “Rickey Johnson allegedly threatened to kill several cable news broadcasters and current and former U.S. Senators and members of the House in rage-fueled posts on Instagram and in chilling private messages.  Among the many great freedoms Americans enjoy is the right to engage in political discourse, and disagreements are natural and healthy; but when invective metastasizes into threats of harm or even death, law enforcement will act swiftly to bring the person responsible to justice.”

NYPD Commissioner Dermot Shea said:  “Rickey Johnson, as alleged in this federal complaint, took aim at the foundations of our shared democracy and way of life, threatening not only elected United States officials but several working journalists. From the earliest stages of this investigation, the NYPD Intelligence Bureau and our partners in the United States Attorney’s Office in the Southern District of New York worked closely to make sure this individual would be brought to justice.”

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

On January 30, 2021, JOHNSON sent a private message to a cable news broadcaster that threatened, “you will all be held accountable . . . you will be killed.”  JOHNSON’s message threatened by name two additional broadcasters.  On February 3, 2021, JOHNSON posted public messages in which he stated that he intended to “kill” two of the same broadcasters.

On February 4, 2021, JOHNSON posted public messages threatening, among others, a United States Senator, a member of the United States House of Representatives, a former Speaker of the United States House of Representatives, and a governor.  For example, JOHNSON declared that the Senator was “dead” and would be “executed,” that JOHNSON was “going to kill” the Representative, and that the governor “will be executed” and “will be killed.”  In a public post directed principally at the former Speaker, JOHNSON stated: “I am going to kill you.  I’m gonna kill all of you.”

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RICKEY JOHNSON, 47, of New York, New York, is charged with making threatening interstate communications, which carries a maximum sentence of five years’ imprisonment, and threatening United States officials, which carries a maximum sentence of ten years’ imprisonment.  The maximum potential 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.

Ms. Strauss praised the outstanding investigative work of the NYPD, the NYPD’s Intelligence Bureau, Leads Investigation Unit, and the NYPD’s 23rd Precinct Field Intelligence Team. 

The case is being handled by the Office’s Terrorism and International Narcotics Unit.  Assistant United States Attorneys Andrew J. DeFilippis and Patrick R. Moroney are in charge of the prosecution.

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

[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.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced today that AMIT AGARWAL, the operator of an international wholesale consumer electronics business based in New Jersey, pled guilty to participating in a conspiracy to operate an unlicensed money transmission business that operated primarily between Colombia and the United States.  AGARWAL pled guilty before United States District Judge Paul A. Engelmayer.   

Miguel Cespedes, Omar Mogollon, Luis Felipe Gonzalez Arcila, Ivan Rojas Acosta, Alex Barrera Forero, and David Ortiz Villamizar were previously charged in three separate indictments for their roles in the scheme.  They were arrested in Colombia, and the United States Government is seeking their extradition to the United States.

U.S. Attorney Audrey Strauss said:  “As he admitted today, Amit Agarwal was a key player in a shadow financial network that allowed the movement of drug traffickers’ profits into our banking system and across our borders.  Now he awaits sentencing for his crimes.”           

According to the Indictments, the superseding Information, and statements made in open court:

From at least in or about June 2018 through at least in or about 2019, AMIT AGARWAL participated in a scheme to operate an unlicensed money transmitting business to move funds between the United States and Colombia, among other places.  Among other things, the purpose of the scheme was to enable clients with cash located in the United States to transfer the value of that cash to other countries, principally Colombia, without the need for physically transporting United States currency across an international border or directly depositing large amounts of cash into the legitimate financial system.

To effectuate the scheme, “clients,” i.e., the owners of funds located in the United States, utilized the services of money brokers operating primarily in Colombia (the “Money Brokers”).  The Money Brokers offered “contracts” typically requiring (a) the pick-up of United States currency from couriers throughout the United States and the receipt of international wires in the United States, and (b) the delivery of a corresponding amount of pesos in Colombia to the Money Brokers.  In exchange for successfully delivering on a contract, the Money Brokers earned a commission, taken from the pesos received by them in Colombia.  The person(s) with whom the Money Brokers contracted to arrange for the pick-up and receipt of United States currency also received a commission taken from the pesos received by the Money Brokers in Colombia.  Although the payment of commissions from the funds collected pursuant to a contract meant that the clients did not receive the full value of the funds that the clients owned in the United States, this scheme enabled the clients to avoid the risks of having large quantities of cash detected at international borders and to avoid triggering financial reporting requirements.

Cespedes, Mogollon, Gonzalez, Rojas, Barrera, and Ortiz engaged in the scheme as Money Brokers.  As Money Brokers, working at times independently and at times together, they offered and executed upon multiple contracts requiring the pick-up of funds throughout the United States, and the delivery of a corresponding value of pesos to them in Colombia.  In exchange for their work as Money Brokers, they received a commission taken from the pesos delivered to them in Colombia, as did the individuals with whom they contracted.

AGARWAL was the chief executive officer of a consumer electronics products business based in East Hanover, New Jersey (the “Agarwal Electronics Business”).  Among other things, the Agarwal Electronics Business exported consumer electronics to purchasers throughout the world, including purchasers located in Colombia.  In connection with its business activities, the Agarwal Electronics Business maintained a bank account in the United States, controlled and operated by AGARWAL (the “Agarwal Bank Account”). 

Typically, as part of the scheme, the funds collected in the United States pursuant to contracts offered by Cespedes, Mogollon, Gonzalez, Rojas, Barrera, and Ortiz were deposited in a bank account located in the United States (“Bank Account-1”), and then transferred to the Agarwal Bank Account.  AGARWAL agreed to accept these funds into the Agarwal Bank Account, and AGARWAL also agreed to accept funds into the Agarwal Bank Account that had been wired to Bank Account-1 from foreign locations, including Mexico. 

 Upon receiving confirmation that funds collected pursuant to a Money Broker contract issued by Cespedes, Mogollon, Gonzalez, Rojas, Barrera, or Ortiz were available for deposit into the Agarwal Bank Account, AGARWAL arranged for the export of a roughly equivalent value of consumer electronics products to certain consumer electronic product suppliers located in Colombia (the “Colombian Electronics Suppliers”).  The Colombian Electronics Suppliers, in turn, arranged to pay for the products by delivering pesos to an individual in Colombia, who then delivered those funds to the Money Brokers.  In this way, funds collected in the United States were remitted to Colombia, without requiring that they be reported, declared, or smuggled over international borders.

During the execution of the scheme, federal law enforcement agents working in an undercover capacity, and persons operating at the direction of federal law enforcement agents, informed AGARWAL that the funds he agreed to receive in the Agarwal Bank Account from Bank Account-1, pursuant to the scheme, represented the proceeds of narcotics trafficking activity.  AGARWAL, however, continued to accept the funds into the Agarwal Bank Account while facilitating the Money Broker contracts.   

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AGARWAL, 39, a citizen of India, pled guilty to one count of conspiracy to operate an unlicensed money transmitting business, which carries a maximum sentence of five years in prison.  AGARWAL will be sentenced by Judge Engelmayer on July 14, 2021, at 2:30 p.m.            

Cespedes is charged in United States v. Miguel Cespedes, 19 Cr. 839, with one count of operation of an unlicensed money transmission business, which carries a maximum sentence of five years in prison, and one count of conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison.           

Barrera and Ortiz are charged in United States v. Alex Barrera Forero and David Ortiz Villamizar, 19 Cr. 840, with one count of conspiracy to operate an unlicensed money transmission business, and one count of operation of an unlicensed money transmission business, each of which carries a maximum sentence of five years in prison.           

Mogollon, Gonzalez, and Rojas are charged in United States v. Omar Mogollon, et al., 19 Cr. 837, with conspiracy to operate an unlicensed money transmission business and operation of an unlicensed money transmission business, each of which carries a maximum sentence of five years in prison.  Mogollon is also charged with one count of international money laundering, which carries a maximum sentence of 20 years in prison.  

The statutory maximum sentences 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 DEA, and thanked authorities in Colombia, and the Justice Department’s Office of International Affairs of the Department’s Criminal Division for their assistance. 

This case is being handled by the Office’s Money Laundering and Transnational Criminal Enterprises Unit.  Assistant United States Attorneys Tara M. La Morte and Cecilia E. Vogel are in charge of the prosecution.

The allegations in the Indictments charging Cespedes, Mogollon, Gonzalez, Rojas, Barrera, and Ortiz are merely accusations, and they are presumed innocent unless and until proven guilty.

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 arrest of DEREK JONES on charges of wire fraud and aggravated identity theft.  As alleged in an Indictment unsealed today in Manhattan federal court, JONES, while licensed as an attorney in California, defrauded investors in businesses JONES controlled out of at least approximately $4.5 million.  The case has been assigned to U.S. District Judge Loretta A. Preska.  JONES, who was arrested this morning in California, will be presented later today before a magistrate judge in the Central District of California.  Arraignment will be tomorrow before Judge Preska by teleconference.

Manhattan U.S. Attorney Audrey Strauss said:  “As alleged, Derek Jones not only failed to live up to the canons of the legal profession, he affirmatively lied to investors and defrauded them out of millions of dollars.  As alleged, Jones lied about a real estate development opportunity on land he neither owned nor was developing, and he lied to investors to create the false impression that he had real businesses with real employees.  Jones allegedly spent investors’ money on himself and his family, and to pay some investors in Ponzi-like fashion.  Now, thanks to the FBI, Jones is in custody and facing federal charges.”

FBI Assistant Director William F. Sweeney Jr. said:  “As alleged, Jones solicited investments from various clients based on false representations of BlueRidge’s and Realize’s assets.  In reality, while at least one of the companies held an account balance in the negative, Jones allegedly was using money received from the fraud to fund personal expenses to include private school tuition for at least one of his children.  Investment fraud schemes are unfortunately all too common.  Our efforts to bring the perpetrators to justice are as well.”

As alleged in the Indictment:[1]

From at least 2012 through at least 2019, JONES solicited and obtained investments for various companies and investment funds he controlled, including the purported real estate development and investment firm BlueRidge Realty (“BlueRidge”) and the purported venture capital firm Realize Holdings (“Realize”).

JONES routinely made materially false oral and written statements to induce victims to invest, including statements that lied about BlueRidge’s and Realize’s assets.  For example, JONES falsely claimed that BlueRidge was developing a “resort village” on land it controlled in Washington State, when in fact neither BlueRidge nor JONES owned or controlled the property, let alone had begun developing a resort there.  Additionally, JONES sent a potential Realize investor an altered bank statement showing a balance in a Realize bank account of more than $7 million – at a time when that bank account actually had a negative balance of approximately $268.71.

JONES defrauded investors out of at least approximately $4.5 million.  He misappropriated investments and used the funds to, among other things, transfer money to himself or relatives, pay tuition for a private school attended by one or more of his children, and make Ponzi-like payments to other investors.  To prolong and conceal the fraud scheme, JONES regularly told lies designed to avoid meetings with or inquiries from victims.  For example, in explaining his failure to respond promptly to questions or his reason for postponing an upcoming meeting, JONES falsely told different investors, on different occasions, that one of his relatives was in poor health.  JONES also used the names of other individuals – without those individuals’ authorization or knowledge – to communicate via email with investors and thus foster the illusion that JONES’s businesses were viable operations with real employees.

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JONES, 46, of San Marino, California, is charged with one count of wire fraud, which carries a maximum potential prison sentence of 20 years, and two counts of aggravated identity theft, each of which carries a mandatory consecutive prison sentence of two years.  The maximum potential penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Ms. Strauss praised the investigative work of the FBI.

This case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorney David Abramowicz is in charge of the prosecution.

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

[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth below 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, Raymond P. Donovan, Special Agent in Charge of the New York Division of the U.S. Drug Enforcement Administration (“DEA”), Peter C. Fitzhugh, Special Agent in Charge of the New York Division of Homeland Security Investigations (“HSI”), and Dermot Shea, Commissioner of the New York City Police Department (“NYPD”), announced that JOSE LORETO GASTELUM‑TORRES and FREDY ALEJANDRO GASTELUM‑VEGA were charged in a criminal complaint in Manhattan federal court with conspiring to import approximately 2.5 tons of methamphetamine and 100,000 fentanyl pills into the United States.  The charge arises from a January 29, 2021, seizure of approximately 2.5 tons of methamphetamine and 100,000 fentanyl pills in Sinaloa, Mexico.

Manhattan U.S. Attorney Audrey Strauss said:  “Thanks to the DEA, HSI, the NYPD, and the rest of our OCDETF New York Strike Force partners, a major shipment of potentially lethal drugs was interdicted before it could addict, poison, and potentially kill untold numbers of people in the United States.”

DEA Special Agent in Charge Raymond P. Donovan said:  “There is a tidal wave of fentanyl and methamphetamine being pushed from Mexico into the United States.  Case in point, these two traffickers were allegedly caught red-handed with over $90 million dollars’ worth of fentanyl and methamphetamine.  Traffickers see opportunities when drug overdoses rise, and they are trying to flood American markets with these synthetic, highly addictive, and dangerous drugs.  DEA and our law enforcement partners will continue to target drug networks to keep Americans safe and save lives.”

HSI Special Agent in Charge Peter C. Fitzhugh said:  “Those arrested allegedly sought to traffic thousands of fentanyl pills and multiple tons of methamphetamine, which would only exacerbate the plague currently devastating our community while steadily increasing addictions and overdose deaths.  The Strike Force has been a proven model for success in dismantling transnational narcotics trafficking organizations.  HSI showcased our unique value at the Strike Force in this case by leveraging our border resources to not only effectively address threats and vulnerabilities but moreover promote collaboration in furthering these investigations, making timely and significant arrests, and stopping deadly drugs from flooding our streets.”

Police Commissioner Dermot Shea said:  “Today’s charges demonstrate that the investigative efforts of the NYPD in coordination with our law enforcement partners are far-reaching and focused.  As long as individuals, wherever they may be, are involved in illegal narcotics trafficking, the NYPD and our partners will relentlessly work to end the threat to public safety.  I commend and thank the NYPD investigators, members of the Organized Crime Drug Enforcement Strike Force Initiative, agents from the New York Division of the U.S. Drug Enforcement Administration, and the attorneys at the United States Attorney’s Office, Southern District, for their dedication to this investigation.

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

On or about January 29, 2021, Mexico’s Secretaría de Marina (the “Mexican Navy”) located and began tracking an outboard‑powered boat traveling from Las Arenitas, Sinaloa, Mexico, northwest through the Gulf of California.  Approximately several hours later, the Mexican Navy interdicted the vessel in or around Topolobampo, Sinaloa, Mexico, and arrested GASTELUM‑TORRES and GASTELUM‑VEGA.  Mexican Navy officers seized approximately 960 plastic containers from the boat, which contained approximately 2.5 tons of methamphetamine and 100,000 pills of fentanyl.

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GASTELUM‑TORRES, 53, and GASTELUM‑VEGA, 33, of Mexico, are each charged with conspiring to import at least 500 grams of methamphetamine and at least 400 grams of fentanyl into the United States, which carries a mandatory minimum sentence of 10 years in prison and a maximum sentence of life 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 would be determined by the judge.

This case is part of an Organized Crime Drug Enforcement Task Forces (“OCDETF”) Strike Force Initiative, which provides for the establishment of permanent multi-agency task force teams that work side-by-side in the same location.  This co-located model enables agents from different agencies to collaborate on intelligence-driven, multi-jurisdictional operations to disrupt and dismantle the most significant drug traffickers, money launderers, gangs, and transnational criminal organizations. 

This investigation was conducted by the OCDETF New York Strike Force in partnership with the DEA’s law enforcement partners.  The OCDETF New York Strike Force comprises federal, state, and local law enforcement agencies supported by OCDETF and the New York/New Jersey High Intensity Drug Trafficking Area.  The Strike Force is affiliated with the DEA’s New York Division and includes agents and officers of the DEA, NYPD, New York State Police, HSI, U.S. Internal Revenue Service Criminal Investigation Division, Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Customs and Border Protection, U.S. Secret Service, U.S. Marshals Service, New York National Guard, Clarkstown Police Department, U.S. Coast Guard, Port Washington Police Department, and New York State Department of Corrections and Community Supervision.  

Ms. Strauss praised the outstanding investigative work of the OCDETF New York Strike Force.

The case is being handled by the Office’s Terrorism and International Narcotics Unit.  Assistant United States Attorneys Alexander Li, Benjamin Woodside Schrier, and Kyle A. Wirshba are in charge of the prosecution.

The charge contained in the Complaint is merely an allegation, and the defendants are presumed innocent unless and until proven guilty.

[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 today that CRAIG ZABALA, the chairman, chief executive officer, and president of Concorde Group Holdings Inc. (“Holdings”), was sentenced today to 24 months in prison for participating in a scheme to defraud investors in Holdings, a purported merchant banking firm.  Among other illicit activity, ZABALA fraudulently induced at least 17 investors to invest approximately $4.38 million based on false and misleading statements, by failing to use investors’ funds as promised, and by converting investors’ money to his own use.  ZABALA pled guilty to conspiracy to commit securities fraud and wire fraud on October 22, 2020, before U.S. District Judge J. Paul Oetken, who also imposed today’s sentence.

U.S. Attorney Audrey Strauss said:  “Craig Zabala defrauded investors out of more than $4 million through a purported financial services firm he controlled.  He lied to investors about how much money had been raised, who had invested, how close the firm was to an IPO, and how he would use investors’ money.  Zabala appropriated most of the money for his own use or to pay off investors in a Ponzi-like fashion.  Now he has been sentenced to prison for his crimes.”

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

CRAIG ZABALA was the chairman, CEO, and president of various affiliated and intertwined purported financial services companies:  Holdings, Concorde Group, Inc. (“Group”), Blackhawk Capital Group BDC, Inc. (“Blackhawk”), DBL Holdings, LLC, d/b/a “Drexel Burnham Lambert” (“DBL”), Concorde Investment Managers, LLC (“CIM”), and Concorde Europe, Ltd. (“Concorde Europe”).  In or about August 2019, FINRA barred ZABALA from the broker-dealer industry, including because of his failure to cooperate with a FINRA investigation.

Holdings was a Delaware corporation formed in or about 2015, with an office in Jersey City, New Jersey, and a mailing address in New York, New York.  Holdings purported to provide financial services, including merchant banking, investment banking, asset management, and securities brokerage services, to entrepreneurs, investors, and businesses in the middle market, meaning small to mid-sized companies with revenue and market capitalizations of less than $1 billion, in North America, Europe, and Asia.  Holdings’ purported affiliates included Group, DBL, Blackhawk, CIM, and Concorde Europe.  ZABALA was a majority owner of Holdings.

Group was a Delaware corporation formed in or about 1995, based in New York, New York, that purported to provide the same types of financial services as Holdings.  Group’s purported affiliates included DBL, Blackhawk, CIM, and Concorde Europe.  ZABALA was a majority owner of Group.  Between in or about 2001 and in or about 2014, Group purportedly raised approximately $18 million from investors.

From at least in or about 2015 through in or about 2020, ZABALA and others perpetrated a scheme to defraud at least approximately 17 investors out of approximately $4.38 million in Holdings notes, warrants, and equity.  Almost all of these investors invested in a private offering by Holdings of $25 million in senior secured notes with attached warrants paying 13 percent interest (the “Holdings Offering”). 

ZABALA falsely represented that the proceeds from the offerings would be used to grow Holdings’ purported merchant banking business by investing in and buying other financial services companies.  In truth and in fact, and as ZABALA well knew, Holdings did not make any investments in or buy other companies; it was a shell company.

ZABALA falsely represented that Holdings was successfully raising money from investors, claiming that Holdings had raised nearly all of the $25 million targeted in the Holdings Offering and that the family office of a wealthy German family had invested millions of dollars in Holdings.  In truth and in fact, and as ZABALA well knew, Holdings only raised a few million dollars (the majority from one investor), and the family office never invested in, and never committed to invest in, Holdings.     

ZABALA falsely represented to Holdings Investors that Holdings would soon have an initial public offering (“IPO”), which would result in large profits to Holdings investors.  In truth and in fact, and as ZABALA well knew, Holdings was not close to an IPO.            

ZABALA converted at least approximately 70 percent of the approximately $4.38 million in Holdings investor funds in the form of cash withdrawals and other transfers to himself, payments to his girlfriend, payments of his personal credit card bills, and repayment of Group investors in a Ponzi-like fashion.

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ZABALA, 69, of New York, New York, was also sentenced to three years of supervised release, ordered to forfeit $4,380,000, and to pay restitution of $4,380,000. 

Ms. Strauss praised the outstanding work of the United States Postal Inspection Service’s New York Division, and also thanked the Securities and Exchange Commission and Financial Industry Regulatory Authority for their assistance and cooperation in this investigation. 

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, today announced that David S. Jones, the Deputy Chief of the Office’s Civil Division, has been appointed to serve as a United States Bankruptcy Judge in Manhattan.  Mr. Jones will officially assume his duties on February 19, 2021.

Mr. Jones has served in the Office’s Civil Division for nearly 25 years.  Mr. Jones previously served as Chief of the Tax and Bankruptcy Unit from 2002 to 2007, and as Chief Civil Division Appellate Attorney from 2007 until he assumed his current role in 2009.  Mr. Jones is a past recipient of the Henry L. Stimson Medal for outstanding contributions to the Office.

Prior to joining the Office in 1996, Mr. Jones was in private practice for four years and was a law clerk to U.S. District Judge Morris E. Lasker.  He is a graduate of Harvard Law School and Brown University.

U.S. Attorney Audrey Strauss said:  “I am pleased and proud that David Jones has been selected to serve as a Bankruptcy Judge in this District.  David has been a valued mentor and friend to so many colleagues in our Office.  I am confident that David will be an exemplary Bankruptcy Judge.”

Audrey Strauss, United States Attorney for the Southern District of New York, and Peter C. Fitzhugh, Special Agent in Charge of the New York Field Office of Homeland Security Investigations (“HSI”), announced that STEFAN HE QIN, the founder of the Virgil Sigma Fund LP (“Virgil Sigma”) and the VQR Multistrategy Fund LP (“VQR”), a pair of cryptocurrency hedge funds in New York, New York, with over $100 million in investments, was charged with one count of securities fraud and pled guilty today in Manhattan federal court.  For years, QIN stole investor money from Virgil Sigma and, in December 2020, QIN tried to steal investor money from VQR to pay back his investors in Virgil Sigma.  QIN pled guilty today before United States District Judge Valerie Caproni.           

U.S. Attorney Audrey Strauss said:  “Stefan He Qin drained almost all of the assets from the $90 million cryptocurrency fund he owned, stealing investors’ money, spending it on indulgences and speculative personal investments, and lying to investors about the performance of the fund and what he had done with their money.  Then, as he further admitted today, Qin attempted to steal money from another fund he controlled to meet redemption demands of the defrauded investors in the former fund.  The whole house of cards has been revealed, and Qin now awaits sentencing for his brazen thievery.”

HSI Special Agent in Charge Peter C. Fitzhugh said:  “Virgil Sigma and VQR, two multimillion-dollar cryptocurrency investment funds, were revealed to be slush funds for Qin to live his extravagant lifestyle.  Qin orchestrated this reprehensible criminal scheme for many years, making misrepresentations and false promises that coaxed investors into pouring millions of dollars into fraudulent cryptocurrency firms, all the while stealing the hard-earned money of his investors.  Furthermore, Qin mastered the art of trickery by representing these firms as profitable investment strategies so more victims fell to his tactics and were defrauded of nearly $100 million.  The HSI New York El Dorado Task Force, with our incredible law enforcement partnerships, are committed to aggressively pursue fraud in all forms, regardless of how elaborate and profitable these schemes appear.  In today’s technological world, there are increasingly more opportunities for fraudsters to take advantage of people, and with Qin pleading guilty to his deceitful acts, HSI and our partners remind those who attempt to defraud victims in any manner, your fraud will be uncovered and you will be brought to justice.”

According to the Information and statements made in open court:

Background           

STEFAN HE QIN is a 24-year-old Australian national.  Between 2017 through 2020, QIN owned and controlled two cryptocurrency investment funds, Virgil Sigma and VQR, both of which were located in New York, New York.  Since its creation, Virgil Sigma purported to employ a strategy to earn profits from arbitrage opportunities in the cryptocurrency market, specifically, by using a trading algorithm to take advantage of price differences for a number of cryptocurrencies, including Bitcoin and others, in approximately 40 different exchanges around the world, including three exchanges located in the United States.  This strategy was touted by QIN to the investing public as “market-neutral,” meaning the fund was not exposed to any risk from the price of cryptocurrency moving up or down and therefore provided a relatively safe and liquid investment.  QIN exercised day-to-day control over Virgil Sigma and was responsible for tracking the fund’s balances at different trading exchanges, designing the algorithms to implement arbitrage trading, and preparing monthly investor statements.  QIN also regularly participated in calls with Virgil Sigma investors and other forms of public communication where he touted the growth and success of Virgil Sigma.  Until recently, Virgil Sigma purported to have over $90 million under management from dozens of investors, including many in the United States.  According to its public marketing materials, Virgil Sigma has been profitable in every month from August 2016 to the present, with the sole exception of March 2017.

In or about February 2020, QIN founded VQR.  VQR employed a variety of trading strategies and was poised to make or lose money based on the fluctuations in the value of cryptocurrency and was not market neutral.  QIN was the sole owner of VQR’s general partner, but was not involved in VQR’s day-to-day operations.  Instead, VQR had its own trading staff, including a head trader (the “Head Trader”) and other investment professionals.  Until recently, VQR had at least approximately $24 million under management from investors. 

Qin’s Scheme to Steal Assets from Virgil Sigma

Since 2017, QIN engaged in a scheme to steal assets from Virgil Sigma and defraud its investors.  Rather than investing the fund’s assets in a cryptocurrency arbitrage trading strategy as advertised, QIN embezzled investor capital from Virgil Sigma and used the funds for purposes other than the purported arbitrage trading strategy, including: (a) using a substantial portion of investor capital stolen from Virgil Sigma to pay for personal expenses such as food, services, and rent for a penthouse apartment in New York, New York; (b) using a substantial portion of investor capital from Virgil Sigma to make personal, often illiquid, investments in other entities that had nothing to do with cryptocurrencies (for example, in or about October 2018, QIN invested hundreds of thousands of dollars stolen from Virgil Sigma in a real estate investment); and (c) using a substantial portion of investor capital from Virgil Sigma to invest in crypto-assets that had nothing to do with the fund’s stated arbitrage strategy (or example, in or about 2018, QIN invested funds from Virgil Sigma in certain initial coin offerings, a speculative form of investing in new issues of cryptocurrency).  As a result of these and other fraudulent activities, QIN dissipated nearly all of the investor capital in Virgil Sigma.

In the course of stealing assets from Virgil Sigma, QIN regularly lied to the fund’s investors about the value, location, and status of their investment capital.  These lies included an array of investor and public communications, including:

(a) QIN prepared and disseminated monthly statements to investors purporting to record the value of their holdings in Virgil Sigma.  The amounts recorded in these statements did not accurately reflect the results of cryptocurrency trading.  Instead, the amounts were made up by QIN and did not disclose the dissipation of assets by QIN.

(b) QIN also periodically prepared marketing materials for the investing public, including summary reports known as “tear sheets” that fraudulently reported that Virgil Sigma was earning remarkable profits, often with double-digit returns in a single month, month after month.  For example, in or about February and in or about April 2017, QIN falsely reported that Virgil Sigma had earned 48.7% and 35.5% returns, respectively.

(c) On an annual basis, QIN prepared spreadsheets that purported to show Virgil Sigma’s balances at the approximately 40 exchanges where Virgil Sigma purportedly traded in order to prepare tax forms for the fund’s investors, also known as schedule K-1s.  As QIN well knew, however, these spreadsheets and the resulting schedule K-1s were false and substantially overstated Virgil Sigma’s balances and trading activity on the exchanges. 

As a result of QIN’s lies about the activity and success of Virgil Sigma in these and other communications, QIN was able to steadily attract new capital to Virgil Sigma thereby (a) ensuring that he was able to pay off investors’ redemption requests, and (b) projecting to the public the appearance of continued growth.  For example, after QIN and the purported success of his fund were profiled in the Wall Street Journal in or about February 2018, Virgil Sigma experienced substantial growth as new investors flocked to the fund.

Qin Attempts to Steal Assets from VQR to Pay Virgil Sigma Investors

In the summer of 2020, QIN was having difficulty meeting redemption requests from investors in Virgil Sigma.  In order to access funds to make those redemptions, and in order to conceal his fraudulent activities described above, QIN attempted to steal investor capital from VQR to pay redemptions to Virgil Sigma investors.  After a few Virgil Sigma investors requested redemptions that Virgil Sigma could not pay, QIN convinced those investors that rather than redeem the funds outright, the investors would agree to have the funds withdrawn from Virgil Sigma and transferred into an investment in VQR.  After months passed and no funds were transferred to VQR, QIN falsely told these investors that he had requested the transfer of funds from Virgil Sigma, but that the transfer was delayed because of an intermediary bank.  QIN showed some of these investors wire transfer requests in order to bolster the impression that QIN was in fact trying to transfer the funds from Virgil Sigma to VQR.  Virgil Sigma’s bank could not, however, effectuate these wire transfers because QIN had dissipated all of Virgil Sigma’s assets.

In or about December 2020, faced with additional redemption requests that he could not meet, QIN demanded that the Head Trader at VQR wind down all trading positions at VQR and transfer a portion of the funds to QIN so that QIN could use that money to pay off these redemptions to Virgil Sigma investors.  QIN issued the demand even though the Head Trader advised QIN that closing out VQR’s then-current trading positions, rather than holding those positions in accordance with VQR’s directional trading strategy, would result in losses to VQR’s investors.  In the course of those conversations, QIN threatened that if the Head Trader did not sufficiently expedite that process, QIN, as the sole owner of VQR’s general partner, would need to take over control of all of VQR’s accounts in order to access the funds.  At QIN’s direction, the Head Trader accordingly closed out VQR’s positions and turned over access to VQR’s trading accounts to QIN.  QIN subsequently attempted to take control of VQR’s assets in order to enable QIN to meet certain Virgil Sigma investor redemption requests.

*                *                *

QIN, 24, pled guilty to one count of securities fraud.  This charge carries a maximum term 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 has been scheduled for May 20, 2021.

Ms. Strauss praised the work of Homeland Security Investigations.  She further thanked the Securities and Exchange Commission for its 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.

Audrey Strauss, the United States Attorney for the Southern District of New York announced today that DANIEL KAMENSKY, the founder and manager of New York-based hedge fund Marble Ridge Capital (“Marble Ridge”), pled guilty to one count of bankruptcy fraud in connection with his scheme to pressure a rival bidder to abandon its higher bid for assets in connection with Neiman Marcus’s bankruptcy proceedings so that Marble Ridge could obtain those assets for a lower price.  KAMENSKY pled guilty before United States District Judge Denise Cote.

U.S. Attorney Audrey Strauss said:  “Daniel Kamensky abused his position as a committee member in the Neiman Marcus Bankruptcy to corrupt the process for distributing assets and take extra profits for himself and his hedge fund.  Kamensky predicted in his own words to a colleague: ‘Do you understand…I can go to jail?’… ‘this is going to the U.S. Attorney’s Office.’ His fraud has indeed come to the U.S. Attorney’s Office and now has been revealed in open court.”

As alleged in the Complaint, the Information, and statements made in court:           

DANIEL KAMENSKY was the principal of Marble Ridge, a hedge fund with assets under management of more than $1 billion that invested in securities in distressed situations, including bankruptcies.  Prior to opening Marble Ridge, KAMENSKY worked for many years as a bankruptcy attorney at a well-known international law firm, and as a distressed debt investor at prominent financial institutions.

The Neiman Marcus Bankruptcy

Neiman Marcus, an American chain of luxury department stores with stores located across the United States, filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) in May 2020.  At the outset of the bankruptcy, Marble Ridge, through KAMENSKY, applied to be on the Official Committee of Unsecured Creditors (the “Committee”) and was thereafter appointed to be a member of the Committee.  As a member of the Committee, KAMENSKY had a fiduciary duty to represent the interests of all unsecured creditors as a group.

During the bankruptcy process, the Committee had negotiated with the owners of Neiman Marcus to obtain certain securities, known as MyTheresa Series B Shares (the “MYT Securities”), and ultimately, the Committee was successful in coming to a settlement to obtain 140 million shares of MYT Securities for the benefit of certain unsecured creditors of the bankruptcy estate.  In July 2020, KAMENSKY was negotiating with the Committee for Marble Ridge to offer twenty cents per share to purchase MYT Securities from any unsecured creditor who preferred to receive cash, rather than MYT Securities, as part of that settlement.

KAMENSKY’s Fraudulent Scheme

On July 31, 2020, KAMENSKY learned that a diversified financial services company headquartered in Manhattan, New York (the “Investment Bank”) had informed the Committee that it was interested in bidding a price between thirty and forty cents per share—substantially higher than KAMENSKY’s bid—to purchase the MYT Securities from any unsecured creditor who was interested in receiving cash.

That afternoon, KAMENSKY sent messages to a senior trader at the Investment Bank (“IB Employee-1”) telling him not to place a bid, and followed those messages up with a phone call with IB Employee-1 and a senior analyst of the Investment Bank (“IB Employee-2,” and collectively the “Employees”).  During that call, KAMENSKY asserted that Marble Ridge should have the exclusive right to purchase MYT Securities, and threatened to use his official role as co-chair of the Committee to prevent the Investment Bank from acquiring the MYT Securities.  KAMENSKY also stated that Marble Ridge had been a client of the Investment Bank in the past but that if the Investment Bank moved forward with its bid, then Marble Ridge would cease doing business with the Investment Bank.

The Investment Bank thereafter decided to not make a bid to purchase MYT Securities and informed the legal advisor to the Committee of its decision.  The Investment Bank further told the legal advisor they made that decision because KAMENSKY—a client of the Investment Bank—had asked them not to.

Advisors to the Committee informed counsel for Marble Ridge of their call with the Employees, and after speaking with KAMENSKY, counsel for Marble Ridge falsely informed the advisors that KAMENSKY had not asked the Employees not to bid, but instead had told them to place a bid only if they were serious.  Later that evening, KAMENSKY contacted IB Employee-1 and attempted to influence what IB Employee-1 would tell others, including the Committee and law enforcement, about KAMENSKY’s attempt to block the Investment Bank’s bid for the MYT Securities.  KAMENSKY said at the outset of the call, in substance, “this conversation never happened.”  During the call, KAMENSKY asked IB Employee-1 to falsely say that IB Employee-1 had been mistaken and KAMENSKY had actually suggested that the Investment Bank only bid if it was serious, and made comments including the following:  “Do you understand…I can go to jail?”  “I pray you tell them that it was a huge misunderstanding, okay, and I’m going to invite you to bid and be part of the process.”  “But I’m telling you…this is going to the U.S. Attorney’s Office.  This is going to go to the court.”  “[I]f you’re going to continue to tell them what you just told me, I’m going to jail, okay? Because they’re going to say that I abused my position as a fiduciary, which I probably did, right? Maybe I should go to jail. But I'm asking you not to put me in jail.”

During a subsequent interview with the Office of the United States Trustee, which was conducted under oath and in the presence of counsel, KAMENSKY stated that his calls to IB Employee-1 were a “terrible mistake” and “profound errors in lapses of judgment.”

After this series of events, Marble Ridge resigned from the Committee and has advised its investors that it intended to begin winding down operations and returning investor capital.

*                      *                      *

KAMENSKY, 48, of Roslyn, New York, pled guilty to one count of bankruptcy fraud, which carries a maximum sentence of five years in prison.  Sentencing has been scheduled for May 7, 2021.

U.S. Attorney Strauss praised the work of the FBI.  Ms. Strauss further thanked the Office of United States Trustee and the Securities and Exchange Commission 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. Attorneys Richard Cooper and Daniel Tracer 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 that ALHASSAN IDDRIS LARI, a/k/a Hassan Lari, pled guilty today to conspiring to commit money laundering and operating an unlawful money transmitting business, in connection with his involvement from at least in or about 2014 through in or about 2020 with a Ghana-based criminal enterprise that has fraudulently obtained millions of dollars through business email compromises and romance scams that targeted the elderly.  The plea was entered in front of U.S. District Judge George B. Daniels.  LARI is the seventh defendant to plead guilty in the case. 

Manhattan U.S. Attorney Audrey Strauss said:  “Alhassan Lari and his co-defendants operated an online criminal enterprise whose profile included romance schemes targeting the elderly. Navigating the anonymous world of the internet, and especially online dating, is oftentimes complicated enough without the added peril of fraudsters lurking to scam would-be daters. This case exemplifies the need to always remain alert and cautious on the internet – especially when being asked for money by a stranger, don’t hesitate to swipe left.”

FBI Assistant Director-in-Charge William F. Sweeney Jr. said:  "Manipulating someone's belief in finding love and then stealing their money is not only criminal, but unbelievably cruel. Mr. Lari and his band of thieves targeted the elderly population, using their age as a weapon to break the law. These fraudsters not only used romance to scam people, they employed business email compromise schemes, a fast-growing cyber threat to which everyone should pay close attention. We can hold these people accountable, even in far-away countries, if we have help from the public. If you know someone who has been scammed, or if you believe you may be a victim, contact us at IC3.gov to report it to us."

IRS-CI Special Agent in Charge Jonathan D. Larsen said: “IRS Criminal Investigation uses financial investigative expertise to pursue those individuals who engage in corruption as demonstrated in this case by Mr. Lari. Money laundering and fraud constitutes a serious threat to our communities and to the integrity of our financial system; today’s plea is an example of how the FBI and the IRS continue to work together as a formidable team to prosecute these offenders.”

According to the Indictment and other filings and statements at public court proceedings in the case:

From at least in or about 2014 through in or about February 2020, LARI was a member of a  criminal enterprise (the “Enterprise”) based in the Republic of Ghana (“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.  LARI, while in the Bronx, New York, received or otherwise directed the receipt of at least approximately $1.5 million in fraud proceeds of the Enterprise in cash from co-conspirators or directly from victims through bank accounts he controlled.  Several of these bank accounts were opened using a shell shipping company, in order to avoid detection and hide the fraudulent nature of the transactions.  Once LARI received the fraud proceeds in bank accounts under his control, he withdrew, transported, and laundered those fraud proceeds to other members of the Enterprise, including those located in Ghana. 

LARI also operated an unlicensed money transmitting business located in the Bronx, New York used by co-conspirators of the Enterprise to facilitate and transfer fraud proceeds from the United States to co-conspirators in Ghana.

                                                            *                            *                      *

LARI, 48, a citizen of both the United States and Ghana, pled guilty to one count of conspiracy to commit money laundering, which carries a maximum sentence of twenty years in prison, and one count of operation of an unlawful money transmitting business, which carries a maximum sentence of five years in prison.  LARI will be sentenced by U.S. District Judge George B. Daniels on June 16, 2021.

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.

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; 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 and Aggrey each pled guilty to one count of conspiracy to commit wire fraud, and Traore pled guilty to one count of conspiracy to receive stolen money.  Each of the defendants was sentenced by United States District Judge Denise L. Cote.  

Any businesses or individuals who believe they may have been the victim of a business email compromise or a romance scam or have information regarding such crimes should file a complaint with the FBI’s Internet Crime Complaint Center (“IC3”) at https://www.ic3.gov or contact their local FBI office.

Ms. Strauss praised the outstanding investigative work of the FBI and IRS-CI.  Ms. Strauss also thanked U.S. Customs and Border Protection and the FBI Legal Attaché in Accra, Ghana, for their assistance in this case. 

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 S. Steiner are in charge of the prosecution.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that EVERSLEY BARRETT, a tax preparer and owner of a tax preparation business named Eversley Tax, in New Windsor, New York, was sentenced yesterday in White Plains federal court to six months in prison after previously pleading guilty to 16 counts of an 84-count Indictment.  The Indictment charged him with preparing false and fraudulent individual income tax returns for his clients and himself, and tax evasion.  BARRETT was sentenced by United States District Judge Vincent Briccetti. 

U.S. Attorney Strauss said:  “Eversley Barrett abused his position of trust as a tax preparer by filing false tax returns on behalf of his clients and himself.  He caused over half a million dollars in losses to the IRS, all for his own unjust enrichment.  Mr. Barrett’s sentence sends a message that dishonest practices by tax preparers will be justly punished.” 

In imposing sentence, Judge Briccetti observed that a term of imprisonment was important because of the seriousness of BARRETT’s crimes and the need to promote deterrence in tax cases.

BARRETT included, among other things, tens of thousands of dollars of false and fraudulent deductions for business expenses and gifts to charity on tax returns he prepared for himself and his clients.  BARRETT also failed to report on his own personal tax returns over $300,000 in receipts that he received for his tax preparation services from 2012 through 2015.   

As confirmed by IRS audits as well as BARRETT’s admissions at his guilty plea hearing, BARRETT’s crimes resulted in a loss to the IRS of more than $500,000.

In addition to the prison term, BARRETT was also sentenced to three years of supervised release, including an obligation to pay the IRS over $573,000 in back taxes, interest and penalties.

Ms. Strauss praised the investigative work of the Internal Revenue Service, Criminal Investigation, and thanked the IRS for its assistance.

This matter is being handled by the Office’s White Plains Division.  Assistant U.S. Attorney Margery Feinzig is in charge of the prosecution.

Audrey Strauss, United States Attorney for the Southern District of New York, announced that DAVID HU, a managing partner and the chief investment officer of the New York-based investment advisory firm International Investment Group (“IIG”), pled guilty today before U.S. District Judge Alvin K. Hellerstein to investment adviser fraud, securities fraud, and wire fraud offenses in connection with an over $100 million scheme to defraud IIG’s investment advisory fund clients and investors.  Throughout the course of more than 10 years, HU perpetrated the scheme by, among other fraudulent actions, creating fictitious investments and overvaluing investments used to generate funds to pay off earlier investors in a Ponzi-like manner.  In connection with his plea agreement, HU has also agreed to forfeit more than $129 million representing proceeds traceable to the commission of the offenses.

Manhattan U.S. Attorney Audrey Strauss said:  “Today, David Hu admitted to shirking his fiduciary responsibilities and defrauding IIG funds and investors for more than a decade, causing millions of dollars of losses.  Hu mismarked millions of dollars of loan assets, falsified paperwork to create fake loans, sold overvalued and fake loans and used the proceeds from those sales to pay off earlier investors, and falsified paperwork to deceive auditors and avoid scrutiny.  He now faces a serious term of imprisonment.”

According to the allegations contained in the Information and based on statements made in Manhattan federal court:           

            Background of IIG 

HU and a co-conspirator (“CC-1”) founded IIG in 1994.  HU was a managing partner and the chief investment officer of IIG.  IIG, an SEC-registered investment adviser, provided investment management and advisory services, including for three private funds that it operated: (1) the IIG Trade Opportunities Fund N.V. (“TOF”); (2) the IIG Global Trade Finance Fund, Ltd. (“GTFF”); and (3) the IIG Structured Trade Finance Fund, Ltd. (“STFF”).  IIG also advised the Venezuela Recovery Fund (“VRF”), a fund that managed the remaining assets of a failed Venezuelan bank (VRF, together with TOF, GTFF, and STFF, the “IIG Funds”).  In March 2018, IIG reported to the SEC that it had approximately $373 million in assets under management.

IIG advertised itself as specializing in global trade financing, particularly in providing trade finance loans to small and medium-sized businesses.  IIG’s principal investment advisory strategy, including with respect to the IIG Funds, was investing in trade finance loans that it also originated.  Trade finance loans are used by small and medium-sized companies, typically exporters and importers, to facilitate international trade.  IIG’s purported expertise was in trade finance loans to borrowers located in Central or South America, and in a variety of industries, with a stated focus on “soft commodities,” such as coffee, agriculture, fishing, and other food products.  IIG’s trade finance loans were purportedly secured by collateral, such as the underlying traded goods, assets held by the borrowers, or expected payments by third parties.

Investments in TOF, STFF, and GTFF were marketed by IIG to institutional investors, such as pension funds, hedge funds, and insurers.  In offering memoranda and communications with investors, IIG advertised strict risk controls, such as promises to use diligence to carefully select borrowers or issuers with trusted management and marketable assets, and portfolio concentration limits based on borrower, developing country, and industry.

IIG purported to value the trade finance loans in the IIG Funds on a regular basis.  IIG and, in turn, HU, received a performance fee with respect to the IIG Funds, as well as a management fee, which was calculated as a percentage of the assets under management held in the Funds.

The Scheme

From approximately 2007 to 2019, HU conspired to defraud investors in IIG-managed funds by: (i) overvaluing distressed loans held by the IIG Funds, (ii) falsifying paperwork to create a series of fake loans that were classified, fraudulently, as positively performing loans, and to otherwise hide losses, (iii) selling overvalued and fake loans to a collateralized loan obligation trust and new private funds established and advised by IIG, and (iv) using the proceeds from those fraudulent sales to generate liquidity required to pay off earlier investors in a Ponzi-like manner.

The scheme HU participated in involved, among other things:

• Mismarking Defaulted Loans.  HU and CC-1 caused IIG to mismark the value of multiple loans that had, in reality, defaulted (the “Defaulted Loans”).  Instead of acknowledging the defaulted status of these loans, HU and CC-1 instead caused IIG to mark the Defaulted Loans at par plus accrued interest, even though HU and CC-1 knew that the borrowers’ default significantly impaired the true value of these loans.  HU and CC-1 certified these false valuations and caused them to be reported to investors.
   
• Mismarking Distressed Loans.  HU and CC-1 caused IIG to mismark multiple loans that were distressed (the “Distressed Loans”).  These Distressed Loans included, for example, loans for which the borrowers had missed multiple scheduled payments.  Even though HU and CC-1 knew that the non-performing status of the loans significantly impaired their true value, they nevertheless caused IIG to continue to mark the loans at par plus accrued interest.
   
• Creating Fictitious Loans.  With respect to TOF, in order to hide the losses resulting from the Defaulted Loans, including from auditors reviewing TOF’s financials, HU and CC-1 removed the Defaulted Loans from the TOF portfolio, replacing them with tens of millions of dollars in fictitious loans to purported borrowers in foreign countries (the “Fake Loans”).  HU and CC-1 also created or directed the creation of documents to keep in IIG’s files as purported documentation of the Fake Loans.  To pass auditor scrutiny, HU and CC-1 also directed purported borrowers – sham  foreign entities that were controlled by IIG’s business associates and that did not engage in actual business – to provide confirmations of the Fake Loans to auditors, including by arranging for TOF to pay a monthly fee to one purported borrower in exchange for providing false confirmations.  In reality, these purported borrowers did not receive a loan from TOF, and were not expected to make any payments to TOF.
   
• Using a CLO Trust to Create Liquidity through Investments in Fraudulent Loans.  In or about 2014, HU and CC-1 obtained approximately $220 million in bank financing to create a collateralized loan obligation trust (the “CLO Trust”), for which IIG served as an investment adviser.  HU and CC-1 then engaged in various deceptive acts, using the CLO Trust, to hide TOF’s losses and generate liquidity for TOF, which was facing investor redemption requests and demands for repayment of loans that IIG had taken from international development banks.  For example, in its capacity as investment adviser for the CLO Trust, IIG, through the efforts of HU and CC-1, caused the newly-created CLO Trust to purchase loans from the TOF portfolio, including Defaulted Loans, Distressed Loans, and Fake Loans, which generated liquidity for TOF.  After the CLO Trust purchased loans in the TOF portfolio, IIG, through the efforts of HU and CC-1, generated additional liquidity by causing the CLO Trust to issue securitized debt instruments based on these loans, payable in various tranches to investors in the CLO Trust.
   
• Using the CLO Trust and Panamanian Shell Entities to Cover Up Losses.  IIG, through the efforts of HU and CC-1, also caused the CLO Trust to create new fraudulent trade finance loans, and used those new fraudulent loans to cover up TOF’s losses.  Specifically, HU caused the creation of shell entities domiciled in Panama (“Panamanian Shell Entities”) that were controlled by an IIG nominee.  Then, HU caused the CLO Trust to enter into fake loan transactions with the Panamanian Shell Entities.  HU caused the creation of fake promissory notes and other paperwork to conceal the fraudulent nature of the loans to the Panamanian Shell Entities.  Finally, under the guise of the fake loan transactions with the Panamanian Shell Entities, the CLO Trust disbursed funds that HU and CC-1 diverted to TOF in order to pay off TOF’s various debts and obligations.
   
• Generating Liquidity by Selling Fraudulent Loans to a Newly-Created Funds Backed by a New Investor.  In or about 2017, HU and CC-1 targeted a foreign institutional investor (“Institutional Investor-1”) to raise money for two new private IIG managed funds: GTFF and STFF. Institutional Investor-1 provided $70 million as the seed investment for GTFF, and, later, $130 million as the seed investment for STFF.  HU and CC-1 caused GTFF and STFF to purchase at least approximately $100 million in fake, distressed, defaulted or otherwise fraudulent loans.  
   
• Inducing a Retail Mutual Fund to Invest in a Fictitious $6 Million Loan.  In or about December 2012, IIG became an investment adviser to an open-ended mutual fund marketed to retail investors (the “Retail Fund”). As an investment adviser to the Retail Fund, IIG made investment recommendations, including recommendations that the Retail Fund invest in trade finance loans originated by IIG.  In or about February 2017, a borrower (the “Argentine Borrower”) had failed to pay the principal on an approximately $6 million loan (“Loan-1”) in which the Retail Fund had invested and which was nearing its maturity date.  In or about March 2017, HU caused approximately $6 million to be transferred into an account associated with the Argentine Borrower from the account of a different borrower (“Borrower-1”), and further directed the funds from Borrower-1’s account to pay off the debt owed by the Argentine Borrower to the Retail Fund.  To replace the funds from Borrower-1’s account that were used to make it appear as though the Argentine Borrower had repaid its debt to the Retail Fund, HU fraudulently induced the Retail Fund to invest in a new, fake $6 million loan to the Argentine Borrower (the “New Loan”).  HU then directed that the proceeds from the fraudulently induced New Loan be transferred into Borrower-1’s account, effectively reimbursing the account for the earlier $6 million transfer to the Retail Fund.  To further conceal the fraudulent nature of the New Loan, HU caused the creation of forged documents to make it appear as though the New Loan was a legitimate loan to the Argentine Borrower.

*                      *                      *           

DAVID HU, 63, of West Orange, New Jersey, pled guilty to one count of conspiracy to commit investment adviser fraud, securities fraud, and wire fraud, which carries a maximum sentence of five years in prison; 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.  Sentencing before Judge Hellerstein has been scheduled for June 17, 2021, at 9:00 a.m.

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 FBI and also thanked the SEC for its assistance. 

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Drew Skinner, Negar Tekeei, and Alex Rossmiller are in charge of the prosecution.

Audrey Strauss, the United States Attorney for the Southern District of New York, William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”),  Geraldine Hart, Commissioner of the Suffolk County Police Department (“SCPD”), and Errol D. Toulon Jr., Suffolk County Sheriff (“SCSO”), announced a criminal Complaint charging three defendants with narcotics and firearms offenses.  JOSEPH SWEENEY, JASMINE TABAK, and KEVIN TURNER, a/k/a “Tex,” were arrested yesterday on Long Island, New York, and will be presented today in Manhattan federal court.

U.S. Attorney Audrey Strauss said:  “As alleged in the Complaint, the defendants were responsible for trafficking large quantities of methamphetamine throughout New York City.  Thanks to the extraordinary work of our partners at the FBI and the Suffolk County Police Department, the defendants now face federal charges for their alleged crimes.” 

FBI Assistant Director William F. Sweeney Jr. said:  “As this case demonstrates, illegal narcotics continue to plague our communities.  As alleged, Sweeney, Tabak, and Turner conspired to distribute methamphetamines, and Sweeney brandished a firearm in furtherance of his crimes.  Our action today should demonstrate the FBI’s Long Island Safe Streets Task Force, working together with our partners from the Suffolk County Police Department, remains committed to protecting the public from those who would seek to perpetuate the damage caused by the distribution of illegal narcotics.”

Suffolk County Police Commissioner Geraldine Hart said:  “A highly addictive and dangerous stimulant, methamphetamine cannot be trafficked in our communities.  This trio allegedly spent months distributing poison into the hands of the addicted, furthering the damaging impacts of narcotics in countless families’ lives.  I would like to commend the Southern District of New York, the FBI, and the members of the SCPD who took these dangerous individuals off the street and held them accountable for their alleged crimes.”

Suffolk County Sheriff Errol D. Toulon Jr. said:  “Over the last few years, the Sheriff’s Office has enhanced its intelligence-gathering capabilities to target dangerous drug dealers and those who earn a living from destroying other people’s lives. I want to congratulate all our partners in the U.S. Attorney’s Southern District, the FBI and the SCPD, and all the men and women who were a part of this successful investigation.”

According to the allegations contained in the Complaint:[1]

From at least 2020 up to an including the present, defendants SWEENEY, TABAK, and TURNER conspired to distribute large quantities of methamphetamine, some of which was obtained from suppliers in New York, New York.  Law enforcement officers seized at least approximately 1.5 kilograms of methamphetamine from SWEENEY, TABAK, and TURNER during controlled purchases and a parcel seizure.  In multiple recorded conversations with an undercover law enforcement officer and a cooperating witness, TURNER claimed that SWEENEY manufactured methamphetamine at SWEENEY’s Suffolk County residence.

On November 23, 2020, SWEENEY was arrested in Suffolk County after law enforcement officers observed SWEENEY engage in a hand-to-hand narcotics sale.  In connection with the November 23, 2020, arrest, law enforcement officers seized methamphetamine and a loaded .38 caliber revolver from SWEENEY.  In addition, on January 18, 2021, in connection with an undercover purchase of methamphetamine, TURNER told an undercover law enforcement officer that SWEENEY pointed a 9mm firearm at TURNER’s head because SWEENEY suspected that the undercover was a law enforcement officer.

SWEENEY, 39, TABAK, 34, and TURNER, 43, all from Bayport, New York, are each charged with one count of conspiracy to distribute, or possess with intent to distribute, methamphetamines, a charge that carries a maximum term of life in prison and a mandatory minimum term of 10 years in prison.  In addition, SWEENEY, is charged with one count of possessing a firearm during and in relation to a drug trafficking offense, which carries a mandatory minimum term of five years in prison, to be served consecutively to any other sentence.

Ms. Strauss praised the outstanding investigative work of the Suffolk County Police Department, the Suffolk County Sheriff’s Office, and the FBI’s Long Island Resident Agency.  She also thanked the U.S. Postal Inspection Service for their assistance in the investigation.

This case is being handled by the Office’s Narcotics Unit.  Assistant United States Attorneys Benjamin Woodside Schrier and Emily A. Johnson are in charge of the prosecution.

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

[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, Ramsey E. Covington, the Acting Special Agent-in-Charge of the Boston Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that MICHAEL PEARSE, an Australian national, and YONGCHAO LIU, a/k/a “Kevin Liu,” a Chinese national, were extradited from Australia and arrived in the United States yesterday.  PEARSE and LIU were extradited on charges of conspiracy to commit wire fraud, wire fraud, aggravated identity theft, and, as to PEARSE, conspiracy to commit money laundering, stemming from the defendants’ participation in a scheme to charge 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 that the defendants and their co-conspirators referred to as “auto-subscribing.”  The portion of the fraudulent scheme that PEARSE, LIU, and their co-conspirators orchestrated generated more than $50 million in proceeds for themselves.  PEARSE and LIU will be presented and arraigned today before U.S. Magistrate Judge Debra Freeman.  The case has been assigned to U.S. District Judge Analisa Torres.

Manhattan U.S. Attorney Audrey Strauss said:  “As alleged, Michael Pearse and Yongchao Liu played key roles in an international consumer fraud conspiracy that victimized hundreds of thousands of mobile phone customers to the tune of more than $50 million.  Thanks to IRS Criminal Investigation and the FBI, as well as our international partners, Pearse and Liu are now in the United States and facing serious charges in this District.”

IRS-CI Acting Special Agent in Charge Ramsey E. Covington said:  “Through a sophisticated text messaging scam, the defendants and their co-conspirators allegedly swindled more than $50 million in proceeds from hundreds of thousands of unwitting mobile customers.  Yesterday’s extraditions continue the pathway to justice for the staggering number of victims and financial losses accumulated as a result of this alleged scheme.  I applaud the collective efforts of the law enforcement agencies whose collaboration and coordination made the extraditions possible.”

FBI Assistant Director William F. Sweeney Jr. said:  “Pearse and Liu will finally face the consequences for the text messaging scheme they were charged with more than five years ago. Their extradition is a reminder that being out of our sight and out of our reach are two different things.”           

According to allegations in the Indictment[1], evidence presented at the trial of co-conspirator Darcy Wedd, and other public filings:

From in or about 2011 through in or about 2013, PEARSE, LIU, and their 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, through a practice known as auto-subscribing.

During the relevant time period, Lin Miao, a co-conspirator of PEARSE and LIU, operated a company called Tatto, which offered premium text messaging services – such as monthly horoscopes, celebrity gossip, and trivia facts – to mobile phone customers.  PEARSE and LIU worked for a company called Bullroarer, which was affiliated with Tatto.  PEARSE was the CEO of Bullroarer and LIU was a Java development engineer for Bullroarer.  Co-conspirator Darcy Wedd operated Mobile Messenger, a U.S. aggregation company in the mobile phone industry that served as a middleman between content providers such as Tatto and mobile phone carriers, and was responsible for assembling monthly charges incurred by a particular mobile phone customer for premium text messaging services and placing those charges on that customer’s cellular phone bill.

To carry out the scheme, co-conspirators at Tatto purchased large numbers of mobile phone numbers from co-conspirators at Mobile Messenger, who had access to those numbers by virtue of their employment.  PEARSE, LIU, and their co-conspirators then worked to have unsolicited text messages sent to these and other mobile phone numbers and to enroll those customers in premium text messaging services without their knowledge or consent.  PEARSE, LIU, and their co-conspirators also took steps to conceal the fraud scheme by making it appear as if the customers had, in fact, elected to purchase the text messaging services, when in truth they had not.

The consumers who received the unsolicited text messages typically ignored or deleted the messages, often believing them to be spam.  Regardless, the consumers were billed for the receipt of the messages, at a rate of $9.99 per month, through charges that typically appeared on the consumers’ cellular telephone bills in an abbreviated and confusing form, e.g., with billing descriptors such as “96633IQ16CALL8668611606” and “25184USBFIQMIG.”  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 from Tatto, Bullroarer, or other corporate affiliates of Tatto were often unsuccessful. 

After obtaining proceeds of the fraud scheme, PEARSE worked with other co-conspirators to launder the proceeds.  PEARSE and his co-conspirators distributed the proceeds of the fraud scheme among themselves and others involved in the scheme by, among other things, causing funds to be transferred through the bank accounts of a series of shell companies and companies held in the names of third parties.  This was done in order to conceal the nature and source of the payments and PEARSE’s and his co-conspirators’ participation in the fraud.

Through their successful orchestration of this fraud scheme, which affected hundreds of thousands of consumers, PEARSE, LIU, and their co-conspirators generated more than $50 million in fraud proceeds for themselves.

*                *                *

PEARSE, 52, and LIU, 33, are each charged with one count of conspiracy to commit wire fraud, in violation of 18 U.S.C. §§ 1343 and 1349, which carries a maximum penalty of 20 years in prison; one count of wire fraud, in violation of 18 U.S.C. §§ 1343 and 2, which also carries a maximum penalty of 20 years in prison; and one count of aggravated identity theft, in violation of 18 U.S.C. §§ 1028A and 2, which carries a mandatory sentence of two years in prison, consecutive to any other sentence imposed.  In addition, PEARSE is charged with one count of conspiracy to commit money laundering, in violation of 18 U.S.C. §§ 1956(a)(1)(B)(i), 1957, and 1956(h), 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 outstanding investigative work of IRS-CI and the FBI.  In addition, Ms. Strauss thanked law enforcement partners in Australia, particularly the International Crime Cooperation Central Authority, Australian Federal Police, and the New South Wales Police Force, as well as the U.S. Department of Justice’s Office of International Affairs, for their support and assistance with the defendants’ extraditions. 

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

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

[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment and charges 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 a Complaint in Manhattan federal court charging JEREMY SPENCE, a/k/a “Coin Signals,” a cryptocurrency trader who solicited funds for various cryptocurrency funds that he operated, with commodities fraud and wire fraud offenses.  As alleged, SPENCE took cryptocurrency worth over $5 million from more than 170 individual investors after making false representations in connection with these cryptocurrency funds. SPENCE was arrested this morning in Rhode Island and will be presented later today before Magistrate Judge Patricia A. Sullivan in the U.S. District Court for the District of Rhode Island.

Manhattan U.S. Attorney Audrey Strauss said:  “Jeremy Spence, a/k/a, ‘Coin Signals,’ allegedly lured investors  to his cryptocurrency investment scam by touting returns of up to 148%.  Spence’s investments not only failed to reach his audacious claims, they consistently lost money, leaving a $5 million void in his clients’ crypto accounts. Spence’s alleged conduct should strongly signal would-be investors to thoroughly educate themselves in the cryptocurrency ecosystem before falling prey to investment scams promising huge returns for small investments that are indeed too good to be true.”

FBI Assistant Director-in-Charge Sweeney said:  “As alleged, Jeremy Spence misrepresented the success of his investment platform in order to entice people to send money his way. Because his trading was less than profitable and significantly less successful than he represented to investors, he used money from new investors to pay off others in order to keep his plan moving—a  typical marker of a Ponzi scheme. Whether investing with cash, shares, or virtual currency, our advice to investors always remains the same—exercise due diligence, and when something just doesn’t seem right, report suspicious activity to the authorities.”

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

From November 2017 through April 2019, SPENCE solicited investors in various cryptocurrency investment pools that SPENCE had created and managed (the “Funds”). SPENCE solicited investments for several Funds, the largest and most active of which were the Coin Signals Bitmex Fund, a/k/a the “CS Mex Fund,” the Coin Signals Alternative Fund, a/k/a the “CS Alt Fund,” and the Coin Signals Long Term Fund. Investors who wanted to participate in a Fund would transfer cryptocurrency, such as Bitcoin and Ethereum, to SPENCE in order for SPENCE to invest it. 

SPENCE solicited these investments through false representations, including that SPENCE’s crypto trading had been extremely profitable when, in fact, SPENCE’s trading had been consistently unprofitable.  For example, on January 28, 2018, SPENCE posted a message in an online chat group falsely claiming that his trading of investor funds over the past month had generated a return of more than 148%. As a result of this misrepresentation, investors transferred additional funds to SPENCE. In fact, over that same period of approximately one month, SPENCE’s trading resulted in net losses in the accounts in which he traded investor funds.

To forestall redemptions by investors, and to continue to raise money from investors to fund his scheme, SPENCE generated fictitious account balances, which he made available to investors online. Instead of accurately reporting the trading losses SPENCE was incurring, the account balances falsely indicated to investors that they were making money by investing with SPENCE. To hide his trading losses, SPENCE used new investor funds to pay back other investors in a Ponzi-like fashion. In total, SPENCE distributed cryptocurrency worth approximately $2 million to investors substantially from funds previously deposited by other investors. 

*                      *                      *

SPENCE, 24, of Bristol, Rhode Island, is charged with one count of commodities fraud, which carries a maximum sentence of 10 years in prison, and one count of wire fraud, which carries a maximum sentence of 20 years in prison.  The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.

Ms. Strauss praised the investigative work of the Federal Bureau of Investigation and also thanked the Commodity Futures Trading Commission for its assistance. 

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

[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, U.S. Attorney for the Southern District of New York, William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Dermot Shea, the Commissioner of the Police Department for the City of New York (“NYPD”), announced that ROBERT LEMKE was arrested today based on a criminal Complaint filed in Manhattan federal court charging LEMKE with making threatening interstate communications. LEMKE allegedly sent threatening text messages on January 6, 2021 to family members of a New York City-based U.S. Congressman (the “Congressman”) and a New York City-based family member of a journalist (the “Journalist”). LEMKE was arrested in Bay Point, California, and will be presented tomorrow in the United States District Court for the Northern District of California.

Manhattan U.S. Attorney Audrey Strauss said:  “As alleged, Robert Lemke was dissatisfied with the results of the 2020 Presidential Election and subsequent statements about the election made by a U.S. Congressman and journalist. Rather than peaceably disagree, Lemke allegedly threatened to harm those individuals’ families, demanding they retract their statements.  The electoral process is the essential mechanism through which our democracy functions. While in any election it is inevitable that some will be disappointed in the result, threats of violence cannot and will not be tolerated.”

FBI Assistant Director-in-Charge William F. Sweeney Jr. said:  “Lemke’s alleged threats, aimed at the family members of a sitting U.S. Representative and a journalist, crossed a bright line.  The FBI’s New York Joint Terrorism Task Force is always on watch, and we act with speed to stop violence - whether the threat comes from within our borders or from outside them.  That's how we do it.  As always, it is the partnership with our communities that makes us most effective.  If you have any additional information that could benefit this case, or are aware of an active threat, we urge you to call 1-800-CALL-FBI.”

NYPD Commissioner Dermot Shea said:  “To those individuals and groups that would seek to threaten a United States Congressman, this arrest should serve as a warning that the NYPD and its law enforcement partners, will ensure you are held accountable for your actions. I want to commend the FBI Agents, NYPD Detectives, and representatives of 54 other agencies that make up the Joint Terrorism Task Force for the investigation that led to this arrest.”

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

On January 6, 2021, the same day that individuals purporting to protest the 2020 Presidential Election gathered in Washington, D.C. and stormed the Capitol Building, ROBERT LEMKE sent threatening text messages to the brother of the New York City-based Congressman, citing the Congressman’s statements about the results of the 2020 Presidential Election. LEMKE’s text messages, which included a picture of a home in the same neighborhood as the home of the Congressman’s brother, stated:

Your brother is putting your entire family at risk with his lies and other words. We are armed and nearby your house. You had better have a word with him. We are not far from his either. Already spoke to [the Congressman’s son] and know where his kids are.

. . . your words have consequences. Stop telling lies; Biden did not win, he will not be president. We are not[] white supremacists. Most of us are active/retired law enforcement or military. You are putting your family at risk. We have armed members near your home . . . . . Don’t risk their safety with your words and lies.

Also on January 6, 2021, LEMKE sent threatening text messages to the Congressman’s sister-in-law, stating: “calm your husband down . . . . We saw on the hidden camera, he was quite stirred up. You need to have him talk to [the Congressman].”

In addition, also on January 6, 2021, LEMKE sent threatening text messages to a relative of the Journalist, stating: “[The Journalist’s] words are putting you and your family at risk. We are nearby armed and ready. Thousands of us are active/retired law enforcement, military, etc. That’s how we do it.”

LEMKE’s Facebook account has as its background image a photograph of Mark and Patricia McCloskey, who were charged with criminal offenses last summer after they pointed firearms at Black Lives Matter demonstrators near their home in St. Louis, Missouri. On  November 7, 2020, LEMKE posted to Facebook: “Folks. Be ready for war. Trump has refused to cede. Evidence shows fraud occurred and the Supreme Court cases will be successful. We blockchained and watermarked ballots in 16 states. Trump will prevail.[] Spread this message. . . . FAITH my fellow Republicans. Do not give up. Keep an eye out for a variety of protests, and Stop The Steal Facebook groups for updates.”

*                      *                      *

            ROBERT LEMKE, 35, of Bay Point, California, is charged with making threatening interstate communications, which carries a maximum sentence of five years’ imprisonment. The maximum potential penalty is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge.

            Ms. Strauss praised the outstanding investigative work of the FBI’s New York Joint Terrorism Task Force, which consists of investigators and analysts from the FBI, the NYPD, and over 50 other federal, state, and local agencies, and the FBI’s San Francisco Field Office. Ms. Strauss also thanked the U.S. Attorney’s Office for the Northern District of California for its assistance.

            The case is being handled by the Office’s Terrorism and International Narcotics Unit.  Assistant United States Attorneys Jacob H. Gutwillig, Matthew J. Laroche, Kimberly J. Ravener, Benjamin W. Schrier, and Kyle A. Wirshba are in charge of the prosecution.

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

[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.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced today that MANSUR MOHAMED SURUR, a/k/a “Mansour,” a Kenyan citizen, was extradited from Kenya and arrived in the United States this morning.  SURUR was arrested by Kenyan authorities on July 29, 2020, in Mombasa, Kenya, on charges of conspiracy to traffic in rhinoceros horns and elephant ivory, both endangered wildlife species, which involved the illegal poaching of more than approximately 35 rhinoceros and more than 100 elephants.  In addition, SURUR was charged with conspiracy to commit money laundering and conspiracy to distribute and possess with intent to distribute more than 10 kilograms of heroin.  SURUR’s co-defendant, Moazu Kromah, a/k/a “Ayoub,” a/k/a “Ayuba,” a/k/a “Kampala Man,” a citizen of Liberia, was previously deported to the United States from Uganda on June 13, 2019.  Co-defendant Amara Cherif, a/k/a “Bamba Issiaka,” a citizen of Guinea, was extradited to the United States from Senegal on April 3, 2020.  Co-defendant Abdi Hussein Ahmed, a/k/a “Abu Khadi,” a citizen of Kenya, remains a fugitive.  SURUR is expected to be arraigned later today before U.S.  Magistrate Judge Debra Freeman.  The case has been assigned to U.S. District Judge Gregory H. Woods.

Manhattan U.S. Attorney Audrey Strauss said:  “Mansur Mohamed Surur is alleged to be a member of an international conspiracy to traffic in rhino horns, elephant ivory, and heroin.  The enterprise is allegedly responsible for the illegal slaughter of dozens of rhinos and more than 100 elephants, both endangered species.  The excellent work of the Fish and Wildlife Service and the DEA has put an end to this operation.”                

According to allegations in the Indictment[1]:

Kromah, Cherif, SURUR, and Ahmed were members of a transnational criminal enterprise (the “Enterprise”) based in Uganda and surrounding countries that was engaged in the large-scale trafficking and smuggling of rhinoceros horns and elephant ivory, both protected wildlife species.  Trade involving endangered or threatened species violates several U.S. laws, as well as international treaties implemented by certain U.S. laws.

From at least in or about December 2012 through at least in or about May 2019, Kromah, Cherif, SURUR, and Ahmed conspired to transport, distribute, sell, and smuggle at least approximately 190 kilograms of rhinoceros horns and at least approximately 10 tons of elephant ivory from or involving various countries in East Africa, including Uganda, the Democratic Republic of the Congo, Guinea, Kenya, Mozambique, Senegal, and Tanzania, to buyers located in the United States and countries in Southeast Asia.  Such weights of rhinoceros horn and elephant ivory are estimated to have involved the illegal poaching of more than approximately 35 rhinoceros and more than approximately 100 elephants.  In total, the estimated average retail value of the rhinoceros horn involved in the conspiracy was at least approximately $3.4 million, and the estimated average retail value of the elephant ivory involved in the conspiracy was at least approximately $4 million.

The defendants exported and agreed to export the rhinoceros horns and elephant ivory for delivery to foreign buyers, including those represented to be in Manhattan, in packaging that concealed the rhinoceros horns and elephant ivory in, among other things, pieces of art such as African masks and statues.  The defendants received and deposited payments from foreign customers that were sent in the form of international wire transfers, some which were sent through U.S. financial institutions.

On a number of occasions, Kromah, SURUR, and Ahmed met with a confidential source (“CS-1”), both together and separately, concerning potential purchases of elephant ivory and rhinoceros horn.  During these meetings and at other times via phone calls and electronic messages, CS-1 discussed with Kromah, SURUR, and Ahmed, in substance and in part, the terms of such sales, including the price, weight, or size of the rhinoceros horns, as well as payment, destination, and delivery options.  CS-1 also discussed with Cherif via phone calls and electronic messages, in substance and in part, the terms of the sales, as well as how to send payment for rhinoceros horns from a United States bank account located in New York, New York.  On or about March 16, 2018, law enforcement agents intercepted a package containing a black rhinoceros horn sold by the defendants to CS-1 that was intended for a buyer represented to be in New York, New York.  From in or about March 2018 through in or about May 2018, the defendants offered to sell CS-1 additional rhinoceros horns of varying weights, including horns weighing up to approximately seven kilograms.  On or about July 17, 2018, law enforcement agents intercepted a package containing two rhinoceros horns sold by the defendants to CS-1 that were intended for a buyer represented to be in New York, New York. 

Separately, from at least in or about August 2018 through at least in or about May 2019, SURUR and Ahmed conspired to distribute and possess with intent to distribute more than approximately 10 kilograms of heroin to a buyer represented to be located in New York. 

                                                            *                      *                      *

SURUR, 60, is charged with one count of conspiracy to commit wildlife trafficking and two counts of wildlife trafficking, which each carry a maximum sentence of five years; one count of conspiracy to commit money laundering, which carries a maximum sentence of 20 years; and one count of conspiracy to distribute and possess with intent to distribute one kilogram or more of heroin, which carries a maximum sentence of life imprisonment and a mandatory minimum sentence of 10 years in prison.  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 U.S. Fish and Wildlife Service and the U.S. Drug Enforcement Administration.  In addition, she thanked law enforcement authorities and conservation partners in Uganda as well as the Kenyan Directorate of Criminal Investigations and the Kenyan Office of the Director of Public Prosecutions for their assistance in the investigation.  Ms. Strauss also thanked the U.S. Department of Justice’s Office of International Affairs for their assistance, and noted that the investigation is continuing.

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 Jarrod L. Schaeffer are in charge of the prosecution.

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

[1] As the introductory phrase signifies, the entirety of the text of the Indictment and its description set forth below 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, John C. Demers, the Assistant Attorney General for National Security, William F. Sweeney Jr., Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), Dermot Shea, Commissioner of the New York City Police Department (“NYPD”), and Roy T. Cochran, Director, U.S. Army Counterintelligence Coordinating Authority, announced today the arrest of COLE JAMES BRIDGES, a/k/a “Cole Gonzales,” a Private First Class in the U.S. Army, on federal terrorism charges based on BRIDGES’s alleged efforts to assist ISIS to attack and kill U.S. soldiers in the Middle East.  BRIDGES was charged by Complaint with attempting to provide material support to a designated foreign terrorist organization, and attempting to murder U.S. military service members.  The FBI and Army Counterintelligence arrested BRIDGES today, and he will be presented on Thursday, January 21, 2021, in the U.S. District Court for the Southern District of Georgia.

Manhattan U.S. Attorney Audrey Strauss said:  “As alleged, Cole Bridges betrayed the oath he swore to defend the United States by attempting to provide ISIS with tactical military advice to ambush and kill his fellow service members.  Our troops risk their lives for our country, but they should never face such peril at the hands of one of their own.  Today, thanks to the efforts of the agents and detectives of the JTTF, and our partners in the Department of Defense, Bridges is in custody and facing federal terrorism charges for his alleged crimes.”

Assistant Attorney General John C. Demers said:  “Bridges is charged with giving military advice and guidance on how to kill fellow soldiers to individuals he thought were part of ISIS.  This alleged personal and professional betrayal of comrades and country is terrible to contemplate, but fortunately, the FBI was able to identify the threat posed by Bridges, and today’s charges are the first step in holding him accountable for his crimes.  ISIS ideology continues to infect those who would threaten the nation’s security from within and without, and we will continue to fight this threat.”

FBI Assistant Director William F. Sweeney Jr. said:  “As we allege today, Bridges, a private in the U.S. Army, betrayed our country and his unit when he plotted with someone he believed was an ISIS sympathizer to help ISIS attack and kill U.S. soldiers in the Middle East.   Fortunately, the person with whom he communicated was an FBI employee, and we were able to prevent his evil desires from coming to fruition.  Bridges could have chosen a life of honorable service, but instead he traded it for the possibility of a lengthy prison sentence.  This case should serve as a reminder that the FBI’s New York JTTF will never quit in its commitment to protect our Nation from all those who seek to do it harm.”

NYPD Commissioner Dermot Shea said:  “As alleged in this federal complaint, Cole Bridges violated his oath and used his position of privilege against his fellow citizens.  This arrest, and the work of the FBI’s New York JTTF and all of our law enforcement partners, will ensure that this individual faces justice.”

Army Counterintelligence Coordinating Authority Director Roy T. Cochran said:  “Army Counterintelligence’s top priority is protecting the force so it can remain committed to fighting and winning our Nation’s wars.  The results of this investigation show the efforts of Army Counterintelligence agents working alongside our partners in the FBI.  We are dedicated to protecting our Soldiers, Civilians, and Families from terrorist acts and insider threats.”

According to the criminal Complaint charging BRIDGES,[1] which was unsealed today in Manhattan federal court:

BRIDGES joined the U.S. Army in approximately September 2019, and was assigned as a cavalry scout in the 3rd Infantry Division based in Fort Stewart, Georgia.  Beginning in at least 2019, BRIDGES began researching and consuming online propaganda promoting jihadists and their violent ideology.  BRIDGES also expressed his support for the Islamic State of Iraq and al-Sham (“ISIS”) and jihad on social media.  In or about October 2020, BRIDGES began communicating with an FBI online covert employee (the “OCE”), who was posing as an ISIS supporter in contact with ISIS fighters in the Middle East.  During these communications, BRIDGES expressed his frustration with the U.S. military and his desire to aid ISIS.  BRIDGES then provided training and guidance to purported ISIS fighters who were planning attacks, including advice about potential targets in New York City, such as the 9/11 Memorial.  BRIDGES also provided the OCE with portions of a U.S. Army training manual and guidance about military combat tactics, for use by ISIS.

In or about December 2020, BRIDGES began to supply the OCE with instructions for the purported ISIS fighters on how to attack U.S. forces in the Middle East.  Among other things, BRIDGES diagrammed specific military maneuvers intended to help ISIS fighters maximize the lethality of attacks on U.S. troops.  BRIDGES further provided advice about the best way to fortify an ISIS encampment to repel an attack by U.S. Special Forces, including by wiring certain buildings with explosives to kill the U.S. troops.  Then, in January 2021, BRIDGES provided the OCE with a video of himself in body armor standing before a flag often used by ISIS fighters and making a gesture symbolic of support for ISIS.  Approximately a week later, BRIDGES sent a second video in which BRIDGES, using a voice manipulator, narrated a propaganda speech in support of the anticipated ambush by ISIS on U.S. troops.

*                      *                      *

BRIDGES, 20, of Stow, Ohio, is charged in the Complaint with (1) attempting to provide material support to ISIS, in violation of 18 U.S.C. § 2339B, which carries a maximum sentence of 20 years in prison; and (2) attempting to murder U.S. military service members, in violation of 18 U.S.C. § 1114, which carries a maximum sentence of 20 years in prison.  The statutory 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.

Ms. Strauss praised the outstanding efforts of the FBI’s New York Joint Terrorism Task Force, which consists of investigators and analysts from the FBI, the NYPD, and over 50 other federal, state, and local agencies.  Ms. Strauss also thanked U.S. Army Counterintelligence, the FBI Washington Field Office, the FBI Atlanta Field Office and its Savannah Resident Agency, the FBI Cleveland Field Office, the FBI’s Counterterrorism Division, the U.S. Attorney’s Office for the Southern District of Georgia, the Air Force Office of Special Investigations, U.S. Army Criminal Investigation Command, and the U.S. Army 3rd Infantry Division for their assistance.

This prosecution is being handled by the Office’s Terrorism and International Narcotics Unit.  Assistant U.S. Attorneys Sam Adelsberg, Matthew Hellman, and Sidhardha Kamaraju are in charge of the prosecution, with assistance from Trial Attorneys Michael Dittoe and Lauren Goddard of the Counterterrorism Section of the Department of Justice’s National Security Division.

[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, today announced the selection of Ilan Graff as Deputy U.S. Attorney and Russell Capone as Chief Counsel to the U.S. Attorney.  Graff and Capone assumed their new roles on January 16, 2021, when the Court’s appointment of Ms. Strauss as U.S. Attorney took effect. 

Mr. Graff most recently served as Chief Counsel to the Acting U.S. Attorney.  He has been with the Office since 2012.  As an Assistant United States Attorney in the Criminal Division, he worked principally in the Terrorism & International Narcotics Unit.  He later served as Co-Chief of the General Crimes Unit and Co-Chief of the Terrorism & International Narcotics Unit. Mr. Graff graduated cum laude from Harvard College in 2005 and cum laude from Harvard Law School in 2009, where he served on the Harvard Law Review.  Following graduation from law school, he was a law clerk to then-Chief Judge Sandra L. Lynch on the U.S. Court of Appeals for the First Circuit and Judge Allyson K. Duncan on the U.S. Court of Appeals for the Fourth Circuit, as well as a Dean’s Fellow at Duke Law School, before joining the Office through the Attorney General’s Honors Program.

Mr. Capone most recently served as Counsel to the Acting U.S. Attorney.  He has been with the Office since 2011.  As an Assistant United States Attorney in the Criminal Division, he worked principally in the Public Corruption Unit and the Violent & Organized Crime Unit.  He later served as Deputy Chief and then Co-Chief of the Public Corruption Unit. Mr. Capone graduated summa cum laude from Tufts University in 2002 and cum laude from Harvard Law School in 2005, where he served as managing editor of the Harvard Law Review.  Following graduation from law school, he worked in 2005 and from 2007 through 2010 as an associate at the law firm of Davis Polk & Wardwell LLP.  In 2006, he was a law clerk to United States District Judge Sidney H. Stein of the Southern District of New York.

Audrey Strauss, the United States Attorney for the Southern District of New York, announced that ANTHONY GUZZONE, a former Director of Global Construction at Bloomberg, LP (“Bloomberg”), was sentenced today in Manhattan federal court to 38 months in prison for evading taxes on more than $1.45 million in bribes he received from building sub-contractors.  GUZZONE previously pled guilty to those charges, and was sentenced today before U.S. District Judge Lewis J. Liman. 

In related proceedings, co-conspirator 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 the same scheme.  In addition, Ronald Olson and Vito Nigro, two managers of a construction contractor that performed projects for Bloomberg, have separately pled guilty to evading taxes on more than $1.4 million and $1.8 million in bribes that they respectively received in the same scheme.  Olson is scheduled to be sentenced on February 3 before U.S. District Judge P. Kevin Castel, and Nigro is scheduled to be sentenced on March 8 before U.S. District Judge Analisa Torres.[1]

U.S. Attorney Audrey Strauss said:  “Bribery and tax evasion impose hidden, unfair costs on the law-abiding public.  The type of criminality uncovered in this case imposes that burden widely, on customers, on employers, and on fellow taxpayers.  It is intolerable in a just society.”

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

Between 2010 and 2017, GUZZONE was the Director of Global Construction at Bloomberg, a global financial firm that was engaged in various building projects in New York City and elsewhere, while Olson and Nigro were executives Turner Construction, a construction contractor that performed projects for Bloomberg.  For most of that time, beginning in 2013, Campana was also a construction manager at Bloomberg.  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.  Such personal expenses included GUZZONE’s receipts of several sets of Super Bowl tickets, worth approximately $8000 per ticket, as well as Campana’s receipt of charges related to Campana’s 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.

*                       *                      *

GUZZONE, 51, of Middletown, New Jersey, pled guilty on September 29, 2020, to a single count of tax evasion for the tax years 2010 through 2017.  In addition to the prison term, GUZZONE was sentenced today to three years of supervised release, and ordered to pay restitution of $574,005.33 in unpaid taxes. 

Olson, 53, of Massapequa, New York, pled guilty on July 29, 2020, to a single count of tax evasion for the tax years 2011 through 2017.

Nigro, 59, of Middletown, New Jersey, pled guilty on October 28, 2020, to a single count of tax evasion for the tax years 2011 through 2017.

Campana, 34, 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 (which he has repaid), and a fine of $10,000. 

The charges against Olson and Nigro each 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.  The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of Olson or Nigro will be determined by the respective judges.

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.  

[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.

The U.S. Department of Justice and U.S. Environmental Protection Agency (EPA) announced today that the United States has filed and simultaneously settled a civil lawsuit against Toyota Motor Corporation, Toyota Motor North America Inc., Toyota Motor Sales U.S.A. Inc., and Toyota Motor Engineering & Manufacturing North America Inc. (Toyota) for systematic, longstanding violations of Clean Air Act emission-related defect reporting requirements, which require manufacturers to report potential defects and recalls affecting vehicle components designed to control emissions. 

Along with the civil complaint, the United States has filed a consent decree, agreed to by Toyota, that resolves the government’s complaint through Toyota’s payment of a $180 million civil penalty and the imposition of injunctive relief.  The $180 million penalty is the largest civil penalty for violation of EPA’s emission-reporting requirements. The injunctive provisions require Toyota to follow compliance and reporting practices designed to ensure timely investigation of emission-related defects and timely reporting to EPA, and include training, communication, and oversight requirements. The consent decree remains subject to a period of public comment and court approval.

“This settlement is yet another important milestone settlement for this Administration, and it continues our unwavering commitment to ensuring that our environmental laws as written, including EPA’s regulations, are rigorously enforced,” said Jeffrey Bossert Clark, Assistant Attorney General of the Justice Department’s Environment and Natural Resources Division.

“For a decade, Toyota systematically violated regulations that provide EPA with a critical compliance tool to ensure that vehicles on the road comply with federal emissions standards,” said Audrey Strauss, Acting U.S. Attorney for the Southern District of New York. “Toyota shut its eyes to the noncompliance, failing to provide proper training, attention, and oversight to its Clean Air Act reporting obligations. Toyota’s actions undermined EPA’s self-disclosure system and likely led to delayed or avoided emission-related recalls, resulting in financial benefit to Toyota and excess emissions of air pollutants. Today, Toyota pays the price for its misconduct with a $180 million civil penalty and agreement to injunctive relief to ensure that its violations will not be repeated.”

“For a decade Toyota failed to report mandatory information about potential defects in their cars to the EPA, keeping the agency in the dark and evading oversight,” said Susan Bodine, EPA’s Office of Enforcement and Compliance Assurance Assistant Administrator. “EPA considers this failure to be a serious violation of the Clean Air Act.”

The complaint filed in Manhattan federal court today alleges that from approximately 2005 until at least late 2015, Toyota systematically violated Clean Air Act automobile defect reporting requirements designed to protect public health and the environment from harmful air pollutants.

Clean Air Act regulations require manufacturers to notify EPA by filing an Emissions Defect Information Report (EDIR) when 25 or more vehicles or engines in a given model year have the same defect in an emission control part or an element of design installed in order to comply with emission standards and other EPA regulations. The regulations also require vehicle manufacturers to file a Voluntary Emissions Recall Report (VERR) with EPA when they perform a recall to correct defects in emission-related parts, and to update EPA on the progress of such recalls through Quarterly Reports. These mandatory reporting requirements are critical to the Clean Air Act’s purpose of protecting human health and the environment from harmful air pollutants: They encourage manufacturers to investigate and voluntarily address defects that may result in excess emissions of harmful air pollutants, and provide EPA with important information about emission-related defects for use in its oversight of manufacturers.

For 10 years, Toyota routinely failed to comply with these reporting requirements. During that time, Toyota materially delayed filing an estimated 78 EDIRs, filing many only when disclosing non-compliance to EPA in 2015, at which point some were as much as eight years late. These EDIRs related to millions of vehicles with the potential to exhibit emission-related defects. Toyota also failed to file 20 VERRs and more than 200 quarterly reports.

During the period of noncompliance, Toyota managers and staff in Japan knew that Toyota was no longer even attempting to determine whether it was aware of 25 instances of the same emission-related defect in a model year – the threshold requirement for filing an EDIR. Rather than follow this legally required standard, Toyota unilaterally decided to file EDIRs principally when Toyota was required to file distinct reports with California regulators under a less strict standard – a standard that EPA had rejected as too lenient when Toyota had previously proposed to rely on it for federal reporting.  Toyota managers and staff in Japan repeatedly identified the discrepancy between Toyota’s procedures and the plain language of the federal requirements but failed to bring Toyota into compliance.

As a result of its conduct, Toyota deprived EPA of timely information regarding emission-related defects and recalls and avoided the early focus on emission defects contemplated by the regulations. Toyota’s conduct likely resulted in delayed or avoided recalls, with Toyota obtaining a significant economic benefit, pushing costs onto consumers, and lengthening the time that unrepaired vehicles with emission-related defects remained on the road.

Toyota admits, acknowledges, and accepts responsibility for what is included in the consent decree.

Between approximately 2005 and late 2015, Toyota routinely filed emission defect reports to EPA materially late and, in many cases, failed to file such reports at all until a self-disclosure of non-compliance in late 2015.

Representations to EPA

In March and May 2002, at EPA’s request, Toyota and EPA representatives met to discuss Toyota’s internal process for identifying whether 25 instances of a specific emission-related defect exist in vehicles or engines of the same model year, requiring an EDIR filing.

At a first meeting in March 2002, Toyota described its EDIR process in which Toyota would investigate whether it had 25 defects only upon receiving 25 “product reports” from its dealers, but would supplement that review by filing an EDIR upon receiving warranty claims for an emission-related part in 4 percent of Toyota’s California fleet (a threshold requiring a separate filing to state authorities under California law).

At the meeting, EPA rejected this EDIR process as not timely considering warranty claims, despite the incorporation of the 4 percent California trigger.

At a May 2002 meeting with EPA, Toyota presented its revised process. Under that process, Toyota would commence an investigation to determine whether an EDIR filing was required when it had received warranty claims for an emission-related part for 1 percent of relevant vehicles nationwide; when it received 500 such warranty claims regardless of the percentage; or when it received 25 similar early warning reports.

Toyota noted internally that EPA seemed pleased with this approach, which EPA had described as “more stringent than California.” In 2003, 2004, and 2005, as part of an annual review, Toyota submitted its May 2002 process in writing to EPA as an overview of its EDIR reporting program.

Toyota’s Conduct from Approximately 2005 to 2015

Without notifying EPA, in approximately 2005, Toyota stopped following the May 2002 EDIR process. In approximately 2005, Toyota began filing EDIRs primarily when filing the California reports triggered by the 4 percent threshold. Toyota also filed EDIRs in a small number of instances when it was otherwise filing VERRs with EPA.

From approximately 2005 to 2015, Toyota stopped making any independent determination of whether 25 defects existed requiring an EDIR filing. Multiple times during this period, Toyota staff charged with preparing EDIRs identified that the plain language of the EDIR regulations called for filing an EDIR upon the identification of 25 defects, but that Toyota was not doing so. These staff did not cause Toyota to change its practice.

As a result of this conduct, Toyota filed at least 69 EDIRs materially late. Thirty-nine of these were filed materially late in the ordinary course of Toyota’s business. In late 2015, Toyota self-disclosed another 30 that had not been filed at all. Some EDIRs were ultimately filed as many as eight years after they were due.

Beyond EDIRs, Toyota also failed during this period to file 20 VERRs required for emission-related recall campaigns that it conducted and failed to file more than two hundred Quarterly Reports related to such campaigns. Between 2005 and 2015, Toyota failed to provide its employees with adequate training, resources, or oversight to ensure that Toyota complied with its reporting obligations to EPA. As a result of Toyota’s conduct, EPA did not timely receive mandated information regarding emission-related defects and recalls.

Notice of the proposed consent decree will be published in the Federal Register and the public will have the opportunity to submit comments on the consent decree for a period of at least 30 days before it is submitted for the court’s approval.

To view the consent decree or to submit a comment, visit the Department of Justice website at: www.justice.gov/enrd/Consent_Decrees.html. 

The Justice Department thanked the attorneys in EPA’s Air Enforcement Division, the program staff at EPA’s Office of Transportation and Air Quality, and the agents at EPA’s Criminal Investigative Division for their critical work on this case.

This case is being handled by the Environmental Protection Unit of the U.S. Attorney’s Office’s Civil Division. Senior Trial Attorney Keith Tashima with the Environment and Natural Resources Division’s Environmental Enforcement Section and Assistant U.S. Attorneys Robert William Yalen, Dominika Tarczynska, and Jennifer Jude of the Southern District of New York are prosecuting the case.

Audrey Strauss, Acting United States Attorney for the Southern District of New York, Dermot F. Shea, the Police Commissioner of the City of New York, and John B. DeVito, the Special Agent in Charge of the New York Field Division of the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), announced that KYMAHLI LYSIUS was indicted today in connection with armed robberies he carried out last summer against livery cab drivers.  LYSIUS was arrested last week and presented in Manhattan federal court before United States Magistrate Judge Kevin N. Fox.

Acting U.S. Attorney Audrey Strauss stated:  “Kymahli Lysius allegedly carried out a spree of brazen gunpoint robberies of livery cab drivers in Brooklyn and Manhattan. Lysius’s alleged conduct includes chillingly pointing a gun at the back of drivers’ heads and demanding their money, then fleeing on foot under the cover of night. We thank the NYPD and ATF for holding Kymahli responsible for alleged acts that put his victims in fear for their lives.”    

NYPD Commissioner Dermot Shea said:  “This individual allegedly targeted hard-working victims and exploited the nature of their job to lure them to a location for the purpose of a robbery. I commend the detectives and members of the U.S. Attorney’s Office, Southern District, for targeting violent crime and their hard work which resulted in this indictment.”

ATF Special Agent-in-Charge John B. DeVito said:  “As alleged, defendant Lysius committed several armed robberies of honest and hard-working New Yorkers who were trying to provide for their families in the midst of a pandemic. This indictment sends a clear message that ATF and our law enforcement partners remain committed to ensuring public safety and that those who violate federal law and threaten the safety of our communities and the citizens within will be dealt with swiftly."

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

Between on or about July 28, 2020, and August 7, 2020, LYSIUS committed eight gunpoint robberies and a ninth attempted gunpoint robbery against livery cab drivers.  Two of the robberies were in Manhattan; the others were in Brooklyn.  The robberies followed a simple but brazen pattern:  On each occasion, a livery cab was ordered for a pick up at a specific location.  Upon its arrival, LYSIUS would get into the back seat of the cab.  Shortly thereafter, he would pull out a firearm from a fanny pack strapped across his chest, place the firearm on the cab driver’s head or back, and demand all of the driver’s money.  After taking all the cash the driver had on him and any other cash in the cab, LYSIUS would get out of the cab and flee on foot.  Each robbery occurred on dark streets, late at night or in the very early morning hours. 

LYSIUS, 28, of Brooklyn, is charged with two counts of Hobbs Act robbery and two counts of using a firearm in connection with the two robberies that occurred in Manhattan.  The Hobbs Act robbery charges each carry a statutory maximum sentence of twenty years in prison.  The charges for using, carrying, and possessing a firearm in furtherance of the Hobbs Act robberies each carry a statutory maximum sentence of life in prison and a mandatory minimum sentence of seven years in prison, which must 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 would be determined by the judge.

Ms. Strauss praised the outstanding investigative work of the New York City Police Department, the ATF, and the Strategic Pattern Armed Robbery Technical Apprehension (“SPARTA”) Task Force.

The prosecution of this case is being handled by the Office’s General Crimes Unit.  Assistant United States Attorney Sarah L. Kushner is in charge of the prosecution.

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

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

Audrey Strauss, the Acting United States Attorney for the Southern District of New York, Jeffrey Bossert Clark, the Assistant Attorney General for the Environment and Natural Resources Division (“ENRD”) of the U.S. Department of Justice, and Susan Bodine, Assistant Administrator for Enforcement and Compliance Assurance of the U.S. Environmental Protection Agency (“EPA”), announced today that the United States has filed and simultaneously settled a civil lawsuit against TOYOTA MOTOR CORPORATION, TOYOTA MOTOR NORTH AMERICA, INC., TOYOTA MOTOR SALES, U.S.A., INC., and TOYOTA MOTOR ENGINEERING & MANUFACTURING NORTH AMERICA, INC. (“TOYOTA”) for systematic, longstanding violations of Clean Air Act emission-related defect reporting requirements, which require manufacturers to report potential defects and recalls affecting vehicle components designed to control emissions. 

Along with the civil complaint, the United States has filed a consent decree, agreed to by TOYOTA, that resolves the government’s complaint through TOYOTA’s payment of a $180 million civil penalty and the imposition of injunctive relief.  The $180 million penalty is the largest civil penalty for violation of EPA’s emission-reporting requirements.  The injunctive provisions require TOYOTA to follow compliance and reporting practices designed to ensure timely investigation of emission-related defects and timely reporting to EPA, and include training, communication, and oversight requirements.  The consent decree remains subject to a period of public comment and Court approval.

Acting U.S. Attorney Audrey Strauss said:  “For a decade, Toyota systematically violated regulations that provide EPA with a critical compliance tool to ensure that vehicles on the road comply with federal emissions standards.  Toyota shut its eyes to the noncompliance, failing to provide proper training, attention, and oversight to its Clean Air Act reporting obligations.  Toyota’s actions undermined EPA’s self-disclosure system and likely led to delayed or avoided emission-related recalls, resulting in financial benefit to Toyota and excess emissions of air pollutants.  Today, Toyota pays the price for its misconduct with a $180 million civil penalty and agreement to injunctive relief to ensure that its violations will not be repeated.”

Assistant Attorney General Jeffrey Bossert Clark said:  “This settlement is yet another important milestone settlement for this Administration, and it continues our unwavering commitment to ensuring that our environmental laws as written, including EPA’s regulations, are rigorously enforced.

EPA Assistant Administrator Susan Bodine stated:  “For a decade Toyota failed to report mandatory information about potential defects in their cars to the EPA, keeping the agency in the dark and evading oversight.  EPA considers this failure to be a serious violation of the Clean Air Act.”

The complaint filed in Manhattan federal court today alleges that from approximately 2005 until at least late 2015, TOYOTA systematically violated Clean Air Act automobile defect reporting requirements designed to protect public health and the environment from harmful air pollutants.  

Clean Air Act regulations require manufacturers to notify EPA by filing an Emissions Defect Information Report (“EDIR”) when 25 or more vehicles or engines in a given model year have the same defect in an emission control part or an element of design installed in order to comply with emission standards and other EPA regulations.  The regulations also require vehicle manufacturers to file a Voluntary Emissions Recall Report (“VERR”) with EPA when they perform a recall to correct defects in emission-related parts, and to update EPA on the progress of such recalls through Quarterly Reports.  These mandatory reporting requirements are critical to the Clean Air Act’s purpose of protecting human health and the environment from harmful air pollutants:  They encourage manufacturers to investigate and voluntarily address defects that may result in excess emissions of harmful air pollutants, and provide EPA with important information about emission-related defects for use in its oversight of manufacturers.

For 10 years, TOYOTA routinely failed to comply with these reporting requirements.  During that time, TOYOTA materially delayed filing an estimated 78 EDIRs, filing many only when disclosing non-compliance to EPA in 2015, at which point some were as much as eight years late.  These EDIRs related to millions of vehicles with the potential to exhibit emission-related defects.  TOYOTA also failed to file 20 VERRs and more than 200 Quarterly Reports.

During the period of noncompliance, TOYOTA managers and staff in Japan knew that TOYOTA was no longer even attempting to determine whether it was aware of 25 instances of the same emission-related defect in a model year – the threshold requirement for filing an EDIR.  Rather than follow this legally required standard, TOYOTA unilaterally decided to file EDIRs principally when TOYOTA was required to file distinct reports with California regulators under a less strict standard – a standard that EPA had rejected as too lenient when TOYOTA had previously proposed to rely on it for federal reporting.  TOYOTA managers and staff in Japan repeatedly identified the discrepancy between TOYOTA’s procedures and the plain language of the federal requirements, but failed to bring TOYOTA into compliance. 

As a result of its conduct, TOYOTA deprived EPA of timely information regarding emission-related defects and recalls, and avoided the early focus on emission defects contemplated by the regulations.  TOYOTA’s conduct likely resulted in delayed or avoided recalls, with TOYOTA obtaining a significant economic benefit, pushing costs onto consumers, and lengthening the time that unrepaired vehicles with emission-related defects remained on the road.

*                *                *

In the consent decree lodged with the federal court today, TOYOTA admits, acknowledges, and accepts responsibility for the following:

• Between approximately 2005 and late 2015, TOYOTA routinely filed emission defect reports to EPA materially late and, in many cases, failed to file such reports at all until a self-disclosure of non-compliance in late 2015.

Representations to EPA

• In March and May 2002, at EPA’s request, TOYOTA and EPA representatives met to discuss TOYOTA’s internal process for identifying whether 25 instances of a specific emission-related defect exist in vehicles or engines of the same model year, requiring an EDIR filing.
• At a first meeting in March 2002, TOYOTA described its EDIR process in which TOYOTA would investigate whether it had 25 defects only upon receiving 25 “product reports” from its dealers, but would supplement that review by filing an EDIR upon receiving warranty claims for an emission-related part in 4% of TOYOTA’s California fleet (a threshold requiring a separate filing to state authorities under California law).
• At the meeting, EPA rejected this EDIR process as not timely considering warranty claims, despite the incorporation of the 4% California trigger. 
• At a May 2002 meeting with EPA, Toyota presented its revised process.  Under that process, Toyota would commence an investigation to determine whether an EDIR filing was required when it had received warranty claims for an emission-related part for 1% of relevant vehicles nationwide; when it received 500 such warranty claims regardless of the percentage; or when it received 25 similar early warning reports.
• TOYOTA noted internally that EPA seemed pleased with this approach, which EPA had described as “more stringent than California.”
• In 2003, 2004, and 2005, as part of an annual review, TOYOTA submitted its May 2002 process in writing to EPA as an overview of its EDIR reporting program.

TOYOTA’s Conduct from Approximately 2005 to 2015

• Without notifying EPA, in approximately 2005, TOYOTA stopped following the May 2002 EDIR process. 
• In approximately 2005, TOYOTA began filing EDIRs primarily when filing the California reports triggered by the 4% threshold.  TOYOTA also filed EDIRs in a small number of instances when it was otherwise filing VERRs with EPA.
• From approximately 2005 to 2015, TOYOTA stopped making any independent determination of whether 25 defects existed requiring an EDIR filing. 
• Multiple times during this period, TOYOTA staff charged with preparing EDIRs identified that the plain language of the EDIR regulations called for filing an EDIR upon the identification of 25 defects, but that TOYOTA was not doing so.  These staff did not cause TOYOTA to change its practice.
• As a result of this conduct, TOYOTA filed at least 69 EDIRs materially late.  Thirty-nine of these were filed materially late in the ordinary course of TOYOTA’s business.  In late 2015, TOYOTA self-disclosed another 30 that had not been filed at all.  Some EDIRs were ultimately filed as many as eight years after they were due.
• Beyond EDIRs, TOYOTA also failed during this period to file 20 VERRs required for emission-related recall campaigns that it conducted and failed to file more than 200 Quarterly Reports related to such campaigns. 
• Between 2005 and 2015, TOYOTA failed to provide its employees with adequate training, resources, or oversight to ensure that TOYOTA complied with its reporting obligations to EPA.
• As a result of TOYOTA’s conduct, EPA did not timely receive mandated information regarding emission-related defects and recalls.

Notice of the proposed consent decree will be published in the Federal Register and the public will have the opportunity to submit comments on the consent decree for a period of at least 30 days before it is submitted for the Court’s approval.

Acting U.S. Attorney Strauss thanked the attorneys in EPA’s Air Enforcement Division, the program staff at EPA’s Office of Transportation and Air Quality, and the agents at EPA’s Criminal Investigative Division for their critical work on this case.  Acting U.S. Attorney Strauss also thanked the ENRD attorneys who assisted in the matter.

This case is being handled by the Environmental Protection Unit of the Office’s Civil Division.  Assistant U.S. Attorneys Robert William Yalen, Dominika Tarczynska, and Jennifer Jude are in charge of the case.

Audrey Strauss, the Acting United States Attorney for the Southern District of New York (“USAO”), William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Mark J. Zielinski, Special Agent in Charge of the Eastern Field Office, National Aeronautics and Space Administration Office of Inspector General (“NASA OIG”), announced that MEYYA MEYYAPPAN, a senior NASA scientist, pled guilty today to making false statements to the FBI, NASA OIG, and the USAO.  MEYYAPPAN pled guilty in Manhattan federal court before U.S. District Judge P. Kevin Castel.

Acting U.S. Attorney Audrey Strauss said:  “Meyya Meyyappan held a trusted position at NASA, with access to valuable intellectual property.  In violation of the terms of his employment and relevant laws and regulations, Meyyappan failed to disclose participation in a Chinese government recruitment program, and subsequently lied about it to NASA investigators, FBI agents, and our Office.  Now, having admitted his crime, Meyyappan awaits sentencing.”

FBI Assistant Director William F. Sweeney Jr. said:  “Members of U.S. government agencies are strictly prohibited from maintaining undisclosed affiliations with foreign entities, especially those that are actively seeking our intellectual property and technological advances.  Meyyappan violated this sacred rule, and then lied to FBI agents about it.  Actions like those carried about by Meyyappan can have security implications, and his charges should serve as a warning to others thinking about engaging in the same type of activity.”

NASA OIG Special Agent in Charge Mark J. Zielinski said:  “Certain NASA employees are required to disclose affiliations with foreign entities in order to protect NASA’s intellectual property.  Failure to do so could allow malicious foreign actors unauthorized access to American taxpayer funded technologies.  We thank the FBI and the USAO, SDNY for their assistance throughout this investigation.”

According to the allegations in the Information filed today in Manhattan federal court and other proceedings in this case:

Since in or about 1996, MEYYAPPAN, the defendant, has been employed by NASA, an independent U.S. government agency responsible for the civilian space program, as well as aeronautics and aerospace research.  Since in or about 2006, MEYYAPPAN has been 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 interview, 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.

*                *                *

MEYYAPPAN, 66, of Pacifica, California was charged with one count of making false statements, which carries a maximum sentence of five years in prison and a maximum fine of $250,000, or twice the gross gain or loss from the offense.  The maximum potential 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.  MEYYAPPAN is scheduled to be sentenced before Judge Castel on June 16, 2021, at 2:00 p.m.

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 Acting United States Attorney for the Southern District of New York, 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 ERIC MALLEY, the founder and former chief executive officer of real estate private equity investment firm MG Capital Management L.P.  on charges of securities fraud and wire fraud for his role in a scheme to fraudulently induce hundreds of individuals to invest a total of more than $50 million in two real estate investment funds by, among other things, lying about his own prior experience and investment track record and about the nature and characteristics of those funds.  MALLEY was arrested this morning in New Canaan, Connecticut, on a criminal complaint (the “Complaint”) and will be presented before a magistrate judge in the Southern District of New York. 

Acting Manhattan U.S. Attorney Audrey Strauss said:  “Eric Malley allegedly promised his clients that they would reap the benefits of owning equity in Manhattan real estate through his time-tested, sophisticated, debt-free investment strategy.  As alleged, those promises were lies.  Malley lied about his prior funds’ existence and performance, and he lied in promising clients that the funds were free of debt and leased to prominent corporate tenants.  While his investors lost money, Malley enriched himself.  We will continue to work with our law enforcement partners to protect investors from these types of deceptive practices.”

FBI Assistant Director William F. Sweeney Jr. said:  “As alleged, Malley, acting as CEO of an investment firm he founded, solicited investors with material misrepresentations and lies pertaining to luxury residential real estate and several investment funds.  Ultimately, the investors, many of whom had entrusted Malley with all of their retirement savings, lost nearly everything.  Today’s action should serve as a reminder to fraudsters who seek to prey on unwitting investors that the FBI and our partners will not waver in our commitment to bring them to justice.”

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

MALLEY founded MG Capital Management L.P. (“MG Capital”) in approximately January 2013, and served as its chief executive officer (“CEO”) from that time until approximately December 2019.  MALLEY described MG Capital as an opportunity for investors to invest in luxury residential real estate properties through limited partnership interests, and formed two real estate investment funds, MG Capital Management Residential Fund III (“Fund III”) and MG Capital Management Residential Fund IV (“Fund IV”) (collectively, “the Funds”), in approximately February 2014 and September 2017, respectively.

In connection with marketing the Funds to investors, MALLEY touted two purportedly extremely successful prior funds he had formed, Fund I and Fund II.  MALLEY also assured investors that the Funds would be and were debt-free, and that the properties held by the Funds would be and were leased primarily to corporate tenants.  MALLEY’s representations about the existence and performance of Funds I and II were largely fabricated.  Furthermore, the Funds were not debt-free, but instead held mortgaged properties, and the properties that made up the Funds were almost entirely leased to individual, not corporate, tenants.

Investors in the Funds, many of whom invested the entirety of their retirement savings, lost all or almost all of their investments.  As to Fund III, in total, approximately 60 investors invested approximately $23 million.  Fund III incurred net operating losses of approximately $860,000, and its investors never received either distributions or a return of their investments.  MALLEY nevertheless distributed at least approximately $278,000 to himself in his capacity as general partner.  As to Fund IV, in total, approximately 275 investors invested approximately $35 million.  Fund IV incurred millions of dollars in losses, and MALLEY did not disclose those losses until approximately two years into Fund IV’s operation.

In or about mid-December 2019, MALLEY stepped down from his role as CEO of MG Capital.  Between in or about February 2020 and on or about March 31, 2020 – after MALLEY had become aware that the U.S. Securities and Exchange Commission (“SEC”) was investigating him – MALLEY accessed MG Capital’s server and deleted approximately 10,000 files from the server, including broker information and closing documents detailing the closing costs associated with acquisition of properties, which were used to obtain funding from the Funds’ administrators.

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MALLEY, 50, of New Canaan, Connecticut, is charged with one count of securities fraud, which carries a maximum potential sentence of 20 years in prison, and one count of wire fraud, which carries a maximum potential sentence of 20 years in prison.  The maximum potential penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Ms. Strauss praised the investigative work of the FBI and thanked the New York Regional Office of the U.S. Securities and Exchange Commission, which has separately filed a civil action against MALLEY and M.G. Capital Management.

This case is being handled by the Office’s Securities and Commodities Task Force.  Assistant United States Attorney Elizabeth A. Hanft 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.

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

Audrey Strauss, the Acting United States Attorney for the Southern District of New York, Timothy J. Shea, the Acting Administrator of the U.S. Drug Enforcement Administration (“DEA”), and Susan A. Gibson, the Special Agent in Charge of the New Jersey Division of the DEA, announced today that the United States has settled a civil forfeiture action against assets of Sefira Capital LLC (“Sefira”) and 31 subsidiary corporations, which own high-end commercial and residential real estate throughout the United States.  The Government’s complaint, which was filed on January 8, 2021, alleged that the defendant corporations accepted millions of dollars of narcotics proceeds laundered through the shadow financial system commonly known as the Black Market Peso Exchange, for investment in various real estate ventures.  

In the stipulation of settlement filed with U.S. District Judge Andrew L. Carter Jr. today, which is still subject to approval by the Court, the defendant corporations agree to forfeit $29 million to resolve the Government’s claims, representing approximately $22.5 million previously seized from Sefira and its subsidiaries, and an approximately $6.5 million payment in lieu of the forfeiture of certain real estate interests.  As part of the settlement, Sefira agreed to conduct reasonable due diligence on future investors, and not to accept investment funds from any source other than the actual investor.

In a related civil forfeiture action, the Government filed today a proposed judgment of forfeiture with U.S. District Judge George B. Daniels, covering $23.2 million seized from Hampus Assets, Inc., and Kaunas Assets Corp. in connection with their acceptance of millions of dollars of narcotics proceeds laundered through the Black Market Peso Exchange.  Hampus Assets and Kaunas Assets previously entered into a settlement consenting to the forfeiture of the funds, agreeing to conduct reasonable due diligence on future deposits into bank accounts under their control, and to refrain from conducting certain cross-border money transfers.

Acting Manhattan U.S. Attorney Audrey Strauss said:  “The Black Market Peso Exchange facilitates the laundering of vast sums of drug trafficking proceeds generated in the U.S., enabling the conversion of U.S. dollars into the currencies of drug trafficking organizations’ countries.  The forfeiture filings announced today signal not only the surrender of more than $50 million in laundered proceeds, but also the agreement of corporate defendants to exercise due diligence to ensure they are not assisting in or facilitating money laundering.”

DEA Acting Administrator Timothy J. Shea said:  “The alleged laundering of millions of dollars of illicit proceeds shows the incredible profit generated by ruthless drug cartels who only care about money and power, not the suffering of Americans or devastated communities left behind.  The DEA’s unique ability to infiltrate money laundering organizations is essential to illuminating the global networks used to repatriate drug proceeds around the globe.  Money is the lifeblood of the cartels, and DEA, together with our law enforcement partners, is committed to identifying, targeting, and prosecuting these organizations to protect the American people.”

The Government lawsuits alleged as follows:

The Black Market Peso Exchange allows drug trafficking organizations to transfer narcotics proceeds from the United States to the country in which they operate while concealing the source and nature of the funds.  Drug trafficking organizations will sell bulk United States currency earned from their drug operations in the U.S. to money laundering brokers at a discount, in exchange for payment in the home country or countries of the drug trafficking organization in their local currency.  To finance the transactions, the brokers will purchase bulk currency in the local currency of the drug trafficking organizations, typically from individuals who wish to transfer money to the United States while avoiding the banking system.  The brokers pay these individuals by depositing the U.S. dollar drug proceeds into U.S.-based shell accounts, and then transferring them to accounts controlled by the individuals, or for their benefit.

As part of an investigation of international money laundering, the DEA used confidential sources to facilitate transactions on the Black Market Peso Exchange to uncover persons engaged in illegal activity and develop evidence for criminal prosecutions.  As part of the DEA undercover operation, confidential sources bought narcotics proceeds on the Black Market Peso Exchange, and then transferred those funds to U.S.-based accounts in the United States at the direction of money laundering brokers.

Sefira is a Florida-based boutique investment company that has raised over $100 million in capital from various investors (“Sefira Investors”) to invest in real estate projects primarily in the Southeastern United States.  From 2016 to 2019, Sefira or its subsidiaries received millions of dollars in criminal proceeds from certain Sefira Investors as part of an effort by drug trafficking organizations and others to launder the criminal proceeds through the Black Market Peso Exchange.  

Between January 2018 and January 29, 2019, the DEA transferred millions of dollars of narcotics proceeds to certain Sefira subsidiaries at the instruction of money-laundering brokers. These funds were wired from DEA undercover accounts that were not titled in the name of, or under the control of, any particular Sefira Investor.  Sefira accepted these funds without inquiring as to the source of ownership of these accounts or funds.

In addition, millions of dollars of criminal proceeds were used to fund other Sefira Investors’ investments in Sefira.  Sefira ignored similar red flags for those investments, including discrepancies between the purported investment amount and the actual amount Sefira received from Sefira Investors, as well as discrepancies between the purported Sefira Investors and the entities sending the investments to Sefira.

Between July 2018 and February 2019, Hampus Assets received millions of dollars from a shell company used to transfer narcotics proceeds on the Black Market Peso Exchange.  These deposits came in large amounts in rapid succession and did not follow an observable business pattern.  In October 2018, Hampus Assets transferred a portion of these proceeds to Kaunas Assets Corp.

*                *                *

Ms. Strauss praised the outstanding investigative work of Special Agents from the DEA New Jersey, Enforcement Group 2.  

This case is being handled by the Office’s Narcotics and Money Laundering and Transnational Criminal Enterprises Units.  Assistant United States Attorneys Aline R. Flodr, Stephanie Lake, and Sheb Swett are in charge of the case.

Audrey Strauss, the Acting United States Attorney for the Southern District of New York, announced that DAVID WAGNER was sentenced in Manhattan federal court to 72 months in prison for securities fraud and wire fraud in connection with his operation of a number of corporate entities (collectively referred to as “Downing”) as a Ponzi-like scheme.  WAGNER solicited almost $10 million from approximately 40 Downing investors through materially false and misleading statements and misappropriated a significant portion of those funds, using them for, among other things, the payment of management fees, the repayment of prior investors, and personal expenses.   WAGNER previously pled guilty to these charges, and was sentenced today before U.S. District Judge Alvin K. Hellerstein.   

Acting Manhattan U.S. Attorney Audrey Strauss said:  “The employee-investors of the Downing entities entrusted David Wagner, Chairman and CEO, to provide various means of support to their ‘portfolio companies,’ designed to bring those companies to market and ultimately result in a return on their investments.  Not only did Wagner not provide the financial support and expertise implicit in his sales pitch, he misspent those funds – which were largely from the investors themselves – for personal expenses, such a Porsche for himself and a BMW for his daughter. Wagner’s web of lies has finally caught up to him, and he has now been sentenced to six years in federal prison for bilking almost $10 million from investors.”

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 co-defendant 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.  WAGNER also misappropriated a significant portion of investor funds by using them for, among other things, personal expenses, including the purchase of a Porsche.

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.

Finally, in or about January 2017, WAGNER obtained a $400,000 loan and $100,000 grant from the Connecticut Department of Economic and Community Development (“CTDECD”) for Cliniflow on the basis of materially false statements made by WAGNER to the CTDECD.  WAGNER transferred a majority of the funds obtained from the State of Connecticut, which were required to be used for Cliniflow’s purported relocation from New York to Connecticut, to other Downing entities and also used a portion of the funds to purchase a BMW for his daughter.

*                      *                      *

WAGNER, 54, of East Greenwich, Rhode Island, 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 WAGNER to serve three years of supervised release, and to pay forfeiture in the amount of $549,000 and restitution in the amount of at least $7,850,000 to victims of his criminal conduct.  WAGNER’s co-defendant, Marc Lawrence, is scheduled to be sentenced before Judge Hellerstein on February 1, 2021 at 2:30 p.m.

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 Acting United States Attorney for the Southern District of New York, announced today that ANDREI TYURIN, a/k/a “Andrei Tiurin,” was sentenced in Manhattan federal court to 144 months in prison for computer intrusion, wire fraud, bank fraud, and illegal online gambling offenses in connection with his involvement in a massive computer hacking campaign targeting U.S. financial institutions, brokerage firms, financial news publishers, and other American companies.  TYURIN is charged with committing these crimes with Gery Shalon, a/k/a “Garri Shalelashvili,” a/k/a “Gabriel,” a/k/a “Gabi,” a/k/a “Phillipe Mousset,” a/k/a “Christopher Engeham,” Joshua Samuel Aaron, a/k/a “Mike Shields,” and Ziv Orenstein, a/k/a “Aviv Stein,” a/k/a “John Avery,” in furtherance of securities market manipulation, illegal online gambling, and payment processing fraud schemes perpetrated by Shalon, Aaron, Orenstein, and their co-conspirators.  TYURIN previously pled guilty to these charges, and was sentenced today before U.S. District Judge Laura Taylor Swain. 

Acting U.S. Attorney Audrey Strauss said:  “From his home in Moscow, Andrei Tyurin played a major role in orchestrating and facilitating an international hacking campaign that included one of the largest thefts of U.S. customer data from a single financial institution in history, stealing the personal information of more than 80 million J.P. Morgan Chase customers.  The conspiracy targeted major financial institutions, brokerage firms, news agencies, and other companies, and netted Tyurin over $19 million in criminal proceeds.  Now Tyurin has been sentenced to 12 years in prison for his crimes.”

According to the allegations contained in the Indictments to which TYURIN pled guilty, other filings in this case, and statements made during court proceedings, including TYURIN’s guilty plea hearing:

From approximately 2012 to mid-2015, TYURIN engaged in an extensive computer hacking campaign targeting financial institutions, brokerage firms, and financial news publishers in the U.S. (including but not limited to J.P. Morgan Chase Bank, E*Trade, Scottrade, and the Wall Street Journal), and was responsible for the theft of personal information of over 100 million customers of the victim companies.  TYURIN’s hack of J.P. Morgan Chase Bank alone resulted in the theft of personal information of over 80 million customers.  TYURIN engaged in these crimes at the direction of his partner Gery Shalon, and in furtherance of other criminal schemes overseen and operated by Shalon and his co-conspirators, including securities fraud schemes in the United States.  For example, in an effort to artificially inflate the price of certain stocks publicly traded in the U.S., Shalon and his co-conspirators marketed the stocks in a deceptive and misleading manner to customers of the victim companies whose contact information TYURIN stole in the intrusions. 

In addition to the U.S. financial sector hacks, from approximately 2007 to mid-2015 TYURIN also conducted cyberattacks against numerous U.S. and foreign companies in furtherance of various criminal enterprises operated by Shalon and his co-conspirators, including unlawful internet gambling businesses and international payment processors.  Nearly all of these illegal businesses, like the securities market manipulation schemes, exploited the fruits of TYURIN’s computer hacking campaigns.  TYURIN’s hacking activity included the targeting of companies known to be used for email marketing campaigns, competitor online casinos, and a merchant risk intelligence firm based in the United States, in order for the co-conspirators to monitor the firm’s efforts to audit potentially criminal online credit card transactions on behalf of major credit card networks, and thus avoid detection of their own criminal schemes.

In furtherance of his hacking activities, TYURIN used computer infrastructure located across five continents, which he controlled from his home in Moscow, and maintained persistent access over extended periods of time to the victims’ networks, regularly refreshing the stolen data by repeatedly downloading information from these companies.  And once his hacking activities were detected, TYURIN worked with Shalon to destroy the evidence of their criminal activity and undermine U.S. law enforcement’s efforts to identify and arrest them. 

Through these various criminal schemes, TYURIN, Shalon, and their co-conspirators obtained hundreds of millions of dollars in illicit proceeds, and TYURIN himself earned over $19 million in profits from his hacking activity.

*                *                *

TYURIN, 37, of Moscow, Russia, pled guilty to one count of conspiracy to commit computer hacking, one count of wire fraud, one count of conspiracy to violate the Unlawful Internet Gambling Enforcement Act, and one count of conspiracy to commit wire fraud and bank fraud.  In addition, TYURIN pled guilty to one count of conspiracy to commit wire fraud, and one count of conspiracy to commit computer hacking, from charges that were transferred from the Northern District of Georgia for purposes of his plea.  In addition to the prison term, Judge Swain ordered TYURIN to serve three years of supervised release, and to pay forfeiture in the amount of $19,214,956. The Court will determine TYURIN’s restitution obligations at a hearing scheduled for April 6, 2021.  TYURIN has been in U.S. custody since he was extradited from the country of Georgia in September 2018, and will commence serving his sentence immediately.   

*                *                *

Ms. Strauss praised the investigative work of the FBI and the U.S. Secret Service, and expressed her sincere gratitude to the Chief Prosecutor’s Office of Georgia and the Ministry of Justice of Georgia for their support and assistance with the extradition proceedings.  She also thanked the Securities and Exchange Commission, Homeland Security Investigations, the Financial Industry Regulatory Authority, the Office of International Affairs of the U.S. Department of Justice’s Criminal Division for its assistance with the extradition, and the Financial Services Information Sharing and Analysis Center, which significantly aided the investigation by facilitating information sharing among the victim institutions.

The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys Eun Young Choi, Noah Solowiejczyk, and Sarah Lai are in charge of the prosecution.

Audrey Strauss, the Acting United States Attorney for the Southern District of New York, Dermot Shea, Police Commissioner of the City of New York (“NYPD”), and Russell W. Cunningham, Special Agent in Charge of the Department of Justice Office of the Inspector General Washington Field Office (“DOJ-OIG”), announced today that SALLY SPINOSA was charged in Manhattan federal court with two counts of making false claims for monetary awards and medical benefits by falsely and materially overstating the amount of time she spent on recovery efforts after the September 11, 2001, attack on New York, as well as one count of aggravated identity theft for submitting a fraudulent affidavit in connection with her benefits application.  SPINOSA surrendered this morning and will be presented before Magistrate Judge Kevin Nathaniel Fox in Manhattan this afternoon.

Acting U.S. Attorney Audrey Strauss said:  “After the September 11 attacks on New York City, the brave men and women of the NYPD risked their lives and safety to rebuild the City.  As alleged, former NYPD sergeant Sally Spinosa exploited her position by brazenly – and falsely – claiming to have worked hundreds of hours in the recovery effort.  When law enforcement officers break the laws they are sworn to uphold, they do a disservice to their fellow officers, to the departments that employ them, and to the public they serve.  My Office will work tirelessly with our law enforcement partners to uncover and prosecute such conduct.”

NYPD Commissioner Dermot Shea said:  “There is no place in the NYPD for criminal behavior.  I commend Deputy Commissioner Joseph Reznick and Internal Affairs officers for their thorough investigation, in partnership with the U.S. Attorney’s Office, Southern District, and the Department of Justice Office of the Inspector General.”

DOJ-OIG Special Agent in Charge Russell W. Cunningham said:  “The victim compensation funds are meant to provide some relief for victims of the 9/11 terrorist attacks.  Spinosa allegedly tried to defraud the government and take benefits from the fund that she did not deserve.  The charges brought today show that the DOJ OIG will thoroughly investigate allegations of fraud of these funds.”

According to the allegations in the Complaint filed yesterday in Manhattan federal court[1]:

Following the attacks on New York and Washington, D.C., on September 11, 2001, Congress created certain programs to provide monetary compensation and medical treatment for victims of the attacks.  Specifically, Congress created the September 11th Victim Compensation Fund (the “VCF”) to provide compensation for any individual who suffered physical harm or was killed as a result of either the September 11th attacks or the debris removal and recovery efforts that took place in the immediate aftermath of the attacks.  Congress also created the World Trade Center Health Program (“WTCHP”) to provide, among other things, monitoring and medical treatment benefits for individuals who have or may develop health conditions due to exposure at disaster or recovery sites tied to the September 11th attacks.  Both the VCF and the WTCHP are funded by Congress.  An individual can be deemed eligible for a VCF award either by submitting medical documents and proof-of-presence documents directly to the VCF, or by going through the WTCHP’s process for having a medical condition certified.

SALLY SPINOSA served as an NYPD officer from in or about July 1986 until July 2019, and was a sergeant in the investigations unit of the NYPD’s Patrol Services Bureau of Staten Island (the “Staten Island Investigations Unit”) on September 11, 2001.  In 2010, SPINOSA participated in a screening interview with the WTCHP in which she falsely stated that she worked for hundreds of hours at the Fresh Kills Landfill in Staten Island, New York (the “Landfill”), from September 2001 to June 2002.  Similarly, in 2014, SPINOSA applied for a monetary award from the VCF, falsely claiming that she was at the Landfill for two hours each day for 62 straight days from September 20, 2001, to November 20, 2001.  In support of her application, SPINOSA submitted proof-of-presence documents, including an affidavit purportedly signed by one of her supervisors at the Staten Island Investigations Unit (“Officer-1”) stating that Officer-1 frequently visited the Landfill with SPINOSA to supervise subordinates (the “Officer-1 Affidavit”).

However, contrary to SPINOSA’s representations to the WTCHP and the VCF, in fact SPINOSA spent little to no time at the Landfill.  Indeed, during much of the time SPINOSA claimed to be working at the Landfill, SPINOSA was pregnant and doing limited work outside the Staten Island Investigations Unit’s offices, or was out of the office entirely on parental leave. Moreover, the Officer-1 Affidavit that SPINOSA submitted in support of her VCF application was fraudulent and was never signed by Officer-1.  

Nevertheless, and based on her false and fraudulent misrepresentations, in or around 2017 the WTCHP granted her benefits.  The WTCHP has since paid for certain medical visits and prescription drugs for SPINOSA.  While SPINOSA’s original fraudulent application to the VCF was denied in 2014, she reapplied in 2017 and 2018 relying on the same false and fraudulent information.  SPINOSA’s VCF claim remains pending.

*                *                *

SPINOSA, 55, of Freehold, New Jersey, has been charged with one count of submitting false claims, which carries a maximum penalty of five years in prison, one count of wire fraud, which carries a maximum penalty of 20 years in prison, and one count of aggravated identity theft, which carries a mandatory penalty of two years in prison.  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 NYPD’s Internal Affairs Bureau and DOJ-OIG.

This case is being handled by the Office’s Public Corruption Unit.  Assistant United States Attorneys Kedar S. Bhatia and Catherine E. Ghosh are in charge of the prosecution.

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

[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 Acting 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 Frank Robey, Director of the Criminal Investigation Command’s Major Procurement Fraud Unit, announced today that JOSEPH IORHEMBA ASAN JR. and CHARLES IFEANYI OGOZY each pled guilty to one count of conspiracy to commit wire fraud and bank fraud in connection with a scheme to commit fraud against victims across the United States, defraud banks, and launder over $3 million dollars in fraud proceeds.  Both defendants were arrested on October 31, 2019. OGOZY pled guilty on December 22, 2020 before U.S. District Judge William H. Pauley III.  ASAN pled guilty earlier today before U.S. Magistrate Judge Barbara Moses and his case is assigned to U.S. District Judge Kimba Wood.

Acting Manhattan U.S. Attorney Audrey Strauss said:  “U.S. Army reservists Joseph Asan and Charles Ogozy admitted today to their roles in an internet fraud scheme to bilk victims across the country of over $3 million. The defendants and their co-conspirators callously victimized older men and women and even a Marine Corps veterans association in their business email compromises and online romance scams. I thank the FBI and U.S. Army CID for their assistance in holding these reservists accountable for their dishonorable conduct.”

FBI Assistant Director-in-Charge William F. Sweeney, Jr. said:  “Using false identities, email compromises, and fake schemes to scam others out of money are clear federal crimes. But the fact that Mr. Asan, Jr. and Mr. Ogozy, who themselves voluntarily wear our Nation’s uniform and swore an oath to uphold our Constitution, also targeted a veteran’s organization adds insult to the injury endured by some of the victims. Because they chose to break the law, these two Army reservists will now be rolling along to federal prison.”

Director of the Criminal Investigation Command’s Major Procurement Fraud Unit, Frank Robey said:  “To think that two Reserve Soldiers would perpetrate such brazen acts of fraud is beyond belief.  However, for these two, greed was more important than being faithful to the trust put in them by our government, and it was their undoing. They will be held fully responsible for the acts of fraud they committed.”

According to allegations in the Complaint, the charging instruments, and other publically filed documents:

From at least in or about February 2018 through at least in or about September 2019, ASAN and OGOZY were members of the U.S. Army Reserves who participated in a scheme to commit fraud against victims across the United States, defraud banks, and launder over $3 million in fraud proceeds in bank accounts that they controlled.  The funds laundered by ASAN and OGOZY were obtained primarily through (a) business email compromises, in which members of the scheme gained unauthorized access to or spoofed email accounts and impersonated employees of a company or third parties engaged in business with the company in order to fraudulently induce the victims to transfer money to bank accounts under the control of members of the scheme; and (b) romance scams, in which members of the scheme deluded unsuspecting older women and men into believing they were in a romantic relationship with a fake identity assumed by members of the scheme and used false pretenses to cause the victims to transfer money to bank accounts under the control of members of the scheme, including ASAN and OGOZY.   Notably, one of the victims of the defendants’ scheme included a U.S. Marine Corps veteran’s organization.

In order to launder over $3 million in proceeds from those fraud schemes, ASAN and OGOZY opened several bank accounts in the names of fake businesses called Uxbridge Capital LLC, Renegade Logistics LLC, and Eldadoc Consulting LLC and received fraud proceeds in those bank accounts.  ASAN and OGOZY then laundered the fraud proceeds to each other and to other co-conspirators based in Nigeria.  In connection with the opening of the business bank accounts, the defendants made multiple false statements to banks about the purported legitimate business of their companies, including misrepresentations that they were involved in shipping, real estate, and public relations.  In addition, a significant portion of the funds laundered by the defendants was deposited and withdrawn in cash that was not able to be traced by law enforcement.   

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ASAN, 24, of Daytona Beach, Florida, and OGOZY, 31, of Hackensack, New Jersey, each pled guilty to one count of conspiracy to commit wire fraud and bank fraud, which carries a maximum sentence of 30 years in prison.  The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

ASAN is scheduled to be sentenced on April 21, 2021 at 11:00 a.m. before Judge Wood.  OGOZY is scheduled to be sentenced on April 14, 2021 at 11:00 a.m. before Judge Pauley. 

Ms. Strauss praised the outstanding investigative work of the FBI and Army CID.  Ms. Strauss also thanked the U.S. Customs and Border Protection for their assistance in 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.

“Chief Judge Colleen McMahon notified me today that the United States District Court for the Southern District of New York has appointed me United States Attorney for the District, pursuant to 28 U.S.C. § 546(d), effective January 16, 2021.  I am deeply grateful for the Court’s support and the opportunity to continue serving the people of New York and this country.  It is the privilege of a lifetime to lead the women and men of this District as they pursue justice without fear or favor and write the latest chapter in this Office’s proud legacy.” 

Audrey Strauss, the Acting United States Attorney for the Southern District of New York, announced today that ERIC IAN WHITEHEAD pled guilty to wire fraud for his role in a years-long scheme to embezzle approximately $1.3 million from a financial publishing company (the “Company”), where he was then employed as comptroller.  The plea was entered in front of U.S. District Judge Ronnie Abrams. 

Acting U.S. Attorney Audrey Strauss said:  “As he admitted in court today, Eric Ian Whitehead exploited his position of trust as comptroller of a publishing company to embezzle more than $1 million from the company.  Now he awaits sentencing for his admitted theft.”

According to the Information and other filings and statements at public court proceedings in the case:

From at least in or around 2015 through in or around 2020, WHITEHEAD used wire transfers and cash deposits from the victim Company to benefit himself without authorization from the Company.  Specifically, WHITHEAD used Company assets to pay for personal credit card expenses, overpay personal credit cards to receive cash balance refunds, write checks to cash for deposit into personal bank accounts, and purchase precious metals to sell for his own profit.  WHITEHEAD consistently embezzled Company funds from in or around 2015 through in or around 2020, for a total loss amount of approximately $1.3 million.

*                *                *

WHITEHEAD, 53, of Smithtown, New York, pled guilty to one count of wire fraud, which carries a maximum sentence of 20 years in prison.  WHITEHEAD will be sentenced by Judge Abrams on April 9, 2021.

Ms. Strauss praised the outstanding investigative work of the Special Agents of the United States 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 Attorney Mitzi S. Steiner is in charge of the prosecution.

Audrey Strauss, the Acting United States Attorney for the Southern District of New York, announced that JOSEPH BAILEY, the CEO of a children’s apparel company (“Company-1”), was sentenced to six months in prison for participating in a years-long scheme to defraud U.S. Customs and Border Protection (“CBP”) by submitting invoices to CBP that falsely understated the true value of the goods Company-1 imported into the United States – fraudulently avoiding over $1.5 million in customs duties owed to CBP.  BAILEY pled guilty on January 15, 2020, before United States District Judge William H. Pauley III, who also imposed today’s sentence.

Acting U.S. Attorney Audrey Strauss said:  “Joseph Bailey defrauded the United States by misrepresenting the value of imported goods to avoid payment of customs duties.  Now he has been sentenced to prison for his crime.”

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

From in or about 2007 to in or about 2015, BAILEY and other employees of Company-1 engaged in a scheme to fraudulently understate the value of goods imported into the United States.  During the charged time period, Company-1 purchased much of its merchandise from a manufacturer located in China (“Manufacturer-1”).  Starting shortly after Company-1 began doing business with Manufacturer-1 in 2007, through approximately 2010, BAILEY and others at Company-1 engaged in a double-invoicing scheme by which Company-1 would receive two sets of invoices from Manufacturer-1 for the same shipment of goods.  One invoice, referred to as the “pay by” invoice, was significantly higher and reflected the actual price paid by Company-1 for the goods.  The second invoice reflected a significantly lower price for the goods and was presented to CBP.  This allowed Company-1 to pay a fraudulently lower amount of customs duties.

In approximately 2010, BAILEY and other employees of Company-1 began a new variation of the customs fraud scheme, involving invoices for “sample” goods, by which Manufacturer-1 would send two separate sets of invoices for a given shipment that together reflected the true price Company-1 actually paid to Manufacturer-1 for a particular shipment of clothing.  The first invoice, typically entitled the “commercial invoice,” described the goods purchased, and was submitted to CBP.  The second invoice purportedly reflected amounts paid by Company-1 for “sample” goods, and was not submitted to CBP.  Sample goods are not subject to customs duties.

The “samples” invoice was not, in fact, for samples actually purchased by Company-1. Rather, it was a means to make an additional payment to Manufacturer-1 for actual goods purchased by Company-1 without disclosing it to CBP.  Typically, the “samples” invoices reflected a unit price for sample goods that was significantly greater than the unit price for the non-sample goods reflected on the invoice submitted to CBP (for example, $70-$90 per unit on the “samples” invoice versus a $4 per unit price on the “commercial invoice”).  In addition, the “samples” invoice reflected the purchase of unusually large amounts of sample goods, for example the “samples” invoice reflected quantities as large as 24 or 48 pieces of a single color in a single style.

This multi-year fraud scheme resulted in the loss of over $1 million in duty revenue to the United States.

        *                      *                      *

In addition to his prison sentence, BAILEY, 58, of Brooklyn, New York, was sentenced to three years of supervised release, ordered to pay forfeiture in the amount of $1,661,617.   

Ms. Strauss thanked CBP and Homeland Security Investigations for their efforts and ongoing support and assistance with the case.

This case is being handled by the Office’s Complex Frauds and Cybercrime Unit, and Assistant U.S. Attorneys Dina McLeod and Dominika Tarczynska are in charge of the prosecution.        

Audrey Strauss, the Acting United States Attorney for the Southern District of New York, and Dermot Shea, the Commissioner of the New York City Police Department (“NYPD”), announced the unsealing of an indictment charging CARL WILBRIGHT, a/k/a “Brody,” TRAVIS BRECONIDGE, a/k/a “Jamaica,” ISAIAH FREEMAN, a/k/a “Oz,” LUIS GARCIA, a/k/a “Lu,” RICARDO GARCIA, a/k/a “Kika,” STANLEY HAMPTON, and JAMEL MURRAY with participating in a conspiracy to distribute crack cocaine and marijuana.  WILBRIGHT and FREEMAN have also been charged with possessing firearms in furtherance of the narcotics conspiracy.  The Indictment further charges FREEMAN and QUASHAWN ESCALERA, a/k/a “Tank,” with being felons in possession of ammunition in connection with a shooting that occurred on September 26, 2019.  The case is assigned to U.S. District Judge Valerie E. Caproni.

Acting Manhattan U.S. Attorney Audrey Strauss said:  “As alleged in the Indictment, the defendants are charged with narcotics trafficking and firearms offenses.  We thank our partners at the NYPD for their outstanding work on this case.”

NYPD Commissioner Dermot Shea said:  “These federal charges enhance the NYPD’s precision policing efforts to combat a crew of alleged narcotics distributors.  I commend our partners in the U.S. Attorney’s office for the Southern District of New York for their sustained work in bringing this important case.”

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

From at least in or about 2018, up to and including in or about 2020, CARL WILBRIGHT, a/k/a “Brody,” TRAVIS BRECONIDGE, a/k/a “Jamaica,” ISAIAH FREEMAN, a/k/a “Oz,” LUIS GARCIA, a/k/a “Lu,” RICARDO GARCIA, a/k/a “Kika,” STANLEY HAMPTON, and JAMEL MURRAY, participated in a conspiracy to distribute 280 grams and more of crack cocaine and marijuana.

*                      *                     *

CARL WILBRIGHT, a/k/a “Brody,” LUIS GARCIA, a/k/a “Lu,” RICARDO GARCIA, a/k/a “Kika,” and JAMEL MURRAY were taken into custody last week and were presented before Judge Lehrburger. STANLEY HAMPTON surrendered yesterday and was presented before Judge Moses. TRAVIS BRECONIDGE, a/k/a “Jamaica,” QUASHAWN ESCALERA, a/k/a “Tank,” and ISAIAH FREEMAN, a/k/a “Oz,” remain at large.

A chart containing the names, charges, and maximum penalties for each of the defendants is set forth below.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only as any sentencing of a defendant would be determined by the judge.

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

The case is being handled by the Office’s Violent and Organized Crime Unit.  Assistant United States Attorney Christopher J. Clore is 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.

COUNT

CHARGE

DEFENDANTS

MAX. PENALTIES

1

Narcotics

Conspiracy

21 U.S.C. § 846

CARL WILBRIGHT, 47

TRAVIS BRECONIDGE, 28

ISAIAH FREEMAN, 32

LUIS GARCIA, 24

RICARDO GARCIA, 28

STANLEY HAMPTON, 25

JAMEL MURRAY, 43

Life in prison

Mandatory minimum of ten years in prison

2

Firearms Offense

18 U.S.C. §§ 924(c)(1)(A)(i) and 2

CARL WILBRIGHT

Life in prison

Mandatory minimum of five years in prison

3

Firearms Offense

18 U.S.C. § 924(c)(1)(A)(iii) and 2

ISAIAH FREEMAN

Life in prison

Mandatory minimum of ten years in prison

4

Felon in Possession of Ammunition

18 U.S.C. § 922(g)

QUASHAWN ESCALERA, 31

10 years in prison

5

Felon in Possession of Ammunition

18 U.S.C. § 922(g)

ISAIAH FREEMAN

10 years in prison

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

Audrey Strauss, the Acting 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, Office of Inspector General (“HHS-OIG”), announced today a $6 million settlement of a civil healthcare fraud lawsuit against A.R.E.B.A.-CASRIEL, Inc. d/b/a ADDICTION CARE INTERVENTIONS CHEMICAL DEPENDENCY TREATMENT CENTERS (“ACI”), a substance abuse treatment provider in New York City, and STEVEN YOHAY, ACI’s primary owner and former CEO.  This settlement resolves allegations that ACI and YOHAY provided kickbacks and engaged in fraudulent conduct in connection with the enrollment of Medicaid beneficiaries into ACI’s inpatient treatment program.  Specifically, the Government’s complaint alleges that ACI’s drivers targeted homeless individuals and offered them food, cash, money to purchase drugs, and/or alcohol in order to induce them to enroll in ACI’s inpatient treatment program.  The lawsuit further alleges that ACI paid an individual a kickback in the form of a sham job for which she was compensated more than $75,000 to induce her to refer patients to ACI programs.  The lawsuit also alleges that ACI used medical admissions forms containing photocopied physician signatures to make it appear that new patients had been evaluated by a qualified health care professional as required by law. 

Under the settlement approved December 17 by U.S. District Judge Vernon S. Broderick, ACI agreed to pay $3 million, and YOHAY personally agreed to pay an additional $3 million.  Of the $6 million total, $2.4 million is being paid to the United States and the remaining amount is being paid to the State of New York.  The amount paid by ACI is based on the Office’s assessment of ACI’s ability to pay based on the financial information it provided. 

ACI and YOHAY admitted and accepted responsibility for conduct alleged in the Government’s complaint as further described below.  YOHAY also agreed to divest ownership and control of ACI, and ACI agreed to implement procedures designed to ensure that its patient transportation services comply with legal requirements.  In addition, YOHAY has entered into a Voluntary Exclusion Agreement with HHS-OIG, under which he will be excluded from participation in Medicaid and other federal healthcare programs for a period of 15 years. 

Acting U.S. Attorney Audrey Strass said:  “ACI and Steven Yohay engaged in unscrupulous and illegal practices – including hiring drivers to scour the streets for potential patients – to fill the beds at their facilities and maximize the payments they received from Medicaid.  This Office will continue to act aggressively to ensure that substance abuse treatment providers and those who run them are held accountable when they cheat the system to fraudulently obtain federal health care funds.” 

HHS-OIG Special Agent in Charge Scott J. Lampert said:  “ACI and Stephen Yohay operated a fraud scheme that targeted some of the most vulnerable people in our society and diverted valuable Medicaid funds that millions of New Yorkers depend on for vital services.  This settlement should send a message that this behavior will not be tolerated, and we will hold those that attempt to steal from federal health care programs accountable for their actions.” 

The Complaint filed in Manhattan federal court alleges three forms of illegal conduct:

First, from January 2014 to December 2019, ACI and YOHAY improperly induced Medicaid beneficiaries to be admitted into ACI’s inpatient treatment program by employing drivers, who were compensated based in part on the volume of patients they recruited for admission into the treatment program, to solicit and transport potential new patients to ACI’s facility.  The drivers routinely targeted homeless individuals and sometimes offered them food, cash, money to purchase drugs, and/or alcohol to persuade them to enroll in the program.  The drivers were expected to pick up a certain number of potential patients in order to be eligible for a pay raise.  Most of the new enrollments into ACI’s inpatient program resulted from the ACI drivers’ solicitation efforts.

Second, in October 2012, ACI created a sham part-time Spanish “translator” position so that it could employ an individual whose real job was primarily to provide a stream of patient referrals.  The individual was simultaneously employed at an organization that refers individuals to substance abuse clinics.  ACI placed the individual on its payroll to receive referrals to its treatment programs.  The individual translated only a few times, even though she remained on the payroll until March 2017 and was paid more than $75,000.

Third, from July 2012 through July 2013, ACI admitted Medicaid patients into its inpatient treatment program who were not evaluated by a qualified health care professional to determine the appropriate level of care, as required by applicable state law.  ACI staff fraudulently created medical forms containing a photocopied physician’s signature to make it appear that a physician had conducted the evaluation.  The falsified forms were used to support claims for reimbursement, for the indicated level of care, from Medicaid.

In the settlement agreement, ACI and YOHAY admit, acknowledge, and accept responsibility for the following conduct:

Role of Drivers:

• From January 2014 to December 2019, ACI employed drivers who were involved in identifying, recruiting, and providing transportation services for new patients who were admitted into ACI’s inpatient treatment program.  During the relevant period, ACI employed approximately five to 10 drivers at any given time.
• ACI drivers rode in unmarked vehicles and picked up individuals, who were often homeless, from a wide range of locations, including parks, train stations, shelters, hospitals, under bridges, and from other substance abuse treatment centers. 
• ACI financially incentivized its drivers to bring in new patients.  ACI paid the driver who brought in the most new patients during the relevant period an annual salary of more than $200,000, as well as a bonus consisting of thousands of dollars.
• ACI’s management, including YOHAY, were made aware of allegations that certain ACI drivers gave some potential new patients money, drugs, and/or alcohol to induce them to enroll in ACI’s inpatient program.  However, ACI and YOHAY failed to investigate these allegations adequately or take appropriate corrective actions in response.

Use of Paid Employee to Make Patient Referrals:

• In October 2012, ACI created a part-time “translator” position and hired an individual to fill the position who was simultaneously employed at an organization that refers individuals to substance abuse clinics, like ACI, for treatment as an alternative to incarceration. 
• Throughout the course of her employment with ACI, the individual provided ACI managers with lists of individuals who were being referred by the organization to ACI for substance abuse services. 
• Although the individual was hired to be a “translator,” she rarely was asked by ACI to provide any translation services.  The individual translated for ACI only a few times in 2012, and thereafter, she did not perform any translation services for ACI but continued to be paid by ACI until 2017.
   

Medical Assessments Not Completed by Physicians:

• From July 2012 through July 2013, ACI admitted certain patients into its inpatient program who were not properly evaluated by a qualified health professional as required. 
• During the relevant period, ACI admissions staff, who were not qualified health professionals, conducted the patient assessment and completed the admissions criteria forms.  These forms, which were part of a patient’s file used to support claims for reimbursement from Medicaid, contained a photocopy of a physician’s signature.

In connection with the filing of the lawsuit and settlement, the Government joined a private whistleblower lawsuit that had previously been filed under seal pursuant to the False Claims Act.

Ms. Strauss thanked HHS-OIG, the Medicaid Fraud Control Unit of the New York State Attorney General’s Office, and the New York State Office of Addiction Services and Supports for their assistance with the case. 

The case is being handled by the Office’s Civil Frauds Unit.  Assistant U.S. Attorney Kirti Vaidya Reddy is in charge of the case.

Audrey Strauss, the Acting United States Attorney for the Southern District of New York, Scott Lampert, the Special Agent in Charge for the New York Office of the Inspector General of the U.S. Department of Health and Human Services (“HHS-OIG”), Patrick J. Hegarty, Special Agent in Charge of the Northeast Field Office of the U.S. Department of Defense - Office of Inspector General’s Defense Criminal Investigative Service (“DCIS”), and Norbert E. Vint, Deputy Inspector General Performing the Duties of the Inspector General, Office of Personnel Management Office of the Inspector General (“OPM OIG”), announced today a $40.5 million settlement of a fraud lawsuit against Apria Healthcare Group, Inc. and its affiliate, Apria Healthcare LLC (together, “Apria”), a large durable medical equipment (“DME”) provider with approximately 300 branch offices located throughout the United States.  The lawsuit alleges, among other claims, that Apria submitted false claims to federal health programs, including Medicare and Medicaid, seeking reimbursement for the rental of costly non-invasive ventilators (“NIVs”) to program beneficiaries who were not using the NIVs such that the devices were not medically necessary or that involved the improper waiver of patient co-insurance payments.  

Under the settlement, which was approved on December 18 by U.S. District Judge Edgardo Ramos, Apria agreed to pay a total sum of $40.5 million, with $37,632,789.89 being paid to the United States and the remaining amount to be paid to various states.  As part of the settlement, Apria also made extensive factual admissions regarding its conduct.

 Acting U.S. Attorney Audrey Strauss said: “It is critical to the financial integrity of federal health programs like Medicare and Medicaid that reimbursements are made only for medically necessary items and services.  DME providers like Apria have an obligation to ensure that the equipment and devices they rent to patients are medically necessary.  When companies knowingly disregard that obligation to maximize their profits, this Office will hold them accountable for their fraudulent conduct.” 

HHS-OIG Special Agent in Charge Scott J. Lampert said:  “Apria’s conduct compromised the integrity of the Medicare and Medicaid programs, and needlessly increased the financial burden on taxpayers.  Along with our law enforcement partners, HHS-OIG will continue to ensure that those individuals and entities that bill federal health care programs improperly are held accountable for their actions.”

DCIS Special Agent in Charge Patrick J. Hegarty said:  “The Defense Criminal Investigative Service (DCIS) is committed to protecting the integrity of TRICARE, the healthcare system for military members and their families.  Charging TRICARE for DME that was not necessary betrays the public’s trust.  This settlement demonstrates our partnership with HHS-OIG, OPM-OIG and the U.S. Attorney’s Office to investigate fraudulent schemes that impact TRICARE and put its beneficiaries at risk.”

OPM OIG Deputy Inspector General Norbert E. Vint said:  “The OPM OIG is committed to fighting all forms of health care fraud.  As demonstrated by this settlement, providers that exploit federal health care programs by submitting false claims will be held accountable.”

As alleged in the complaint filed by the United States, Apria decided in 2014 to prioritize the expansion of its NIV rental business because health care programs like Medicare paid as much as $1,400 per month to cover NIVs, a type of complex respiratory equipment that can dynamically adjust the pressure level of air delivery.  That expansion, however, came at the cost of Apria’s compliance with the basic medical necessity requirement of federal health programs.  Specifically, while Apria knew that it was responsible for monitoring patients’ utilization of their NIVs and to stop billing when NIVs were no longer being used, it did not have enough staff, or “respiratory therapists,” to conduct such monitoring.  As a result, Apria routinely billed Medicare and other programs when it did not know whether NIVs were still being used by patients and, therefore, remained medically necessary.  Further, even when Apria had information indicating that patients were no longer using their NIVs, it often continued to bill the federal health programs. 

As further alleged, Apria engaged in two other types of improper practices to obtain more NIV orders and higher profits.  First, Apria improperly billed federal health programs for certain NIV rentals that were being used in a setting called PAC mode to provide bi-level pressure support therapy, which was available from a less expensive device called VPAP RAD and did not qualify for reimbursement at the NIV rate.  Second, Apria improperly waived co-pays for a number of Medicare and TRICARE beneficiaries to induce them to rent NIVs.  For example, Apria employees offered to waive co-pays to convince patients to rent NIVs from Apria instead of competitors.  Further, Apria also waived co-pays without making the required individualized assessment of financial need.  As a result of those three widespread improper practices, Apria submitted thousands of false claims to federal health programs for NIV rentals and fraudulently received millions of dollars in reimbursements.

As part of the settlement, Apria admitted, acknowledged, and accepted responsibility for, among others, the following conduct:

NIV Continued Use Conduct

• Apria relied on the respiratory therapists (“RTs”) in its branches to monitor patients’ usage of their NIV devices.  Further, Apria’s NIV promotional materials indicated that Apria’s RTs would regularly visit NIV patients to assess whether they used their NIV devices in accordance with their physicians’ instructions.
• The RTs at Apria’s branches, however, often did not conduct regular visits to NIV patients to confirm that patients were using their NIVs as directed by their physicians. A January 2017 internal analysis, for example, found that in December 2016, Apria’s RTs failed to complete more than half of the visits to NIV patients mandated by Apria’s NIV clinical procedures at all three of Apria’s operational zones. 
• Apria continued to seek payments from federal health programs for NIV rentals each month even though its RTs frequently failed to conduct in-home visits to verify that patients were still using their NIVs.  
• In addition, when it had information from the RT visits indicating that patients had stopped using their NIVs, Apria often did not take steps to stop seeking payments from federal health programs or to determine if the NIV rentals were still medically necessary.

PAC Mode Conduct

• In 2015, Apria encouraged its sales staff to actively urge physicians to order the Astral NIVs in PAC mode.  When they urged physicians to order the Astral NIVs in PAC mode, Apria’s salespeople frequently did not tell the physicians that PAC mode therapy was also available through the VPAP RAD at a lower monthly cost.
• On a number of occasions, this resulted in Apria renting the more expensive Astral NIVs to patients with the PAC mode therapy orders, including patients covered by federal health programs, even though the less expensive VPAP RADs may have met those patients’ medical needs.

Co-Pay Waiver Conduct

• Managers at a number of Apria’s branches directed salespeople at those branches to routinely discuss the availability of co-pay waivers with NIV patients, including before the patients raised concerns about their ability to make these payments.  In a number of cases, those managers also authorized salespeople to offer co-pay waivers to persuade patients to rent NIVs from Apria instead of other DME suppliers.
• During the Covered Period, Apria gave full co-pay waivers to hundreds of NIV patients without making an assessment as to whether those patients could have afforded some portion of their co-pay responsibilities.

*                      *                      *

• As a result of the admitted conduct, Apria received reimbursements from the federal health programs for some NIV rental claims that did not comply with all of those programs’ billing rules and guidance.

In connection with this settlement, Apria also entered into a Corporate Integrity Agreement with HHS-OIG, which requires Apria to implement board oversight, a claims review process by an Independent Review Organization, and other compliance steps designed to foster adherence to federal health care program requirements and thereby protect the programs.

This settlement arises from a whistleblower case filed by three former Apria employees under the qui tam provisions of the False Claims Act, which allow private persons – known as “relators” – to file civil cases on behalf of the United States and share in the recovery. 

Acting U.S. Attorney Strauss thanked the Washington State Medicaid Fraud Control Unit for its extensive collaboration in the investigation and resolution of this case, and also praised the outstanding investigative work of the HHS-OIG, DCIS, and OPM-OIG.

This case is being handled by the Office’s Civil Frauds Unit.  Assistant U.S. Attorneys Li Yu and Steven Kochevar and former Assistant U.S. Attorney Casey Lee have handled the case.

Audrey Strauss, the Acting United States Attorney for the Southern District of New York, announced that MICHAEL R. WEIGAND, a/k/a “Shabang,” a/k/a “~Shabang~,” a/k/a “~s,” a/k/a “s,” was sentenced to eight months in prison today for making false statements to federal agents about his involvement in, and his work for, the “Silk Road” online illicit black market, which was responsible for distributing hundreds of millions of dollars of narcotics and other contraband.  WEIGAND’s false statements concealed his role in the operation of the Silk Road website.  WEIGAND previously pled guilty before United States District Judge William H. Pauley III, who also imposed today’s sentence.

Acting U.S. Attorney Audrey Strauss said:  “Michael Weigand supplied technological advice directly to the leadership of Silk Road, a secret online marketplace for criminal activity.  He laundered Silk Road proceeds and traveled overseas to remove Silk Road evidence from a co-conspirator’s residence.  Weigand subsequently lied to law enforcement, falsely claiming to have done nothing for Silk Road, and has now been sentenced to prison for that knowing falsehood.”

According to the Information, court filings, statements made in court, and evidence presented during the 2015 trial of Ross Ulbricht, Silk Road’s founder and chief administrator:

Ulbricht created Silk Road in approximately January 2011, and owned and operated the underground website until it was shut down by law enforcement in October 2013.  Silk Road emerged as the most sophisticated and extensive criminal marketplace on the Internet at the time.  During its more than two-and-a-half years in operation, Silk Road was used by several thousand drug dealers and other unlawful vendors to distribute hundreds of kilograms of illegal drugs and other illicit goods and services to well over one hundred thousand buyers, and to launder hundreds of millions of dollars deriving from these unlawful transactions.  Silk Road was specifically designed to allow its users to buy and sell drugs and other illegal goods and services anonymously and outside the reach of law enforcement through the use of the Tor network and a Bitcoin-based payment system. 

WEIGAND, a computer programmer and electrical engineer, worked with Roger Thomas Clark, the senior adviser to Ulbricht, on certain aspects of Silk Road.  For instance, WEIGAND and Clark worked to identify technological vulnerabilities in the Silk Road website.  WEIGAND also supplied technological advice directly to Clark and Ulbricht.  After Silk Road was shut down in October 2013, WEIGAND laundered more than $75,000 in Silk Road proceeds.  In addition, in late 2013, the Government disclosed that it had been able to access the contents of Ulbricht’s laptop computer, which identified Clark as Ulbricht’s right-hand man; shortly after this revelation, Clark transferred more than $20,000 to WEIGAND in Bitcoin, and WEIGAND traveled to Clark’s London residence and removed Silk Road evidence.

In January 2019, WEIGAND was questioned by IRS and FBI Special Agents.  After being specifically warned that it is a federal crime to make a false statement to a federal law enforcement officer, WEIGAND attempted to cover up his involvement in Silk Road by falsely stating, among other things, that (1) he never opened an account on Silk Road; (2) he never used the online pseudonyms “Shabang” or “~Shabang~”; (3) he never transferred Bitcoin to Silk Road; (4) he never exposed computer security vulnerabilities in the Silk Road website; (5) he never communicated with anyone who used the online pseudonym “Dread Pirate Roberts,” “DPR,” or “Silk Road” (i.e., Ulbricht); (6) he never performed any services for the Silk Road website; and (7) he did not know the true identity of “Variety Jones” (one of Clark’s pseudonyms) on Silk Road.  WEIGAND also falsely stated that the purpose of his trip to London in late 2013, following the takedown of the Silk Road website and arrest of Ulbricht, was to meet with Clark’s associate regarding a marijuana seed business; in fact, WEIGAND went to Clark’s London residence and removed physical Silk Road evidence.

In addition to his prison term, WEIGAND, 59, of Kirtland, Ohio, was sentenced to three years of supervised release.

The founder and operator of Silk Road, Ross Ulbricht, was previously convicted of seven offenses after a jury trial: distributing narcotics, distributing narcotics by means of the Internet, conspiring to distribute narcotics, engaging in a continuing criminal enterprise, conspiring to commit computer hacking, conspiring to traffic in false identity documents, and conspiring to commit money laundering.  Ulbricht was sentenced principally to life in prison and $183 million in forfeiture. 

Ulbricht’s senior adviser, Roger Thomas Clark, pled guilty to conspiring to distribute narcotics and his sentencing is currently pending.  Clark faces a maximum potential sentence of 20 years in prison.

*                *                *

Ms. Strauss praised the outstanding joint efforts of the Boston Field Office of the Internal Revenue Service – Criminal Investigation, the New York and Washington Field Offices of the Federal Bureau of Investigation, the New York Field Office of Homeland Security Investigations, and the New York City Police Department.  Ms. Strauss also thanked the FBI’s Cleveland Office for its assistance.

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

The Department of Justice announced the unsealing of an indictment charging Cholo Abdi Abdullah with six counts of terrorism-related offenses arising from his activities as an operative of the foreign terrorist organization al Shabaab, including conspiring to hijack aircraft in order to conduct a 9/11-style attack in the United States.  Abdullah was arrested in July 2019 in the Philippines on local charges, and was subsequently transferred on Dec. 15, 2020 in connection with his deportation from the Philippines to the custody of U.S. law enforcement for prosecution on the charges in the indictment.  Abdullah was transported from the Philippines to the United States yesterday, and is expected to be presented today before Magistrate Judge Robert W. Lehrburger in Manhattan federal court.  The case is assigned to United States District Judge Analisa Torres.

“This case, which involved a plot to use an aircraft to kill innocent victims, reminds us of the deadly threat that radical Islamic terrorists continue to pose to our nation.  And it also highlights our commitment to pursue and hold accountable anybody who seeks to harm our country and our citizens.  No matter where terrorists who plan to target Americans may be located, we will seek to identify them and bring them to justice,” said Assistant Attorney General for National Security John C. Demers.  “We owe a debt of gratitude to the detectives, agents, analysts, and prosecutors who are responsible for this defendant’s arrest.”

“Today’s announcement shows that foreign terrorist organizations, like al Shabaab, remain determined to plot, plan, and conspire to commit terrorist acts across the globe against the United States, our interests and our foreign partners,” said FBI Assistant Director for Counterterrorism Jill Sanborn.  “Let there be no doubt that the FBI and our law enforcement colleagues, and in this case specifically those in the Philippines and Kenya, will not stop in our mission to hold terrorists accountable for their actions.  The charges announced today against Cholo Abdi Abdullah eerily draws parallels to the heinous attacks on this country on September 11, 2001.  The FBI, along with our U.S. Government and international partners, will continue to be in lockstep against terrorism and will not allow the safety or security of the public to be threatened – no matter where in the world it may be or whomever is responsible.” 

 “As alleged, Cholo Abdi Abdullah, as part of a terrorist plot directed by senior al Shabaab leaders, obtained pilot training in the Philippines in preparation for seeking to hijack a commercial aircraft and crash it into a building in the United States,” said Acting Manhattan U.S. Attorney Audrey Strauss.  “This chilling callback to the horrific attacks of September 11, 2001, is a stark reminder that terrorist groups like al Shabaab remain committed to killing U.S. citizens and attacking the United States.  But we remain even more resolute in our dedication to investigating, preventing, and prosecuting such lethal plots, and will use every tool in our arsenal to stop those who would commit acts of terrorism at home and abroad.  Thanks to the outstanding investigative work of the New York Joint Terrorism Task Force, and the FBI’s global partnerships with law enforcement agencies around the world, Abdullah’s plot was detected before he could achieve his deadly aspirations, and now he faces federal terrorism charges in a U.S. court.”

 “Nearly 20 years after the 9/11 terrorist attacks, there are those who remain determined to conduct terror attacks against United States citizens. Abdullah, we allege, is one of them,” said FBI Assistant Director-in-Charge William F. Sweeney Jr. “He obtained a pilot’s license overseas, learning how to hijack an aircraft for the purpose of causing a mass-casualty incident within our borders. Fortunately, the exceptional work by the men and women assigned to the many agencies that comprise the FBI’s New York JTTF have, once again, disrupted a threat to our communities.”

 “As alleged in the federal indictment against him, Cholo Abdi Abdullah had obtained pilot training and begun plotting a terrorist attack against a target in the United States,” said NYPD Commissioner Dermot Shea.  “But the outstanding work of our NYPD detectives and federal agents of the FBI’s New York Joint Terrorism Task Force, along with all of our law enforcement partners, put an end to those plans and ensured that no one would be harmed.”

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

The charges in the Indictment unsealed today arise out of a coordinated scheme by the terrorist organization Harakat al-Shabaab al-Mujahideen, commonly known as “al Shabaab,” to target Americans both at home and abroad.  Al Shabaab, which has sworn allegiance to al Qaeda and serves as al Qaeda’s principal wing in East Africa, is responsible for numerous deadly terrorist attacks, including attacks that have claimed American lives.  Recently, al Shabaab has embarked on a string of terrorist attacks as part of an operation purportedly in response to the United States’ decision to move its embassy in Israel to Jerusalem, which the group has dubbed “Operation Jerusalem Will Never be Judaized.”  In particular, these terrorist attacks perpetrated by al Shabaab include an attack on Jan. 15, 2019, at a hotel in Nairobi, Kenya, which resulted in the deaths of approximately 21 people, including a U.S. national and survivor of al Qaeda’s 9/11 attack on the World Trade Center in New York, New York; a Sept. 30, 2019, attack on a U.S. military facility in Somalia; and a Jan. 5, 2020, attack on another U.S. facility in Kenya, in which three Americans were killed.    

As alleged in the Indictment, Abdullah was an al Shabaab operative who participated in a plot to hijack commercial aircraft and crash them into a building in the United States.  Beginning in 2016, at the direction of a senior al Shabaab commander who was responsible for, among other things, planning the 2019 Nairobi hotel attack, Abdullah traveled to the Philippines and enrolled in a flight school there (the “Flight School”), for the purpose of obtaining training for carrying out the 9/11-style attack.  Between 2017 and 2019, Abdullah attended the Flight School on various occasions and obtained pilot’s training, ultimately completing the tests necessary to obtain his pilot’s license. 

While Abdullah was obtaining pilot training at the Flight School, he also conducted research into the means and methods to hijack a commercial airliner to conduct the planned attack, including security on commercial airliners and how to breach a cockpit door from the outside, information about the tallest building in a major U.S. city, and information about how to obtain a U.S. visa.

Thanks to the extraordinary work of the FBI, law enforcement authorities foiled this plot.  Abdullah has remained in custody since his arrest on the local charges in the Philippines.

Abdullah, 30, of Kenya, is charged with conspiring to provide and providing material support to a designated foreign terrorist organization (al Shabaab), conspiring to murder U.S. nationals, conspiring to commit aircraft piracy, conspiring to destroy aircraft, and conspiring to commit acts of terrorism transcending national boundaries.  Abdullah faces a maximum sentence of life in prison, and a mandatory minimum sentence of 20 years in prison.  The specific penalties for each of the charges is reflected in the chart below.  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 a judge.

Assistant Attorney General Demers and Ms. Strauss praised the outstanding efforts of the FBI’s New York Joint Terrorism Task Force, which principally consists of agents from the FBI and detectives from the NYPD. They also thanked the FBI Hudson Valley office and the New York State Police.  Ms. Strauss also thanked the FBI Legal Attaché Offices in Nairobi, Kenya, and Manila, the Philippines; the Counterterrorism Section of the Department of Justice’s National Security Division; the Office of International Affairs of the Department of Justice’s Criminal Division; the U.S. Department of Defense; “...the Kenyan Directorate of Criminal Investigations, the Kenyan Anti-Terrorism Police Unit, the Joint Terrorism Task Force-Kenya, and the Kenyan Office of the Director of Public Prosecutions; and the Philippine National Police, Philippine Department of Justice, the Joint Terrorism Financial Investigations Group - Philippines, and Philippine Bureau of Immigration, for their assistance.

This prosecution is being handled by the Office’s Terrorism and International Narcotics Unit.  Assistant U.S. Attorneys David W. Denton, Jr., Sidhardha Kamaraju, and Elinor Tarlow are in charge of the prosecution, with assistance from the Counterterrorism Section of the National Security Division.

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

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

Audrey Strauss, the Acting United States Attorney for the Southern District of New York, John C. Demers, the Assistant Attorney General for National Security, William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Dermot Shea, the Commissioner of the Police Department for the City of New York (“NYPD”), announced the unsealing of an Indictment charging CHOLO ABDI ABDULLAH with six counts of terrorism-related offenses based on his activities as an operative of the foreign terrorist organization al Shabaab, including conspiring to hijack aircraft in order to conduct a 9/11-style attack in the United States.  ABDULLAH was arrested in July 2019 in the Philippines on local charges, and was subsequently transferred on December 15, 2020, in connection with his deportation from the Philippines, to the custody of U.S. law enforcement for prosecution on the charges in the Indictment.  ABDULLAH was transported from the Phillippines to the United States yesterday, and is expected to be presented today before Magistrate Judge Robert W. Lehrburger in Manhattan federal court.  The case is assigned to United States District Judge Analisa Torres.

Acting Manhattan U.S. Attorney Audrey Strauss said:  “As alleged, Cholo Abdi Abdullah, as part of a terrorist plot directed by senior al Shabaab leaders, obtained pilot training in the Philippines in preparation for seeking to hijack a commercial aircraft and crash it into a building in the United States.  This chilling callback to the horrific attacks of September 11, 2001, is a stark reminder that terrorist groups like al Shabaab remain committed to killing U.S. citizens and attacking the United States.  But we remain even more resolute in our dedication to investigating, preventing, and prosecuting such lethal plots, and will use every tool in our arsenal to stop those who would commit acts of terrorism at home and abroad.  Thanks to the outstanding investigative work of the New York Joint Terrorism Task Force, and the FBI’s global partnerships with law enforcement agencies around the world, Abdullah’s plot was detected before he could achieve his deadly aspirations, and now he faces federal terrorism charges in a U.S. court.”

Assistant Attorney General John C. Demers said:  “This case, which involved a plot to use an aircraft to kill innocent victims, reminds us of the deadly threat that radical Islamic terrorists continue to pose to our nation.  And it also highlights our commitment to pursue and hold accountable anybody who seeks to harm our country and our citizens.  No matter where terrorists who plan to target Americans may be located, we will seek to identify them and bring them to justice.  We owe a debt of gratitude to the agents, detectives, analysts, and prosecutors who are responsible for this defendant’s arrest.”

FBI Assistant Director-in-Charge William F. Sweeney Jr. said:  “Nearly 20 years after the 9/11 terrorist attacks, there are those who remain determined to conduct terror attacks against United States citizens. Abdullah, we allege, is one of them. He obtained a pilot’s license overseas, learning how to hijack an aircraft for the purpose of causing a mass-casualty incident within our borders. Fortunately, the exceptional work by the men and women assigned to the many agencies that comprise the FBI’s New York JTTF have, once again, disrupted a threat to our communities.”

NYPD Commissioner Dermot Shea said: “As alleged in the federal indictment against him, Cholo Abdi Abdullah had obtained pilot training and begun plotting a terrorist attack against a target in the United States. But the outstanding work of our NYPD detectives and federal agents of the FBI’s New York Joint Terrorism Task Force, along with all of our law enforcement partners, put an end to those plans and ensured that no one would be harmed.”

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

The charges in the Indictment unsealed today arise out of a coordinated scheme by the terrorist organization Harakat al-Shabaab al-Mujahideen, commonly known as “al Shabaab,” to target Americans both at home and abroad.  Al Shabaab, which has sworn allegiance to al Qaeda and serves as al Qaeda’s principal wing in East Africa, is responsible for numerous deadly terrorist attacks, including attacks that have claimed American lives.  Recently, al Shabaab has embarked on a string of terrorist attacks as part of an operation purportedly in response to the United States’ decision to move its embassy in Israel to Jerusalem, which the group has dubbed “Operation Jerusalem Will Never be Judaized.”  In particular, these terrorist attacks perpetrated by al Shabaab include an attack on January 15, 2019 at a hotel in Nairobi, Kenya, which resulted in the deaths of approximately 21 people, including a U.S. national and survivor of al Qaeda’s 9/11 attack on the World Trade Center in New York, New York; a September 30, 2019 attack on a U.S. military facility in Somalia; and a January 5, 2020 attack on another U.S. facility in Kenya, in which three Americans were killed.    

As alleged in the Indictment, ABDULLAH was an al Shabaab operative who participated in a plot to hijack commercial aircraft and crash them into a building in the United States.  Beginning in 2016, at the direction of a senior al Shabaab commander who was responsible for, among other things, planning the 2019 Nairobi hotel attack, ABDULLAH traveled to the Philippines and enrolled in a flight school there (the “Flight School”), for the purpose of obtaining training for carrying out the 9/11-style attack.  Between 2017 and 2019, ABDULLAH attended the Flight School on various occasions and obtained pilot’s training, ultimately completing the tests necessary to obtain his pilot’s license. 

While ABDULLAH was obtaining pilot training at the Flight School, he also conducted research into the means and methods to hijack a commercial airliner to conduct the planned attack, including security on commercial airliners and how to breach a cockpit door from the outside, information about the tallest building in a major U.S. city, and information about how to obtain a U.S. visa.

Thanks to the extraordinary work of the FBI, law enforcement authorities foiled this plot.  ABDULLAH has remained in custody since his initial arrest in the Philippines.

*                      *                      *

ABDULLAH, 30, of Kenya, is charged with conspiring to provide and providing material support to a designated foreign terrorist organization (al Shabaab), conspiring to murder U.S. nationals, conspiring to commit aircraft piracy, conspiring to destroy aircraft, and conspiring to commit acts of terrorism transcending national boundaries.  ABDULLAH faces a maximum sentence of life in prison, and a mandatory minimum sentence of 20 years in prison.  The specific penalties for each of the charges is reflected in the chart below.  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 a judge.

Ms. Strauss praised the outstanding efforts of the FBI’s New York Joint Terrorism Task Force, which principally consists of agents from the FBI and detectives from the NYPD.  Ms. Strauss also thanked the FBI Legal Attaché Offices in Nairobi, Kenya, and Manila, the Philippines; the FBI’s Hudson Valley Resident Agency; the New York State Police; the Counterterrorism Section of the Department of Justice’s National Security Division; the Office of International Affairs of the Department of Justice’s Criminal Division; the U.S. Department of Defense; the Kenyan Directorate of Criminal Investigations, including the Anti-Terrorism Police Unit and the Joint Terrorism Task Force-Kenya; the Office of the Director of Public Prosecutions in Kenya; the Philippine National Police; the Philippine Department of Justice; the Joint Terrorism Financial Investigations Group-Philippines; and the Philippine Bureau of Immigration, for their assistance.

This prosecution is being handled by the Office’s Terrorism and International Narcotics Unit.  Assistant U.S. Attorneys David W. Denton, Jr., Sidhardha Kamaraju, and Elinor Tarlow are in charge of the prosecution, with assistance from Trial Attorneys Jason Denney and Rebecca Magnone of the Counterterrorism Section.

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

Count

Charges

Penalties

1

Conspiracy to Provide Material Support to a Foreign Terrorist Organization (18 U.S.C. § 2339B)

20 years’ imprisonment

2

Provision of Material Support to a Foreign Terrorist Organization (18 U.S.C. § 2339B)

20 years’ imprisonment

3

Conspiracy to Murder U.S. Nationals (18 U.S.C. § 2332(b))

Life imprisonment

4

Conspiracy to Commit Aircraft Piracy (49 U.S.C. § 46502)

Life imprisonment; mandatory minimum of 20 years’ imprisonment

5

Conspiracy to Destroy Aircraft (18 U.S.C. § 32(a))

20 years’ imprisonment

6

Conspiracy to Commit Acts of Terrorism Transcending National Boundaries (18 U.S.C. § 2332b)

Life imprisonment, consecutive to any other term of imprisonment imposed

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

Audrey Strauss, the Acting United States Attorney for the Southern District of New York, 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 unsealing of an Indictment charging MARIANNA LEVIN, TETYANA GOLYAK, ELENA LOKSHIN, SVITLANA ROHULYA, MARINA ZAK, ALINA KUPTSOVA, MALIHA IJAZ, MAKHINBONU NARZULLAEVA, NATALYA SHVARTS, and INNA GEKELMAN with conspiracy to commit mail, wire and healthcare fraud; substantive counts of mail fraud, wire fraud, and healthcare fraud; and conspiracy to violate the Anti-Kickback Statute, in connection with a  scheme to fraudulently bill Medicaid for home-health and personal-care services that were not actually rendered.  The ten defendants were arrested earlier this morning and will be presented today before United States Magistrate Judge Robert W. Lehrburger in Manhattan federal court.  The case has been assigned to United States District Judge John P. Cronan.

Manhattan Acting U.S. Attorney Audrey Strauss said:  “These ten defendants allegedly attempted to swindle the managed healthcare system by billing for no-show cases, where aides provided no actual assistance to patients.  Now more than ever, the Medicare system is critical for so many Americans who depend on its services for their well-being. Conduct such as the alleged scheme today not only beleaguers the healthcare system, it unfairly penalizes those who depend on it most – the patients.”

FBI Assistant Director-in-Charge William F. Sweeney Jr. said:  “Money that’s earmarked for Medicaid-approved services, and fraudulently paid out to those who don’t render these services, is a crime that’s ultimately paid for by taxpayers themselves. In this case, as we allege, there were even patients involved in the kickback scheme who were willing to play along with the no-show scam in order to earn a few extra bucks. With a nearly $5 billion increase in managed long-term care plan spending recorded over a recent six-year period, the money paid out to those charged today is no drop in the bucket.”

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

Since in or about 2015, the defendants have been engaged in a widespread fraud scheme through which the defendants defrauded Medicaid for home-health and personal-care services that were not actually rendered.  At all times relevant to the Indictment, the defendants worked at or were otherwise associated with one of two affiliated licensed homecare service agencies based in Brooklyn, New York (“Agency-1”, “Agency-2”, collectively referred to as the “Agencies”), that provide home-health and personal-care services to patients residing in all five boroughs of New York City and Nassau County.  Combined, the Agencies employed approximately 3,000 home-health and personal-care aides (the “Aides”).  Most of the Aides were licensed to provide home-health aide services and personal-care services.

Home care is a health service provided in the patient’s home to promote, maintain, or restore health or lessen the effects of illness and disability.  Home care includes personal-care services, administered by Aides, including housekeeping, meal preparation, bathing, toileting, and grooming.

At all times relevant to this Indictment, eligible Medicaid beneficiaries in New York were able to seek government-funded home-health and personal-care services through managed long-term care plans (“MLTCs”).  In turn, MLTCs received Medicaid funding to pay for their beneficiaries’ home-health and personal-care services.  In recent years, home-health costs in New York have ballooned.  In or about January 2020, New York’s State budget director announced, in substance and in part, that spending on MLTCs tripled between the 2013 and 2019 fiscal years, representing a $4.8 billion increase.

The Agencies administer home-health and personal-care services to Medicaid beneficiaries enrolled in New York MLTCs.  From in or about 2015 to in or about December 2020, Medicaid reimbursed the Agencies hundreds of millions of dollars for home-health and personal-care services.  A significant portion of the Agencies’ billings were fraudulent.  In particular, the Agencies billed Medicaid for “no-show” cases in which Aides claimed to be performing home-health or personal-care services when they were not.  At times when Aides falsely claimed to be performing home-health or personal-care services, they in fact, stayed home, ran personal errands, vacationed, and socialized with family and friends.  For example, on or about September 9, 2017, TETYANA GOLYAK was at a vineyard and winery in New Jersey at a time she claimed to be performing personal-care services for a patient residing in Brooklyn, New York; in or about January 2019, NATALYA SHVARTS was on a Caribbean cruise at a time she claimed to be performing personal-care services for a patient residing in Brooklyn, New York; and, on or about March 1, 2019, MALIHA IJAZ was at a Brooklyn restaurant at a time IJAZ claimed to be performing personal-care services.  These no-show arrangements caused the Agencies to submit false Medicaid claims to MLTCs. 

With no-show cases at the Agencies, an Aide’s fraudulently-obtained wages were often split between the no-show Aide and the no-show patient.  In addition to paying kickbacks to no-show patients, no-show Aides sometimes paid kickbacks to conspirators who referred no-show cases to Aides at the Agencies.   

The defendants are each charged with one count of conspiracy to commit mail, wire, and healthcare fraud, which carries a maximum sentence of 20 years in prison, one count of mail fraud, which carries a maximum sentence of 20 years in prison, one count of wire fraud, which carries a maximum sentence of 20 years in prison, one count of healthcare fraud, which carries a maximum sentence of 20 years in prison, and one count of conspiracy to violate the Anti-Kickback Statute, which carries a maximum sentence of five years in prison.  The maximum potential sentences and minimum sentence in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants will be determined by the judge.

*                      *                     *

Ms. Strauss praised the outstanding investigative work of the New York FBI, New York City Police Department, and the Office of Medicaid Inspector General for New York State. 

This case is being handled by the Complex Frauds and Cybercrime Unit.  Assistant United States Attorneys Nicholas Folly, Nicholas W. Chiuchiolo and Daniel G. Nessim 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.       

DEFENDANT

AGE

ROLE

RESIDENCE

MARIANNA LEVIN

47

Manager at Agency-1

Brooklyn

TETYANA GOLYAK

43

Director of Case Coordinators at Agency-1

Brooklyn

ELENA LOKSHIN

34

Director of Human Resources at Agency-1

Howell, NJ

SVITLANA ROHULYA

43

Case Coordinator and Supervisor of Case Coordinators at Agency-1

Brooklyn

MARINA ZAK

43

Case Coordinator and Supervisor at Agency-1 and Supervisor at Agency-2

Staten Island

ALINA KUPTSOVA

60

Case Coordinator at the Agencies

Avenel, NJ

MALIHA IJAZ

33

Intake Employee and Aide at Agency-1

Brooklyn

MAKHINBONU NARZULLAEVA

31

Case Coordinator and Aide at Agency-1

Brooklyn

NATALYA SHVARTS

51

Coordinator and Aide at Agency-1

Brooklyn

INNA GEKELMAN

70

Recruiter for Agency-1

Brooklyn

[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 Acting United States Attorney for the Southern District of New York, announced that KELLY RIVAS, a/k/a “La Grumpy,” was sentenced today to four years in prison for managing dues collection and distribution for the transnational criminal organization La Mara Salvatrucha, also known as MS-13.  RIVAS previously pled guilty to conspiracy to commit extortion in connection with the use of force to collect payments from MS-13 members and associates.  U.S. District Judge Paul A. Engelmayer imposed the sentence in Manhattan federal court.

Acting U.S. Attorney Audrey Strauss said:  “Kelly Rivas collected dues from MS-13 members in several states, and funneled those payments to MS-13 leaders in El-Salvador, as well as MS-13 members in U.S. prisons.  For her role in funding this vicious gang, she has been sentenced to a significant term in prison.”

According to statements in the Indictment, and other filings and statements at public court proceedings in the case:

MS-13 is a transnational gang that operates in El Salvador and throughout the United States, among other places.  MS-13 is infamous for being a brutally violent organization.  Its leadership, members, and associates engage in a variety of serious and violent criminal activity, including acts of murder and attempted murder, malicious wounding with serious injury, assaults, kidnappings, firearms trafficking, extortion, and international and interstate narcotics distribution.  One hallmark of the gang is its use of machetes to commit brutal attacks, including murders, in furtherance of the gang’s activities.

RIVAS belonged to an MS-13 “clique” known as Hollywood Locos Salvatrucha (HLS). HLS operates in Washington, D.C., Maryland, Virginia, New York, and elsewhere.  HLS members have committed murder and other acts of violence, and generated revenue on behalf of MS-13, including through robbery, extortion, and narcotics and firearms trafficking.  HLS members are required to pay monthly dues, which MS-13 uses to support various gang activities and to support other MS-13 members, including those who are incarcerated or who live in El Salvador.  Members are induced to pay dues, including through threats of violence, and members who fall behind on dues are subjected to physical beatings carried out by other members of the gang.  In addition to the violent consequences for failure to pay dues, MS-13 rules establish that MS-13 members who try to withdraw from the gang will be “green lit,” meaning that the gang’s leadership will authorize the gang to murder the withdrawing member. 

RIVAS collected, and oversaw the collection, of dues in New York, Virginia, Maryland, and elsewhere.  She also transmitted and ensured the transmission of the collected funds to other MS-13 members, including incarcerated members and members in El Salvador, to support the gang’s activities.  In the course of overseeing the collection of dues, RIVAS pressured MS-13 members to meet their dues payment obligations by any means necessary, including through criminal activities that would generate income, such as narcotics and firearms trafficking.  Like other MS-13 leaders, RIVAS resorted to threats of violence to extort dues from MS-13 members and relied on physical beatings carried out by other MS-13 members to enforce payment. 

*                      *                     *

In addition to the prison term, RIVAS, 34, of Manassas Park, Virginia, was sentenced to three years of supervised release.  She was further ordered to forfeit $19,346 in dues that she had collected or transmitted.

Ms. Strauss praised the outstanding investigative work of Homeland Security Investigations, U.S. Customs and Border Protection, and the Albemarle County Police Department, and thanked the Albermarle County Commonwealth’s Attorney’s Office for its assistance.

The case is being handled by the Office’s Violent and Organized Crime Unit.  Assistant United States Attorneys Hagan Scotten, Danielle R. Sassoon, and Daniel G. Nessim are in charge of the prosecution.

Ilan T. Graff, the Attorney for the United States, Acting Under Authority Conferred by 28 U.S.C. § 515, announced that ROBERT JOSEPH FARKAS, a/k/a “RJ,” was sentenced on December 15 to one year and one day in prison, in connection with his participation in a scheme to induce victims to invest more than $25 million dollars’ worth of digital funds in Centra Tech, Inc. (“Centra Tech”), a Miami-based company he co-founded and that purported to offer cryptocurrency-related financial products.  FARKAS previously pled guilty to conspiring to commit securities fraud and wire fraud in connection with his and his co-conspirators’ use of material misrepresentations and omissions to solicit investors to purchase securities, in the form of digital tokens issued by Centra Tech, through an initial coin offering (“ICO”) beginning in approximately July 2017.  U.S. District Judge Lorna G. Schofield imposed the sentence in Manhattan federal court.

Mr. Graff said: “Farkas and his co-conspirators created fictitious executives and fabricated business relationships with legitimate institutions to dupe investors into handing over millions of dollars for a fraudulent ICO.  We will continue to aggressively pursue frauds like this one, whether they involve traditional securities or newer financial instruments and crypto-assets.”

According to statements in the Superseding Information, and other filings and statements at public court proceedings in the case:

In or about July 2017, FARKAS, along with co-defendants Sohrab Sharma and Raymond Trapani, founded a company called Centra Tech that claimed to offer cryptocurrency-related financial products, including a purported debit card, the “Centra Card,” that supposedly allowed users to make purchases using cryptocurrency at establishments accepting Visa or Mastercard payment cards.  From approximately July 30, 2017, through October 5, 2017, FARKAS and his co-defendants solicited investors to purchase unregistered securities, in the form of digital tokens issued by Centra Tech (“Centra tokens” or “CTR tokens”), through a so-called “initial coin offering” or “ICO.”  As part of this effort, FARKAS and his co-defendants represented, in oral and written offering materials that were disseminated via the internet: (a) that Centra Tech had an experienced executive team with impressive credentials, including a purported CEO named “Michael Edwards” with more than 20 years of banking industry experience and a master’s degree in business administration from Harvard University; (b) that Centra Tech had formed partnerships with Bancorp, Visa, and Mastercard to issue Centra Cards licensed by Visa or Mastercard; and (c) that Centra Tech had money transmitter and other licenses in 38 states, among other claims.  Based in part on these claims, victims provided millions of dollars’ worth of digital funds in investments for the purchase of Centra Tech tokens.  In or about October 2017, at the end of Centra Tech’s ICO, those digital funds raised from victims were worth more than $25 million.  At certain times in 2018, as the defendants’ fraud scheme was ongoing, those funds were worth more than $60 million.

The claims that FARKAS and his co-conspirators made to help secure these investments, however, were false.  In fact, the purported CEO “Michael Edwards” and another supposed member of Centra Tech’s executive team were fictional people who were fabricated to dupe investors, Centra Tech had no such partnerships with Bancorp, Visa, or Mastercard, and Centra Tech did not have such licenses in a number of those states.

In 2018, this Office and the Federal Bureau of Investigation (“FBI”) seized, pursuant to judicially authorized seizure warrants, 100,000 Ether units, consisting of digital funds raised from victims who purchased digital tokens issued by Centra Tech during its ICO based on fraudulent misrepresentations and omissions.  The United States Marshals Service sold the seized Ether units for approximately $33.4 million earlier this year.  Following entry of a final order of forfeiture, these funds and other forfeited fraud proceeds will be available for potential use in a remission program that the Department of Justice intends to create to compensate victims of the Centra Tech fraud.

*                *                *

FARKAS, 34, of Bay Harbor Islands, Florida, was also sentenced to three years of supervised release.  He was further ordered to forfeit $347,062.58 and a Rolex watch purchased with fraud proceeds.  

Mr. Graff praised the investigative work of the FBI and thanked the U.S. Securities and Exchange Commission for its assistance.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant United States Attorneys Samson Enzer, Negar Tekeei, and Daniel Loss are in charge of the prosecution.

Audrey Strauss, the Acting 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 Dermot Shea, Commissioner of the New York City Police Department (“NYPD”), announced the unsealing of a nine-count indictment charging Canadian fashion executive PETER J. NYGARD, 79, with racketeering, sex trafficking, and related crimes arising out of a decades-long pattern of criminal conduct involving at least dozens of victims in the United States, the Bahamas, and Canada, among other locations. 

NYGARD was taken into custody on December 14, 2020, in Winnipeg, Manitoba, Canada by Canadian authorities after the United States requested Canada issue a Provisional Arrest Warrant pursuant to the extradition treaty between the two countries. 

The case has been assigned to United States District Judge Paul G. Gardephe.

If you believe you are a victim of the sexual abuse perpetrated by Peter Nygard, please contact the FBI at 1-800-CALL FBI, and reference this case.

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

From at least in or about 1995, up to and including in or about 2020, PETER J. NYGARD was the leader and founder of an international clothing design, manufacturing, and supply business headquartered in Winnipeg, Canada, with major offices and warehouses in the United States, including New York City and California.  NYGARD operated a constellation of corporate entities organized in various countries (the “Nygard Group”).  Over this 25-year period, NYGARD used the Nygard Group’s influence, as well as its employees, funds, and other resources, to recruit and maintain adult and minor-aged female victims for NYGARD’s sexual gratification and the sexual gratification of his friends and business associates.  NYGARD and his co-conspirators, including Nygard Group employees, used force, fraud, and coercion to cause women and minors to have sex with NYGARD and others.

NYGARD frequently targeted women and minor-aged girls who came from disadvantaged economic backgrounds and/or who had a history of abuse.  He controlled his victims through threats, false promises of modeling opportunities and other career advancement, financial support, and by other coercive means, including constant surveillance, restrictions of movement, and physical isolation.  NYGARD forcibly sexually assaulted some of his victims.   Other victims were forcibly assaulted by NYGARD’s associates or drugged to ensure their compliance with his sexual demands. 

NYGARD maintained personal and quasi-professional relationships with certain of his victims, whom he referred to as “girlfriends” or “assistants.” NYGARD required these “girlfriends” to travel and to stay with him regularly; to engage in sexual activity at his direction (including with NYGARD, with each other, and with others); and to recruit new women and minor-aged girls for NYGARD to have sex with.  NYGARD controlled these “girlfriends” through a variety of means, including force, fraud, and coercion.  At times, NYGARD and his associates provided illegal drugs and alcohol to “girlfriends” before sexual activity and threatened or berated “girlfriends” if they did not agree to participate.  NYGARD sometimes forcibly assaulted “girlfriends” who did not comply with NYGARD’s sexual demands – or caused others to do so.  NYGARD dictated the daily activities of “girlfriends” and the details of their appearance.  “Girlfriends” were also under constant surveillance by NYGARD and his associates and were not permitted to leave premises without NYGARD’s express permission.

NYGARD used various tools to recruit women and minors for sex, including:

• Events hosted at NYGARD’s properties in Marina del Rey, California and in the Bahamas, including so-called “Pamper Parties,” named for the free food, drink, and spa services that NYGARD made available.  NYGARD frequently used a “girlfriend” or another employee to approach a chosen woman or girl to indicate his interest in sex.  NYGARD engaged in sexual activity with the victim on the premises and paid her cash.  Some unwilling participants, including minors, were drugged to force their compliance with his sexual demands.  Other victims had no advance warning of NYGARD’s interest in sexual activity before being lured to a secluded area of the property where NYGARD used physical force and/or psychological pressure to coerce sex.
• Sex and “swingers” clubs, where NYGARD directed and pressured “girlfriends” through manipulation, intimidation, degradation, threats and, on occasion, force, to engage in sex with other men in order to facilitate NYGARD having sex with other women and for his own sexual gratification. 
• Sexual “swaps” with male friends and business associates, who would bring NYGARD a “date” for sex in exchange for sexual access to one of NYGARD’s “girlfriends.” NYGARD did not inform “girlfriends” in advance that he would trade them for sex and often used manipulation, intimidation, degradation, and threats to ensure compliance.

NYGARD paid his victims for commercial sex using Nygard Group funds, including by putting “girlfriends” on the payroll of Nygard Group entities as “models,” “assistants,” or in other positions.  NYGARD also used the façade of legitimacy his fashion business created – as well as the Nygard Group’s business operations, reputation, and resources – to facilitate and conceal his crimes in other ways.  Among other things, NYGARD used the promise of modeling and other fashion industry jobs to lure victims, Nygard Group money to fund “Pamper Parties,” and Nygard Group employees to recruit potential victims to attend those parties, including screening attendees for their physical appearance to confirm that NYGARD would find them attractive, and maintaining a register of Pamper Party attendees’ personal information, documenting their names, contact information, weight, and physical measurements.  NYGARD also used Nygard Group employees and funds to intimidate, threaten, and corruptly persuade individuals who alleged that he was engaged in sexual assault and sex trafficking, including by paying witnesses for false statements and affidavits, threatening witnesses with arrest, prosecution, and reputational harm, and attempting to cause reputational harm and discredit potential witnesses by disseminating false or embarrassing information.

*                      *                     *

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

The case is being handled by the Office’s Violent and Organized Crime Unit.  Assistant United States Attorneys Jacqueline C. Kelly, Allison Nichols, and Celia V. Cohen are in charge of the prosecution.

[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 Acting United States Attorney for the Southern District of New York, Dermot Shea, Commissioner of the New York City Police Department (“NYPD”), Peter C. Fitzhugh, the Special Agent-in-Charge of the New York Field Office of Homeland Security Investigations (“HSI”), and Margaret Garnett, Commissioner of the New York City Department of Investigation (“DOI”), announced the unsealing today of an Indictment charging NICHOLAS JOSEPH, a/k/a “Gotti,” a/k/a “Finesse,” with various racketeering and firearms offenses relating to the Castle Hill Crew, which operates principally in the Castle Hill Houses in the Soundview neighborhood of the Bronx.  The charges include assault with a deadly weapon and attempted murder in aid of racketeering for the April 28, 2017, shooting in the Story Playground in Soundview, during which a 12-year-old child was struck by gunfire.

JOSEPH was taken into custody last night and will be presented before U.S. Magistrate Judge Sarah Netburn later today.  The case is assigned to U.S. District Judge P. Kevin Castel.

Acting U.S. Attorney Audrey Strauss said:  “As alleged in the indictment, the defendant carried out a shooting in a playground that injured a 12-year-old child.  Thanks to the extraordinary work of the NYPD, HSI, and DOI, the defendant now faces federal charges for his crimes.”

NYPD Commissioner Dermot Shea said:  “Targeting and dismantling gangs and crews, and preventing the violence so often associated with their illegal activities, continues to be among the highest priorities for the NYPD and our law enforcement partners.  By precisely targeting the relatively small percentage of people responsible for committing much of the violence in New York, we are making New Yorkers safer.  We remain relentless in our efforts to identify, arrest, and prosecute anyone who involves themselves in such behavior.  I thank our colleagues at the Southern District and Homeland Security for their unceasing professionalism and dedicated work in removing from our streets those who allegedly commit crime and disorder, especially when it’s in the form of gang violence.”

HSI Special Agent-in Charge Peter C. Fitzhugh said:  “As alleged, the Castle Hill gang was involved in drug dealing, firearms offenses, and conspiracy to murder.  Their ruthlessness and blatant disregard for human life is further evidenced as Joseph is alleged to have opened fire on a rival gang member at a playground, only to have a child caught in the crossfire.  We too will be relentless in our commitment to public safety and removing these violent gang members from our streets and playgrounds.  Every parent and child should feel safe to play in their neighborhoods without wondering where the next stray bullet will come from.”

DOI Commissioner Margaret Garnett said:  “This is a tragic example of how gang activity devastates our public housing neighborhoods and the families who live there, in this case, making a children’s playground perilous for a 12-year-old child.  We cannot and will not stand for that violence.  Working with our law enforcement partners we will make sure that those allegedly involved in this kind of brutality will be held accountable, and today’s arrest is part of that joint effort.”

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

JOSEPH is a member and associate of the Castle Hill Crew, a racketeering enterprise that operates principally in the Castle Hill Houses in the Soundview neighborhood of the Bronx.  In order to enrich the enterprise, preserve and protect the power of the enterprise, and enhance its criminal operations, Castle Hill Crew members and associates committed, conspired, attempted, and threatened to commit acts of violence, including murder; distributed and possessed with intent to distribute narcotics; engaged in fraud; and obtained, possessed, and used firearms.

On or about April 28, 2017, JOSEPH and others shot at a rival gang member in the vicinity of the Story Playground in the Bronx, New York, during which a 12-year-old child was injured.  

*                      *                     *

The defendant is charged with one count of racketeering conspiracy, which carries a maximum sentence of 20 years in prison; one count of attempted murder, assault with a deadly weapon, and attempted assault with a deadly weapon in aid of racketeering, which carries a maximum sentence of 20 years in prison; one count of using and carrying a firearm in furtherance of a crime of violence, which was brandished and discharged, which carries a maximum sentence of life and a mandatory minimum sentence of 10 years in prison; and one count of being a felon in possession of a firearm and ammunition, which carries a maximum sentence of 10 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 NYPD, HSI, and DOI.    

This case is being handled by the Office’s Violent and Organized Crime Unit.  Assistant United States Attorneys Andrew K. Chan and Justin V. Rodriguez 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.       

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

Audrey Strauss, the Acting United States Attorney for the Southern District of New York, announced that TYRONE WOOLASTON was sentenced today by U.S. District Judge Alison J. Nathan to 180 months in prison for his participation in a multi-year scheme to smuggle cocaine into the United States through Newark Liberty International Airport.  WOOLASTON was convicted in February 2019, after a two-week jury trial, of conspiring to distribute more than five kilograms of cocaine, and using a firearm in furtherance of cocaine trafficking. 

Acting U.S. Attorney Audrey Strauss said:  “Tyrone Woolaston used his position as a baggage handler at Newark Liberty Airport to smuggle cocaine into the United States.  When law enforcement conducted an undercover operation to investigate, Woolaston, carrying a semi-automatic pistol, delivered five kilos of what he believed to be cocaine.  Now Woolaston has been sentenced to 15 years in prison for his crimes.” 

According to court documents and the evidence at trial:

WOOLASTON was a lead baggage handler for a commercial airline at Newark Liberty International Airport (the “Airport”).  From in or about 2013 through February 2018, WOOLASTON conspired to smuggle shipments of cocaine into the United States. WOOLASTON abused his secure access to the restricted areas of the Airport to remove suitcases containing shipments of multiple kilograms of cocaine from international flights and smuggle them through the Airport for distribution in the New York City area.

In 2017 and 2018, agents from the New Jersey Office of the Department of Homeland Security, Homeland Security Investigations (“HSI”) conducted an undercover operation to investigate cocaine smuggling at the Airport.  As part of the investigation, a confidential source met with WOOLASTON to arrange a cocaine shipment, and WOOLASTON agreed to bring a suitcase containing five kilograms of cocaine through the Airport.  On February 10, 2018, HSI agents placed a suitcase containing approximately five kilograms of sham cocaine on an international flight from the Cayman Islands to the Airport.  WOOLASTON was working on the Airport ramp when the flight arrived at the Airport, and took possession of the suitcase and carried the sham cocaine shipment through the Airport, evading customs screening.  The following day, WOOLASTON carried a .40 caliber Glock pistol, equipped with a laser sight, to deliver the sham cocaine to the confidential source.

*                *                *

In addition to the prison term, WOOLASTON, 35, of Orange, New Jersey, was sentenced to five years of supervised release.  

Ms. Strauss praised the outstanding investigative work of HSI.

This case is being handled by the Office’s Narcotics Unit.  Assistant U.S. Attorneys Thane Rehn and Alison Moe are in charge of the prosecution.

Audrey Strauss, the Acting 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”), Dermot Shea, Commissioner of the New York City Police Department (“NYPD”), and Amaleka McCall-Brathwaite, Special Agent-in-Charge of the Eastern Region Office of the Inspector General of the U.S. Small Business Administration (“SBA-OIG”), announced the unsealing of an Indictment charging 16 defendants in counts including racketeering, gambling, extortion, fraud, money laundering, and obstruction of justice offenses.  Of the 16 defendants, ABDURAMAN ISENI, a/k/a “Diamond,” ERVIN MAKISHTI, a/k/a “Vinny,” SOKOL GJONI, MIRALEM LJULJANOVIC, and JETMIR SULAJ, are associated with a racketeering enterprise referred to in the Indictment as the “Diamond Enterprise,” a criminal group overseen by ISENI, and are charged in United States v. Iseni, et al. (the “Indictment”), which has been assigned to U.S. District Judge Andrew J. Carter.  

Eleven additional defendants are charged in the Indictment with various offenses, many relating to the operations of the overarching Diamond Enterprise, including extortion, operation of illegal gambling establishments, money laundering, bank fraud, fraud on the federal Paycheck Protection Program (“PPP”), and obstruction of justice. Specifically:

• ISENI, MAKISHTI, GJONI, LJULJANOVIC, SULAJ, ELDI MAKISHTI, ENRI DIMO, a/k/a “Eni,” DARREN DANZIERI, AMIR BECOVIC, and RAFAEL JACOBS are charged with conspiring to operate illegal gambling businesses, including live poker, electronic poker machines, and gambling on sporting events.
• ISENI, MAKISHTI, GJONI, LJULJANOVIC, ISLAM LAMCE, a/k/a “Bachi,” BRAJAN TOLA, GAZMEND LITA, and SMAIL DJOKIC, a/k/a “Ismail Gjoka” are charged with conspiring to transmit wagering information by wire communication facility to assist in the placing of bets and wagers on sporting events. 
• ISENI and BESIM KUKAJ are charged with conspiring to commit extortion and interstate threats, extortion, and interstate threats in connection with ISENI’s call to a victim threatening physical violence.
• KUKAJ is charged with bank fraud conspiracy, as part of a scheme to obtain Government-guaranteed loans from banks via the fraud on the Paycheck Protection Program, a law intended to assist small businesses during the COVID-19 pandemic. 
• ISENI is charged with money laundering funds that were represented to be the proceeds of a scheme to fraudulently obtain Paycheck Protection Program funds.
• MELSA SKRAPALLIU is charged with obstruction of justice for false statements made to a federal law enforcement officer in order to interfere with an investigation of ISENI.
• ISENI and SKRAPALLIU are charged with bank fraud conspiracy and making false statements to a bank. 

ISENI, ERVIN MAKISHTI, GJONI, LJULJANOVIC, SULAJ, ELDI MAKISHTI, DIMO, DANZIERI, JACOBS, TOLA, DJOKIC, KUKAJ, and SKRAPALLIU were taken into federal custody today and will be presented before U.S. Magistrate Judge Sarah Netburn of the Southern District of New York.  LITA, LAMCE, and BECOVIC remain at large.

Acting Manhattan U.S. Attorney Audrey Strauss said:  “Abduraman Iseni and his co-defendants allegedly operated a network of underground gambling establishments, and laundered the proceeds of that activity, to prop up a criminal enterprise under Iseni’s control.  Going well beyond that racketeering activity, Iseni and others allegedly engaged in a variety of crimes, including extortion through violent threats, obstruction of justice, fraud on legitimate financial institutions, and fraud on the critical Paycheck Protection Program.  They now face the possibility of serious time in prison for their alleged crimes.”

FBI Assistant Director William F. Sweeney Jr. said: “The organization we’ve disrupted with our enforcement action today is a textbook example of an organized-crime group.  As we allege, the crimes these men committed ran the gamut from running illegal gambling operations to making extortionate threats to defrauding the government of PPP benefits intended for honest Americans suffering economic harm during the pandemic.  While these men did all they could to avoid making an honest living, the outstanding work done by the FBI’s New York Balkan Organized Crime team ensures they won’t be able to avoid facing justice.”

SBA-OIG Special Agent-in-Charge Amaleka McCall-Brathwaite said: “The Paycheck Protection Program was developed to aide small businesses during these challenging times. Our Office will relentlessly pursue organized criminal enterprises that seek to exploit SBA’s vital economic programs. I want to thank the U.S. Attorney’s Office and our law enforcement partners for their dedication and pursuit of justice.”

NYPD Commissioner Dermot Shea said: “The web of alleged crimes unveiled by this federal indictment victimized everyday New Yorkers, undercut a federal aid program and eroded the fabric of life in the city. I commend our NYPD detective and federal partners for their sustained work in this important case.”

According to the allegations in the Indictment[1] unsealed today in Manhattan federal court and statements made during Court proceedings:

As alleged, the Diamond Enterprise was an organized criminal group operating under the direction of ISENI, who had substantial influence in the criminal underworld.  The Diamond Enterprise operated through groups of individuals, often with overlapping members or associates, dedicated to particular criminal tasks, particularly operation of illegal gambling parlors, sports gambling by wire, and money laundering, among others.  For their roles in leading and managing the Diamond Enterprise’s criminal activities, ABDURAMAN ISENI, a/k/a “Diamond,” ERVIN MAKISHTI, a/k/a “Vinny,” SOKOL GJONI, MIRALEM LJULJANOVIC, and JETMIR SULAJ are charged in Count One of the Indictment with racketeering conspiracy.  The Diamond Enterprise thrived in part on the revenues generated by a network of illegal gambling parlors – “Sports Café,” “Friendly Café,” and “Oasis Café” – located throughout Brooklyn, that hosted underground poker games and hosted illegal sports books. Some of these revenues, in turn, were laundered through a series of bank accounts in an effort to conceal and facilitate the Enterprise’s continued operations.

            In addition to the Enterprise’s operations, ISENI allegedly engaged in a series of additional crimes ranging from extortion through threats of violence, to money laundering, to fraud on the PPP.  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.  As alleged, defendant KUKAJ engaged in a fraud to obtain PPP loan funds, which ISENI then attempted to launder through bank accounts designed to conceal the source and ownership of those fraudulently obtained funds.       

*                      *                      *

A chart containing the names, charges, and maximum penalties for each of the defendants is set forth below.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of a defendant would be determined by the judge.

Ms. Strauss praised the outstanding work of FBI New York’s Balkans and Middle East Organized Crime Squad, as well as the FBI’s Newark Office, the New York City Police Department, the Department of State Diplomatic Security Service, the Small Business Administration Office of the Inspector General, the Social Security Administration Office of the Inspector General, the New York State Liquor Authority, and United States Customs and Border Protection for their investigative efforts and ongoing support and assistance with the case.  

The prosecution of this case is being overseen by the Office’s Money Laundering and Transnational Criminal Enterprises Unit.  Assistant U.S. Attorneys Samuel L. Raymond and David R. Felton are in charge of the case.

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

Count

Defendants

Max. Penalty

Count One: Racketeering Conspiracy (18 U.S.C. § 1962(d))

Abduraman Iseni,

   a/k/a “Diamond,”

Ervin Makishti,

   a/k/a “Vinny,”

Sokol Gjoni,

Miralem Ljuljanovic,

Jetmir Sulaj,

20 years’ imprisonment

Count Two: Conspiracy to Operate Illegal Gambling Businesses (18 U.S.C. §§ 371 and 1955)

Abduraman Iseni,

   a/k/a “Diamond,”

Ervin Makishti,

   a/k/a “Vinny,”

Sokol Gjoni,

Miralem Ljuljanovic,

Jetmir Sulaj,

Eldi Makishti,

ENRI DIMO,

   a/k/a “Eni,”

Darren Danzieri,

AMIR BECOVIC,

RAFAEL JACOBS

5 years’ imprisonment

Count Three: Conspiracy to Transmit Wagering Information (18 U.S.C. §§ 371 and 1084)

Abduraman Iseni,

   a/k/a “Diamond,”

Ervin Makishti,

   a/k/a “Vinny,”

Sokol Gjoni,

Miralem Ljuljanovic,

Islam Lamce,

   a/k/a “Bachi,”

BRAJAN TOLA,

Gazmend Lita,

SMAIL DJOKIC,

   a/k/a “Ismail Gjoka,”

5 years’ imprisonment

Count Four: Conspiracy to Commit Extortion and Interstate Threats (18 U.S.C. §§ 371 and 875)

Abduraman Iseni,

   a/k/a “Diamond,”

BESIM KUKAJ

5 years’ imprisonment

Count Five: Extortion (18 U.S.C. § 875(b))

Abduraman Iseni,

   a/k/a “Diamond,”

BESIM KUKAJ

20 years’ imprisonment

Count Six: Interstate Threats (18 U.S.C. § 875(c))

Abduraman Iseni,

   a/k/a “Diamond,”

BESIM KUKAJ

5 years’ imprisonment

Count Seven: Bank Fraud Conspiracy (18 U.S.C. § 1349)

Besim Kukaj

30 years’ imprisonment

Count Eight: Money Laundering (18 U.S.C. § 1956)

Abduraman Iseni,

   a/k/a “Diamond,”

20 years’ imprisonment

Count Nine: Obstruction of Justice (18 U.S.C. § 1512(c))

MELSA SKRAPALLIU

20 years’ imprisonment

Count Ten: Bank Fraud Conspiracy (18 U.S.C. § 1349)

Abduraman Iseni,

   a/k/a “Diamond,”

MELSA SKRAPALLIU

30 years’ imprisonment

Count Eleven: False Statements to a Bank (18 U.S.C. § 1014)

Abduraman Iseni,

   a/k/a “Diamond,”

MELSA SKRAPALLIU

30 years’ imprisonment

[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.

The Department of Justice announced today that the Madoff Victim Fund (MVF) began its sixth distribution of approximately $488 million in funds forfeited to the U.S. Government in connection with the Bernard L. Madoff Investment Securities LLC (BLMIS) fraud scheme, bringing the total distributed to almost $3.2 billion to nearly 37,000 victims worldwide. 

In this distribution, payments will be sent to over 30,000 victims across the globe, bringing their total recovery to 80.05 percent.  This distribution represents the sixth in a series of payments that will eventually return over $4 billion to victims as compensation for losses they suffered from the collapse of the BLMIS.  The MVF has received over 65,000 petitions from victims in 136 countries.

“With the $488 million distributed today, the department has now returned almost $3.2 billion to Madoff’s victims, allowing them to recover more than 80 percent of what they lost,” said Acting Assistant Attorney General Brian C. Rabbitt of the Justice Department’s Criminal Division.  “This exceptional work – and there is more to come – has been made possible by the department’s steadfast commitment to the pursuit of the proceeds of fraud through civil forfeiture.”  

“This office continues its efforts to seek justice for victims of history’s largest Ponzi scheme,” said Acting U.S. Attorney Audrey Strauss of the Southern District of New York.  “Today’s additional payments of more than $488 million by this office and the U.S. Department of Justice Criminal Division’s Money Laundering and Asset Recovery Section represent the sixth in a series of distributions that will leave victims with compensation for more than 80 percent of their losses.  That is an extraordinary level of recovery for a Ponzi scheme – but our work is not yet finished, and the office’s tireless commitment to compensating the victims who suffered as a result of Madoff’s heinous crimes continues.”

For decades, Bernard L. Madoff used his position as chairman of BLMIS, the investment advisory business he founded in 1960, to steal billions from his clients.  On March 12, 2009, Madoff pleaded guilty to 11 federal felonies, admitting that he had turned his wealth management business into the world’s largest Ponzi scheme, benefitting himself, his family and select members of his inner circle. 

On June 29, 2009, U.S. District Judge Denny Chin sentenced Madoff to serve 150 years in prison for running the largest fraudulent scheme in history.  Of the approximately $4.05 billion that will be made available to victims, approximately $2.2 billion was collected as part of the historic civil forfeiture recovery from the estate of deceased Madoff investor Jeffry Picower.  An additional $1.7 billion was collected as part of a deferred prosecution agreement with JPMorgan Chase Bank N.A. and civilly forfeited in a parallel action.  The remaining funds were collected through a civil forfeiture action against investor Carl Shapiro and his family, and from civil and criminal forfeiture actions against Bernard L. Madoff, Peter B. Madoff and their co-conspirators.

The MVF’s payouts would not have been possible without the extraordinary efforts of the Criminal Division’s Money Laundering and Asset Recovery Section, the U.S. Attorney’s Office for the Southern District of New York, and the FBI in the prosecution of these crimes and the recovery of assets supporting the forfeiture in this case. 

The MVF is overseen by Richard Breeden, former Chairman of the U.S. Securities and Exchange Commission, in his capacity as Special Master appointed by the Department of Justice to assist in connection with the victim remission proceedings.  The Department of Justice also acknowledges the sacrifice of numerous individuals during this period of quarantine due to COVID-19 to ensure that this distribution occurred and remained on schedule.  

More information about MVF and its compensation to victims of BLMIS is available on the MVF website at www.madoffvictimfund.com, such as eligibility criteria, process updates, and frequently asked questions.  Further questions may be directed to the MVF at 866-624-3670 or info@madoffvictimfund.com.

The year 2020 marks the 150th anniversary of the Department of Justice.  Learn more about the history of our agency at www.Justice.gov/Celebrating150Years.

Audrey Strauss, the Acting United States Attorney for the Southern District of New York, Attorney General Bill Barr, Assistant Attorney General Brian C. Rabbitt of the Justice Department’s Criminal Division, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Division of the Federal Bureau of Investigation (“FBI”), announced today that the Madoff Victim Fund established by the Department of Justice began its sixth distribution to victims of funds forfeited to the United States Government in connection with the Bernard L. Madoff Investment Securities LLC (“BLMIS”) fraud scheme.  The distribution will include approximately $488 million in additional funds, bringing the total distributed to date to almost $3.2 billion.  The funds will be sent to nearly 37,000 victims worldwide, the sixth payment to victims that will bring their total recovery from all sources of compensation to 80.05% of their losses.  The Madoff Victim Fund will ultimately return to victims more than $4 billion in assets that have been recovered as compensation for losses suffered by the collapse of BLMIS, following the largest fraud in history.  Another $5 billion in assets recovered by the U.S. Attorney’s Office are being separately paid to Madoff victims through the BLMIS Customer Fund administered by the Securities Investor Protection Act Trustee.

Acting Manhattan U.S. Attorney Audrey Strauss said:  “This Office continues its efforts to seek justice for victims of history’s largest Ponzi scheme.  Today’s additional payments of more than $488 million by this Office and the U.S. Department of Justice Criminal Division’s Money Laundering and Asset Recovery Section represent the sixth in a series of distributions that will leave victims with compensation for more than 80 percent of their losses.  That is an extraordinary level of recovery for a Ponzi scheme—but our work is not yet finished, and the Office’s tireless commitment to compensating the victims who suffered as a result of Madoff’s heinous crimes continues.”

Assistant Attorney General Brian C. Rabbitt said:  “With the $488 million distributed today, the department has now returned almost $3.2 billion to Madoff’s victims, allowing them to recover more than 80 percent of what they lost.  This exceptional work – and there is more to come – has been made possible by the department’s steadfast commitment to the pursuit of the proceeds of fraud through civil forfeiture.”  

Since the early 1970s, BERNARD L. MADOFF (“MADOFF”) used his position as Chairman of BLMIS, the investment advisory business he founded, to steal billions from his clients. On March 12, 2009, MADOFF pled guilty to 11 federal felonies, admitting that he had turned his wealth management business into the world’s largest Ponzi scheme, benefitting himself, his family, and select members of his inner circle. On June 29, 2009, United States District Judge Denny Chin sentenced MADOFF to 150 years in prison for running the largest fraudulent scheme in history. Judge Chin ordered MADOFF to forfeit $170,799,000,000 as part of MADOFF’s sentence.   

The Madoff Victim Fund is funded through recoveries by the U.S. Attorney’s Office in various criminal and civil forfeiture actions, and is overseen by Richard Breeden, the former Chairman of the United States Securities and Exchange Commission, in his capacity as Special Master appointed by the Department of Justice to assist in connection with the victim remission proceedings.

Of the approximately $4.05 billion that will be made available to victims through the Madoff Victim Fund, approximately $2.2 billion was collected as part of the civil forfeiture recovery from the estate of deceased MADOFF investor Jeffry Picower. An additional $1.7 billion was collected as part of a Deferred Prosecution Agreement with JPMorgan Chase Bank N.A. for MADOFF-related Bank Secrecy Act violations. Additional funds were collected through criminal and civil forfeiture actions against MADOFF and his co-conspirators, and certain MADOFF investors.

Ms. Strauss praised the work of the FBI and the Madoff Victim Fund, and thanked the Money Laundering and Asset Recovery Section of the Department of Justice’s Criminal Division for their assistance.

For more information about the Madoff Victim Fund, compensation to victims of BLMIS, eligibility criteria, and payment information, please visit www.madoffvictimfund.com.

The case is being handled by the Office’s Money Laundering and Transnational Criminal Enterprises Unit.  Assistant United States Attorney Louis A. Pellegrino is in charge of the case.  The remission of these forfeited funds is being handled by the Office and the U.S. Department of Justice Criminal Division’s Money Laundering and Asset Recovery Section.

Audrey Strauss, the Acting United States Attorney for the Southern District of New York, Amaleka McCall-Brathwaite, Eastern Region Special Agent-in-Charge of the Office of the Inspector General of the U.S. Small Business Administration (“SBA-OIG”), William F. Sweeney Jr., Assistant Director-in-Charge of the New York 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 arrests of NGOC MANH NGUYEN, a/k/a “Peter Nguyen,” VICTORIA DIEUY HO, a/k/a “Vicky Ho,” and DAT TAT HO for a fraudulent scheme to obtain over $13 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 COVID-19 relief available from the Paycheck Protection Program (“PPP”) of the SBA, the defendants falsely and grossly overstated the number of employees and payroll at their nail salons and other businesses through fraudulent and doctored payroll and tax records in order to obtain larger loans.  The defendants were arrested this morning.  VICTORIA HO will be presented tomorrow in Manhattan federal court before U.S. Magistrate Judge Sarah Netburn.  NGUYEN and DAT HO will be presented in United States District Court for the Eastern District of New York in connection with these and other unrelated charges.    

Acting U.S. Attorney Audrey Strauss said:  “As alleged, these defendants conspired to rip off the SBA’s COVID-relief small business loan program and financial institutions by lying about how many people they employed in their family business and how much they paid those employees.  They allegedly exploited a program designed to provide vital funding for small businesses that are legitimately struggling in the midst of the pandemic.  Thanks to the combined efforts of the SBA, the FBI, and IRS-CI, the defendants face prosecution.”

SBA-OIG Special Agent-in-Charge Amaleka McCall-Brathwaite said:  “Falsifying documents to fraudulently gain access to SBA program funds is unconscionable.  OIG and its law enforcement partners will relentlessly pursue fraudsters and bring them to justice. I want to thank the U.S. Attorney’s Office and our law enforcement partners for their dedication and commitment to seeing justice served.”  

FBI Assistant Director William F. Sweeney Jr said:  “The benefits offered by the CARES Act for PPP loans were established to help small businesses survive during the pandemic. Unfortunately, the owners of Victoria Nails & Spa saw this program as their own personal piggy bank. Allegedly misrepresenting the number of employees on their payroll to obtain the funding, they deposited this money into accounts controlled solely by them. When the bank froze the funds, they froze as well, conducting Internet searches for topics related to PPP fraud. Today’s Internet search for ‘PPP Loan Fraud Arrests’ will certainly produce an unwanted result – one that includes the name of their company leading the headlines.”

IRS-CI Special Agent in Charge Jonathan D. Larsen said:  “In this difficult time when many Americans are struggling financially, it is repugnant that there are those who would fraudulently take advantage of relief efforts offered.  IRS-Criminal Investigation remains dedicated to working with our law enforcement partners to ensure that these types of fraud are investigated and the offenders are punished to the fullest extent of the law.”   

According to the allegations contained in the Complaint[1] unsealed today 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. 

NGUYEN, VICTORIA HO, and DAT HO are members of a family that owns a chain of over 15 nail salons called “Victoria Nails & Spa” and other companies (the “Victoria Companies”) in or around the New York metropolitan area, including the Bronx, Brooklyn, and Long Island.  From at least in or about April 2020 through at least in or about June 2020, NGUYEN, VICTORIA HO, and DAT HO engaged in a scheme to submit online applications to at least two financial institutions for a total of over $13 million in government-guaranteed loans for the Victoria Companies through the SBA’s PPP.  In connection with these loan applications, the defendants falsely and grossly overstated the number of employees at the Victoria Companies and wages paid to those employees in order to obtain larger loans.  In order to support the false representations in the loan applications about the number of employees at, and the wages paid by, the Victoria Companies, the defendants submitted fraudulent and doctored payroll and tax records.  In addition, the defendants falsely listed the same employees in applications for different nail salons to support the loan amounts applied for, and some purported employees were listed as employees of as many as seven different nail salons during the same time period.

Based on the fraudulent PPP loan applications submitted by NGUYEN, VICTORIA HO, and DAT HO, a total of more than $13 million in PPP loans were approved for the Victoria Companies and approximately $7.8 million in loan proceeds were disbursed into bank accounts controlled by NGUYEN, DAT HO, and other family members.  After the defendants learned that a hold was placed on bank accounts of the Victoria Companies that received PPP loans issued by one financial institution due to suspicion of fraudulent activity, one of the defendants conducted Internet searches for “PPP Fraud,” “PPP Loan Fraud Arrests,” and “How to get rid of a PPP Loan.”  The defendants thereafter withdrew the applications for and/or repaid the PPP loans for the Victoria Companies issued by that financial institution. 

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NGUYEN, 44, and VICTORIA HO, 31, both of Hicksville, New York, and DAT HO, 33, of the Bronx, New York, are each charged with one count of conspiracy to commit bank and wire fraud, which carries a maximum sentence of 30 years in prison; one count of major fraud against the United States, which carries a maximum sentence of 10 years in prison; and one count of conspiracy to make false statements, which carries a maximum sentence of five years in prison.  The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

Ms. Strauss praised the investigative work of the SBA-OIG, FBI, and IRS-CI, and noted that the investigation remains ongoing.  Ms. Strauss also thanked Homeland Security Investigations and the U.S. Attorney’s Office for the Eastern District of New York 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 Attorneys Michael C. McGinnis and Sagar K. Ravi are in charge of the prosecution.

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

[1] As the introductory phrase signifies, the entirety 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 Acting United States Attorney for the Southern District of New York, announced the plea by DANIEL DANIEL of Miami, Florida, to the charge of conspiring to commit money laundering by concealing the proceeds of criminal activity.  As described below, DANIEL conspired with Razhden Shulaya to launder the proceeds of the illicit activities of the Shulaya Enterprise, a prolific criminal organization dismantled in June 2017 upon the arrests of Shulaya and over twenty-five other members and associates of the Shulaya Enterprise.  DANIEL faces a maximum term of twenty years in prison.  DANIEL pled guilty before United States District Judge Loretta A. Preska.

Manhattan Acting U.S. Attorney Audrey Strauss said: “Money launderers like Daniel sit at the nexus of the legitimate world of finance and an international network of criminal activity. They embolden, enrich, and facilitate pernicious criminal actors, and seek to place well-heeled criminals like Razhden Shulaya beyond accountability. Today’s plea is another example of this Office’s dedication to uprooting and prosecuting these criminal facilitators.” 

According to the Complaint and Indictment filed in the case, as well as statements made during the plea proceedings and earlier court appearances:

The Shulaya Enterprise was an organized criminal group controlled by Razhden Shulaya, a “vor v zakone,” which is a Russian phrase translated roughly as “Thief-in-Law,” and which refers to high-level criminal figures from the former Soviet Union who receive tribute from other criminals and laypersons within the vor’s protection, license criminal activity by others, and resolve disputes between members of the criminal community.  Shulaya and the Shulaya Enterprise engaged in widespread criminal activities, including the transportation and sale of stolen property, wire and bank fraud, illegal gambling operations, extortion of debtors to its gambling operation, and the use of false identification documents and counterfeit credit cards in order to illegally purchase merchandise.  Shulaya operated the Shulaya Enterprise in and around the New York City area, including in Manhattan and Brooklyn, as well as in other parts of the country, including Las Vegas, Los Angeles, and Southern Florida. 

DANIEL facilitated the activities of the Shulaya Enterprise by conspiring with Shulaya and others to launder proceeds of the illicit activities of the Enterprise.  DANIEL assisted Shulaya in establishing a purported vodka import-export business referred to as “Tropport” and related Tropport bank accounts that DANIEL knew were being used as fronts for laundering the criminal proceeds of the Shulaya Enterprise.  As Shulaya’s money laundering consultant, DANIEL explained that Tropport would provide “a cover for where [Shulaya obtained his] money”; advised Shulaya on the details of fabricating documents to reflect nonexistent corporate debt in order to falsely lower Tropport’s tax liability; and described how this sham company and false documentation would allow the vor to plausibly deny any potential money laundering allegations. 

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Ms. Strauss praised the outstanding work of the FBI, including the New York Eurasian Organized Crime Task Force and the Atlantic City, Los Angeles, Las Vegas, and Miami offices, U.S. Customs and Border Protection, and the NYPD for their investigative efforts and ongoing support and assistance with the case.

DANIEL is scheduled to be sentenced by Judge Preska on March 30, 2021.

The prosecution of this case is being overseen by the Office’s Money Laundering and Transnational Criminal Enterprises Unit.  Assistant U.S. Attorney Jessica Greenwood is in charge of the case.