Southern District of New York

Preet Bharara, the United States Attorney for the Southern District of New York, announced that MARTIN MITCHELL, a/k/a “Tyliek,” pled guilty today to involvement in a racketeering conspiracy in connection with his membership in the “Big Money Bosses” (“BMB”), a violent street gang that operated primarily on White Plains Road from 215th Street to 233rd Street in the Bronx.  As part of his guilty plea, MITCHELL admitted that he committed the murder of Keshon Potterfield, on or about June 22, 2014, in the vicinity of East 232nd Street in the Bronx.  MITCHELL’s guilty plea was presided over by Magistrate Judge Barbara Moses.

U.S. Attorney Preet Bharara said: “Martin Mitchell, as a member of the violent Bronx street gang Big Money Bosses, admitted to shooting and killing a 17-year-old boy at a birthday party.  This type of senseless gang violence threatens the safety and security of all New Yorkers, and we will continue to work with our law enforcement partners to confront it aggressively.”

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

BMB is a subset of the “Young Bosses,” or “YBz” street gang, which operates throughout New York City.  Between 2007 and 2016, members and associates of BMB committed numerous acts of violence against rival gang members in the Bronx – including murders, attempted murders, and armed robberies – and sold crack cocaine and marijuana.  

MITCHELL was a member of BMB.  On June 22, 2014, MITCHELL and other members of BMB attended a birthday party in the backyard of a residence in the vicinity of 232nd Street in the Bronx.  Potterfield was one of the guests at the party and was shot by MITCHELL in connection with BMB’s rivalry with another street gang.  Potterfield was 17 years old. 

MITCHELL was arrested in this case as a result of a multi-year investigation by the New York City Police Department’s Bronx Gang Squad (the “Bronx Gang Squad”), U.S. Immigration and Customs Enforcement’s Homeland Security Investigations Violent Gang Unit (“HSI”), the New York Field Division of the Drug Enforcement Administration (“DEA”), and the Joint Firearms Task Force of the Bureau of Alcohol, Tobacco, Firearms, and Explosives (“ATF”) into gang violence in the Northern Bronx.  The Indictment, which was unsealed on April 27, 2016, charged 63 members and associates of BMB with racketeering conspiracy, narcotics conspiracy, narcotics distribution, and firearms charges.  To date, 30 of these defendants have pled guilty.

*                      *                     *

MITCHELL, 22, of the Bronx, New York, was arrested on April 27, 2016, in the Bronx, New York, and has been in federal custody since.  MITCHELL pled guilty today to one count of racketeering conspiracy, which carries a maximum sentence of life in prison.  The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as the defendant’s sentence will be determined by the judge.  MITCHELL is scheduled to be sentenced by United States District Judge Alison J. Nathan on April 6, 2017, at 3:30 p.m.

Mr. Bharara praised the outstanding work of the NYPD’s Bronx Homicide Task Force, the NYPD’s 47th Precinct Detective Squad, the NYPD’s Bronx Gang Squad, HSI, DEA, and ATF.  

This case is being handled by the Office’s Violent and Organized Crime Unit.  Assistant United States Attorneys Rachel Maimin, Micah W.J. Smith, Hagan Scotten, Jessica Feinstein, and Drew Johnson-Skinner are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, James J. Hunt, Special Agent in Charge of the U.S. Drug Enforcement Administration’s New York Division (“DEA”), George P. Beach II, Superintendent of the New York State Police (“NYSP”), and James P. O’Neill, Commissioner of the New York City Police Department (“NYPD”), announced the arrest of EDWIN CABRAL MORA, a/k/a “Sosa.” CABRAL MORA was arrested yesterday in Gwinnett County, Georgia, and was presented today before a U.S. Magistrate Judge in the Northern District of Georgia and detained on consent.

CABRAL MORA is charged in four counts with conspiring to possess and distribute one kilogram and more of heroin, kidnapping, conspiracy to commit kidnapping, and brandishing a firearm in connection with these offenses.  In relation to the kidnapping counts, CABRAL MORA is charged with luring an individual (“Victim-1”) from New York to Georgia, where Victim-1 was transported by car to an apartment in which CABRAL MORA and others blindfolded, bound, beat, and tortured Victim-1 by burning Victim-1’s skin.

Manhattan U.S. Attorney Preet Bharara said:  “As alleged, Edwin Cabral Mora not only trafficked in large quantities of heroin, but turned to violence, including participating in a vicious kidnapping.  In April of this year, Mora allegedly lured a victim from the Bronx to Georgia, ultimately blindfolding, beating, and torturing the victim.  Thanks to the remarkable efforts of the DEA, this allegedly dangerous man is now off the streets and will face criminal charges in New York federal court.” 

DEA Special Agent in Charge James J. Hunt said:   “DEA’s REDRUM Group specializes in tracking down drug traffickers that cross the line into kidnapping, torture and at times, murder.  This investigation took the team on the road to Atlanta to arrest Edwin Cabral Mora for his alleged crimes.”

State Police Superintendent George P. Beach II said:  “Thanks to the hard work and partnership of law enforcement at the federal, state and local level, we are taking out a violent drug operation. This arrest should send the message that we will continue to aggressively pursue criminals who profit from illegal drugs at the expense of the safety and security of our neighborhoods.”

NYPD Commissioner James P. O’Neill said:  “The defendant in this case is an alleged drug trafficker who blindfolded, burned, beat and finally tortured a kidnapping victim in a particularly heinous crime.  I am thankful to the NYPD detectives, DEA agents, and others whose work resulted in these charges in the Southern District.”     

As alleged in the Indictment[1]:

Heroin Trafficking

CABRAL MORA conspired with others to distribute substantial quantities of heroin from at least January 2016 through May 2016, in the Southern District of New York and elsewhere. 

Kidnapping and Kidnapping Conspiracy

CABRAL MORA conspired with others to kidnap Victim-1, and did kidnap Victim-1 in April 2016.  CABRAL MORA called Victim-1 by phone, when Victim-1 was in the Bronx, New York, to lure Victim-1 to Georgia.  Once in Georgia, Victim-1 was transported by car to an apartment in which CABRAL MORA and others blindfolded, bound, beat, and tortured Victim-1 by burning Victim-1’s skin.

Firearms Possession

CABRAL MORA used, possessed, carried, and brandished firearms in relation to his heroin trafficking and kidnapping offenses. 

*                      *                     *

CABRAL MORA, 38, of Gwinnett County, Georgia, is charged with conspiring to possess and distribute one kilogram and more of heroin, which carries a maximum sentence of life in prison, kidnapping, which carries a maximum sentence of life in prison, conspiracy to commit kidnapping, which carries a maximum sentence of life in prison, and brandishing a firearm in connection with the foregoing offenses, which carries a maximum sentence of life in prison.

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

Mr. Bharara praised the outstanding investigative work of the DEA, and also thanked the Georgia State Police, the Georgia Bureau of Investigation, and Atlanta HIDTA Groups 1 and 2 for their assistance.

The prosecution is being handled by the Office’s Narcotics Unit.  Assistant U.S. Attorneys Sagar K. Ravi and Amanda L. Houle 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.

[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.

Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the arrest of IAT HONG and the unsealing today of a 13-count superseding indictment charging HONG, BO ZHENG, and CHIN HUNG (the “Defendants”).  The Defendants are charged with devising and carrying out a scheme to enrich themselves by obtaining and trading on material, nonpublic information (“Inside Information”), exfiltrated from the networks and servers of multiple prominent U.S.-based international law firms with offices in New York, New York (the “Victim Law Firms”), which provided advisory services to companies engaged in corporate mergers and acquisitions (“M&A transactions”).  The defendants targeted at least seven law firms as well as other entities in an effort to unlawfully obtain valuable confidential and proprietary information.  HONG, a resident of Macau, was arrested on these charges on December 25, 2016, in Hong Kong and is now pending extradition proceedings.  HONG was presented for an initial appearance on December 26, 2016, before a Judge in Hong Kong and is expected to have his next court appearance on January 16, 2017.

As alleged, from April 2014 through late 2015, the Defendants successfully obtained Inside Information from at least two of the Victim Law Firms (the “Infiltrated Law Firms”) by causing the networks and servers of these firms to be hacked.  Once the Defendants obtained access to the law firms’ networks, the Defendants targeted email accounts of law firm partners who worked on high-profile M&A transactions.  After obtaining emails containing Inside Information, the Defendants purchased stock in the target companies of certain transactions, which were expected to, and typically did, increase in value once the transactions were announced.  The Defendants purchased shares of at least five publicly-traded companies before public announcements that those companies would be acquired, and sold them after the acquisitions were publicly announced, resulting in profits of over $4 million.  In each case, one of the two Infiltrated Law Firms represented either the target or a contemplated or actual acquirer in the transaction.

Manhattan U.S. Attorney Preet Bharara said:  “As alleged, the defendants – including Iat Hong, who was arrested in Hong Kong on Christmas Day – targeted several major New York law firms, specifically looking for inside information about pending mergers and acquisitions.  They allegedly hacked into two prominent law firms, stole the emails of their M&A partners, and made over $4 million in illegal profits.  This case of cyber meets securities fraud should serve as a wake-up call for law firms around the world: you are and will be targets of cyber hacking, because you have information valuable to would-be criminals.”

FBI Assistant Director-in-Charge William F. Sweeney Jr. said:  “The subjects charged in this case allegedly stole nonpublic information through unauthorized access to law firms’ computers, and used the information for their own personal gain.  The FBI works around the clock to keep these types of alleged securities fraudsters and cyber criminals from trading on stolen information, potentially manipulating the market at the cost of legitimate investors, and harm to corporations.”

According to the allegations contained in the superseding indictment (the “Indictment”)1:

The Law Firm-1 Hack and Insider Trading

At all times relevant to the Indictment, Law Firm-1 was a U.S.-based international law firm with offices in New York, New York, which, among other services, provided advisory services to companies engaged in M&A transactions. 

The Contemplated Intermune Transaction

In June 2014, Law Firm-1 was retained by a company not named in the Indictment (the “Company”) in connection with a contemplated acquisition of Intermune, a publicly traded U.S.-based drug maker (the “Contemplated Intermune Transaction”).  A partner in the M&A group at Law Firm-1 (“Partner-1”) was an attorney working on the Contemplated Intermune Transaction.

Beginning on July 21, 2014, the Defendants began exchanging emails concerning, among other things, particular M&A partners at Law Firm-1.  In addition, on or about July 29, 2014, HONG emailed HUNG a list of eleven partners at Law Firm-1, including Partner-1. 

Also beginning about July 2014, the Defendants, without authorization, caused one of Law Firm-1’s web servers (the “Law Firm-1 Web Server”) to be accessed by using the unlawfully obtained credentials of a Law Firm-1 employee.  The Defendants then caused malware to be installed on the Law Firm-1 Web Server.  The access to the Law Firm-1 Web Server allowed unauthorized access to at least one of Law Firm-1’s email servers (the “Law Firm-1 Email Server”), which contained the emails of Law Firm-1 employees, including Partner-1.  

Between about August 1 and August 15, 2014, Partner-1 was privy to Inside Information about the Contemplated Intermune Transaction.  For example, on more than one occasion between August 7 and August 15, 2014, Partner-1 obtained information, including via email, about details of the proposed transaction, including the price per share the Company was considering offering to acquire Intermune.

Between about August 1 and August 9, 2014, the Defendants caused more than 40 gigabytes of confidential data to be exfiltrated from the Law Firm-1 Email Server over the course of at least eight days.

On August 13, 2014, during the time Law Firm-1 was advising the Company on the Contemplated Intermune Transaction and after the Defendants had obtained access to confidential email data maintained at Law Firm-1, HONG used the Inside Information to purchase 7,500 shares of Intermune stock for certain trading accounts (the “Trading Accounts”).  Prior to that date, none of the Trading Accounts had purchased any shares of Intermune.  Later that day, HONG purchased an additional 1,000 shares of Intermune stock in the Trading Accounts.

On August 16 and 17, 2014, the Defendants exploited their continued unauthorized access to email data belonging to Law Firm-1 by exfiltrating approximately 10 gigabytes of confidential data from the Law Firm-1 Email Server.  Between about August 18 and August 21, 2014, HONG and ZHENG used the Inside Information to purchase additional Intermune shares in the Trading Accounts on at least five occasions, totaling an additional 9,500 shares of Intermune stock.

The Contemplated Intermune Transaction was never consummated.  Instead, before the market opened on Monday, August 25, 2014, Intermune announced that it had reached an agreement to be acquired by Roche AG, a German company.  On that day, Intermune’s share price increased by approximately $19 per share, or approximately 40 percent from the closing price on Friday, August 22, 2014, the last prior trading day.  That same day, August 25, 2014, the Defendants sold the 18,000 shares that they had begun acquiring twelve days earlier for profits of approximately $380,000. 

The Intel-Altera Transaction

In January 2015, Law Firm-1 was retained by Intel Corporation (“Intel”), a publicly traded multinational technology company, in connection with a contemplated acquisition of Altera Corporation (“Altera”), a publicly traded integrated circuit manufacturer (the “Intel-Altera Transaction”).  As with the Contemplated Intermune Transaction, Partner-1 was an attorney working on the Intel-Altera Transaction.

Between January and about March 27, 2015, Partner-1 was privy to Inside Information about the Intel-Altera Transaction.  On several occasions during this time period, Partner-1 obtained confidential information about the contemplated transaction via email.  For example, on January 29, 2015, Partner-1 received an email with deal terms, including the proposed price per share to purchase Altera.

Between January 13, 2015, in the same month that Law Firm-1 was retained by Intel to advise on the Intel-Altera Transaction, and about February 10, 2015, the Defendants caused approximately 2.8 gigabytes of confidential data to be exfiltrated from the Law Firm-1 Email Server.

Beginning February 17, 2015, during the time Law Firm-1 was advising Intel and after the Defendants had obtained access to confidential email data maintained at Law Firm-1, the Defendants used the Inside Information to purchase shares of Altera stock in the Trading Accounts.  Prior to that date, none of the Trading Accounts had purchased any shares of Altera.

To further effectuate their insider trading scheme, between February 17 and March 27, 2015, one or more of the Defendants used the Inside Information to purchase additional shares of Altera stock in the Trading Accounts on at least 26 occasions, ultimately purchasing more than 210,000 shares.

On March 27, 2015, a financial newspaper published an article reporting on confidential merger discussions between Intel and Altera (the “March 27 Newspaper Article”).  Following the publication of the article, on March 27, 2015, Altera’s share price increased $9 per share, or approximately 26 percent, from Altera’s share price on March 27, 2015, just prior to the March 27 Newspaper Article.  On April 10 and April 13, 2015, the Defendants sold all of their shares of Altera stock for a profit of approximately $1.4 million. 

The Law Firm-2 Hack and Insider Trading

At all times relevant to this Indictment, Law Firm-2 was a U.S.-based international law firm with offices in New York, New York, which, among other services, provided advisory services to companies engaged in M&A transactions.

The Pitney Bowes-Borderfree Transaction

In December 2014, Law Firm-2 was retained by Pitney Bowes Inc., a publicly traded international business services company, in connection with a contemplated acquisition of Borderfree, Inc., a publicly traded e-commerce company headquartered in New York, New York (the “Pitney Bowes-Borderfree Transaction”).  A partner in the M&A group at Law Firm-2 (“Partner-2”) was an attorney who worked on the Pitney Bowes-Borderfree Transaction. 

Beginning about April 7, 2015, after Law Firm-2 had been retained to advise Pitney Bowes, the Defendants, without authorization, caused one of Law Firm-2’s web servers (the “Law Firm-2 Web Server”), located in New York, New York, to be accessed by using the unlawfully obtained credentials of a Law Firm-2 employee.  The Defendants then caused malware to be installed on the Law Firm-2 Web Server.  The malware on the Law Firm-2 Web Server allowed unauthorized access to at least one of Law Firm-2’s email servers, also located in New York, New York (the “Law Firm-2 Email Server”), which contained the emails of Law Firm-2 attorneys, including Partner-2.

Between about April 8 and July 31, 2015, the Defendants then caused approximately seven gigabytes of confidential data to be exfiltrated from the Law Firm-2 Email Server over the course of at least six days. 

Beginning April 29, 2015, hours after the Defendants had caused data from the Law Firm-2 Email Server to be exfiltrated, HONG and HUNG used the Inside Information to purchase shares of Borderfree stock for the Trading Accounts.  Prior to that date, none of the Trading Accounts had purchased any shares of Borderfree stock.  To further effectuate their insider trading scheme, between April 29 and May 5, 2015, HONG and HUNG used the Inside Information to purchase additional shares of Borderfree in the Trading Accounts on at least five occasions.  In total, HONG and HUNG used the Inside Information to purchase 113,000 shares of Borderfree.

On May 6, 2015, the Pitney Bowes-Borderfree Transaction became public.  On that day, Borderfree’s stock price increased by approximately $7 per share, or 105 percent, from the previous day’s closing price.  On May 18, 2015, HONG and HUNG sold their Borderfree shares, earning a profit of approximately $841,000.

Additional Insider Trading and Attempted Insider Trading Based on Inside Information Hacked from the Infiltrated Law Firms

In addition to trading on Inside Information in connection with the Contemplated Intermune Transaction, the Intel-Altera Transaction, and the Pitney Bowes-Borderfree Transaction, detailed above, the Defendants carried out their scheme to enrich themselves by obtaining and trading on the basis of Inside Information exfiltrated from the networks and servers of the Infiltrated Law Firms concerning at least 10 additional M&A transactions, including certain M&A transactions that were contemplated but never consummated.  Several of these M&A transactions involved Partner-1 or Partner-2.  In total, as a result of trading on Inside Information, the Defendants enriched themselves by at least $4 million.

Attempts to Hack Other Victim Law Firms

In addition to obtaining and trading on Inside Information concerning M&A transactions exfiltrated from the networks and servers of the Infiltrated Law Firms, the Defendants repeatedly attempted to cause unauthorized access to the networks and servers of five other Victim Law Firms using means and methods similar to those used to successfully access the Infiltrated Law Firms.  For example, between March and September 2015, the Defendants attempted to cause unauthorized access to the networks and servers of these law firms on more than 100,000 occasions.

The Robotics Company Intrusions

At certain relevant times, the Defendants were also involved in a start-up robotics company (the “Robotics Company”), started by ZHENG, the defendant, which was engaged in the business of developing robot controller chips and providing control system solutions.  HONG and HUNG were also involved in running the Robotics Company. 

Between April 2014 and late 2015, in addition to their efforts to hack the Victim Law Firms’ networks and servers during this period, the Defendants also caused confidential information to be exfiltrated from the networks and servers of two robotics companies (the “Robotics Company Victims”) using substantially similar means and methods of exfiltration as were used to access and attempt to access and exfiltrate information from the Victim Law Firms.  Specifically, certain of the same servers that were used to carry out the hacks and attempted hacks of the Victim Law Firms were used to carry out hacks of the Robotics Company Victims.  Among other confidential information, the Defendants obtained confidential and proprietary information concerning the technology and design of consumer robotic products, including detailed and confidential proprietary design schematics.  Following these exfiltrations from the Robotics Company Victims, the Defendants exchanged emails containing certain of the confidential information they had caused to be exfiltrated from the Robotics Company Victims, including the proprietary schematics.

Defendants and Charges

HONG, 26, and HUNG, 50, are residents of Macau.  ZHENG, 30, is a resident of Changsha, China.  HONG was arrested on December 25, 2016, in Hong Kong and is now pending extradition proceedings.  The defendants are charged with the following offenses, which carry the maximum prison terms listed below.  The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants would be determined by the judge.

Count

Defendants

Charge

Maximum Prison Term

One

HONG, ZHENG, HUNG

Conspiracy to Commit Securities Fraud: Insider Trading

5 years

Two

HONG

Securities Fraud: Insider Trading – Intermune

20 years

Three

ZHENG

Securities Fraud: Insider Trading – Intermune

20 years

Four

HONG

Securities Fraud: Insider Trading – Altera

20 years

Five

HUNG

Securities Fraud: Insider Trading – Altera

20 years

Six

ZHENG

Securities Fraud: Insider Trading - Altera

20 years

Seven

HONG

Securities Fraud: Insider Trading - Borderfree

20 years

Eight

HUNG

Securities Fraud: Insider Trading - Borderfree

20 years

Nine

HONG, ZHENG, HUNG

Conspiracy to Commit Wire Fraud

20 years

Ten

HONG, ZHENG, HUNG

Wire Fraud

20 years

Eleven

HONG, ZHENG, HUNG

Conspiracy to Commit Computer Intrusion

5 years

Twelve

HONG, ZHENG, HUNG

Computer Intrusion – Unlawful Access – Law Firm-2

10 years

Thirteen

HONG, ZHENG, HUNG

Computer Intrusion – Intentional Damage – Law Firm-2

10 years

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Mr. Bharara praised the investigative work of the FBI, and thanked the Securities and Exchange Commission for their assistance.  Mr. Bharara also thanked the Office of International Affairs and Hong Kong law enforcement for their assistance in the arrest and apprehension of HONG.  He added that the investigation is continuing.

The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.  Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.  For more information on the task force, please visit www.StopFraud.gov.       

This case is being handled by the Office’s Securities and Commodities Fraud Task Force and the Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys Andrea M. Griswold, Daniel B. Tehrani, and Kristy J. Greenberg are in charge of the prosecution.  

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

     NOTE:  1- As the introductory phrase signifies, the entirety of the text of the Indictment and the descriptions of the Indictment set forth below constitute only allegations, and every fact described should be treated as an allegation.

Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the arrest of IAT HONG and the unsealing today of a 13-count superseding indictment charging HONG, BO ZHENG, and CHIN HUNG (the “Defendants”).  The Defendants are charged with devising and carrying out a scheme to enrich themselves by obtaining and trading on material, nonpublic information (“Inside Information”), exfiltrated from the networks and servers of multiple prominent U.S.-based international law firms with offices in New York, New York (the “Victim Law Firms”), which provided advisory services to companies engaged in corporate mergers and acquisitions (“M&A transactions”).  The defendants targeted at least seven law firms as well as other entities in an effort to unlawfully obtain valuable confidential and proprietary information.  HONG, a resident of Macau, was arrested on these charges on December 25, 2016, in Hong Kong and is now pending extradition proceedings.  HONG was presented for an initial appearance on December 26, 2016, before a Judge in Hong Kong and is expected to have his next court appearance on January 16, 2017.

As alleged, from April 2014 through late 2015, the Defendants successfully obtained Inside Information from at least two of the Victim Law Firms (the “Infiltrated Law Firms”) by causing the networks and servers of these firms to be hacked.  Once the Defendants obtained access to the law firms’ networks, the Defendants targeted email accounts of law firm partners who worked on high-profile M&A transactions.  After obtaining emails containing Inside Information, the Defendants purchased stock in the target companies of certain transactions, which were expected to, and typically did, increase in value once the transactions were announced.  The Defendants purchased shares of at least five publicly-traded companies before public announcements that those companies would be acquired, and sold them after the acquisitions were publicly announced, resulting in profits of over $4 million.  In each case, one of the two Infiltrated Law Firms represented either the target or a contemplated or actual acquirer in the transaction.

Manhattan U.S. Attorney Preet Bharara said:  “As alleged, the defendants – including Iat Hong, who was arrested in Hong Kong on Christmas Day – targeted several major New York law firms, specifically looking for inside information about pending mergers and acquisitions.  They allegedly hacked into two prominent law firms, stole the emails of their M&A partners, and made over $4 million in illegal profits.  This case of cyber meets securities fraud should serve as a wake-up call for law firms around the world: you are and will be targets of cyber hacking, because you have information valuable to would-be criminals.”

FBI Assistant Director-in-Charge William F. Sweeney Jr. said:  “The subjects charged in this case allegedly stole nonpublic information through unauthorized access to law firms’ computers, and used the information for their own personal gain.  The FBI works around the clock to keep these types of alleged securities fraudsters and cyber criminals from trading on stolen information, potentially manipulating the market at the cost of legitimate investors, and harm to corporations.”

According to the allegations contained in the superseding indictment (the “Indictment”)[1]:

The Law Firm-1 Hack and Insider Trading

At all times relevant to the Indictment, Law Firm-1 was a U.S.-based international law firm with offices in New York, New York, which, among other services, provided advisory services to companies engaged in M&A transactions. 

The Contemplated Intermune Transaction

In June 2014, Law Firm-1 was retained by a company not named in the Indictment (the “Company”) in connection with a contemplated acquisition of Intermune, a publicly traded U.S.-based drug maker (the “Contemplated Intermune Transaction”).  A partner in the M&A group at Law Firm-1 (“Partner-1”) was an attorney working on the Contemplated Intermune Transaction.

Beginning on July 21, 2014, the Defendants began exchanging emails concerning, among other things, particular M&A partners at Law Firm-1.  In addition, on or about July 29, 2014, HONG emailed HUNG a list of eleven partners at Law Firm-1, including Partner-1. 

Also beginning about July 2014, the Defendants, without authorization, caused one of Law Firm-1’s web servers (the “Law Firm-1 Web Server”) to be accessed by using the unlawfully obtained credentials of a Law Firm-1 employee.  The Defendants then caused malware to be installed on the Law Firm-1 Web Server.  The access to the Law Firm-1 Web Server allowed unauthorized access to at least one of Law Firm-1’s email servers (the “Law Firm-1 Email Server”), which contained the emails of Law Firm-1 employees, including Partner-1.  

Between about August 1 and August 15, 2014, Partner-1 was privy to Inside Information about the Contemplated Intermune Transaction.  For example, on more than one occasion between August 7 and August 15, 2014, Partner-1 obtained information, including via email, about details of the proposed transaction, including the price per share the Company was considering offering to acquire Intermune.

Between about August 1 and August 9, 2014, the Defendants caused more than 40 gigabytes of confidential data to be exfiltrated from the Law Firm-1 Email Server over the course of at least eight days.

On August 13, 2014, during the time Law Firm-1 was advising the Company on the Contemplated Intermune Transaction and after the Defendants had obtained access to confidential email data maintained at Law Firm-1, HONG used the Inside Information to purchase 7,500 shares of Intermune stock for certain trading accounts (the “Trading Accounts”).  Prior to that date, none of the Trading Accounts had purchased any shares of Intermune.  Later that day, HONG purchased an additional 1,000 shares of Intermune stock in the Trading Accounts.

On  August 16 and 17, 2014, the Defendants exploited their continued unauthorized access to email data belonging to Law Firm-1 by exfiltrating approximately 10 gigabytes of confidential data from the Law Firm-1 Email Server.  Between about August 18 and August 21, 2014, HONG and ZHENG used the Inside Information to purchase additional Intermune shares in the Trading Accounts on at least five occasions, totaling an additional 9,500 shares of Intermune stock.

The Contemplated Intermune Transaction was never consummated.  Instead, before the market opened on Monday, August 25, 2014, Intermune announced that it had reached an agreement to be acquired by Roche AG, a German company.  On that day, Intermune’s share price increased by approximately $19 per share, or approximately 40 percent from the closing price on Friday, August 22, 2014, the last prior trading day.  That same day, August 25, 2014, the Defendants sold the 18,000 shares that they had begun acquiring twelve days earlier for profits of approximately $380,000. 

The Intel-Altera Transaction

In January 2015, Law Firm-1 was retained by Intel Corporation (“Intel”), a publicly traded multinational technology company, in connection with a contemplated acquisition of Altera Corporation (“Altera”), a publicly traded integrated circuit manufacturer (the “Intel-Altera Transaction”).  As with the Contemplated Intermune Transaction, Partner-1 was an attorney working on the Intel-Altera Transaction.

Between January and about March 27, 2015, Partner-1 was privy to Inside Information about the Intel-Altera Transaction.  On several occasions during this time period, Partner-1 obtained confidential information about the contemplated transaction via email.  For example, on January 29, 2015, Partner-1 received an email with deal terms, including the proposed price per share to purchase Altera.

Between January 13, 2015, in the same month that Law Firm-1 was retained by Intel to advise on the Intel-Altera Transaction, and about February 10, 2015, the Defendants caused approximately 2.8 gigabytes of confidential data to be exfiltrated from the Law Firm-1 Email Server.

Beginning February 17, 2015, during the time Law Firm-1 was advising Intel and after the Defendants had obtained access to confidential email data maintained at Law Firm-1, the Defendants used the Inside Information to purchase shares of Altera stock in the Trading Accounts.  Prior to that date, none of the Trading Accounts had purchased any shares of Altera.

To further effectuate their insider trading scheme, between February 17 and March 27, 2015, one or more of the Defendants used the Inside Information to purchase additional shares of Altera stock in the Trading Accounts on at least 26 occasions, ultimately purchasing more than 210,000 shares.

On March 27, 2015, a financial newspaper published an article reporting on confidential merger discussions between Intel and Altera (the “March 27 Newspaper Article”).  Following the publication of the article, on March 27, 2015, Altera’s share price increased $9 per share, or approximately 26 percent, from Altera’s share price on March 27, 2015, just prior to the March 27 Newspaper Article.  On April 10 and April 13, 2015, the Defendants sold all of their shares of Altera stock for a profit of approximately $1.4 million. 

The Law Firm-2 Hack and Insider Trading

At all times relevant to this Indictment, Law Firm-2 was a U.S.-based international law firm with offices in New York, New York, which, among other services, provided advisory services to companies engaged in M&A transactions.

The Pitney Bowes-Borderfree Transaction

In December 2014, Law Firm-2 was retained by Pitney Bowes Inc., a publicly traded international business services company, in connection with a contemplated acquisition of Borderfree, Inc., a publicly traded e-commerce company headquartered in New York, New York (the “Pitney Bowes-Borderfree Transaction”).  A partner in the M&A group at Law Firm-2 (“Partner-2”) was an attorney who worked on the Pitney Bowes-Borderfree Transaction. 

Beginning about April 7, 2015, after Law Firm-2 had been retained to advise Pitney Bowes, the Defendants, without authorization, caused one of Law Firm-2’s web servers (the “Law Firm-2 Web Server”), located in New York, New York, to be accessed by using the unlawfully obtained credentials of a Law Firm-2 employee.  The Defendants then caused malware to be installed on the Law Firm-2 Web Server.  The malware on the Law Firm-2 Web Server allowed unauthorized access to at least one of Law Firm-2’s email servers, also located in New York, New York (the “Law Firm-2 Email Server”), which contained the emails of Law Firm-2 attorneys, including Partner-2.

Between about April 8 and July 31, 2015, the Defendants then caused approximately seven gigabytes of confidential data to be exfiltrated from the Law Firm-2 Email Server over the course of at least six days. 

Beginning April 29, 2015, hours after the Defendants had caused data from the Law Firm-2 Email Server to be exfiltrated, HONG and HUNG used the Inside Information to purchase shares of Borderfree stock for the Trading Accounts.  Prior to that date, none of the Trading Accounts had purchased any shares of Borderfree stock.  To further effectuate their insider trading scheme, between April 29 and May 5, 2015, HONG and HUNG used the Inside Information to purchase additional shares of Borderfree in the Trading Accounts on at least five occasions.  In total, HONG and HUNG used the Inside Information to purchase 113,000 shares of Borderfree.

On May 6, 2015, the Pitney Bowes-Borderfree Transaction became public.  On that day, Borderfree’s stock price increased by approximately $7 per share, or 105 percent, from the previous day’s closing price.  On May 18, 2015, HONG and HUNG sold their Borderfree shares, earning a profit of approximately $841,000.

Additional Insider Trading and Attempted Insider Trading Based on Inside Information Hacked from the Infiltrated Law Firms

In addition to trading on Inside Information in connection with the Contemplated Intermune Transaction, the Intel-Altera Transaction, and the Pitney Bowes-Borderfree Transaction, detailed above, the Defendants carried out their scheme to enrich themselves by obtaining and trading on the basis of Inside Information exfiltrated from the networks and servers of the Infiltrated Law Firms concerning at least 10 additional M&A transactions, including certain M&A transactions that were contemplated but never consummated.  Several of these M&A transactions involved Partner-1 or Partner-2.  In total, as a result of trading on Inside Information, the Defendants enriched themselves by at least $4 million.

Attempts to Hack Other  Victim Law Firms

In addition to obtaining and trading on Inside Information concerning M&A transactions exfiltrated from the networks and servers of the Infiltrated Law Firms, the Defendants repeatedly attempted to cause unauthorized access to the networks and servers of five other Victim Law Firms using means and methods similar to those used to successfully access the Infiltrated Law Firms.  For example, between March and September 2015, the Defendants attempted to cause unauthorized access to the networks and servers of these law firms on more than 100,000 occasions.

The Robotics Company Intrusions

At certain relevant times, the Defendants were also involved in a start-up robotics company (the “Robotics Company”), started by ZHENG, the defendant, which was engaged in the business of developing robot controller chips and providing control system solutions.  HONG and HUNG were also involved in running the Robotics Company. 

Between April 2014 and late 2015, in addition to their efforts to hack the Victim Law Firms’ networks and servers during this period, the Defendants also caused confidential information to be exfiltrated from the networks and servers of two robotics companies (the “Robotics Company Victims”) using substantially similar means and methods of exfiltration as were used to access and attempt to access and exfiltrate information from the Victim Law Firms.  Specifically, certain of the same servers that were used to carry out the hacks and attempted hacks of the Victim Law Firms were used to carry out hacks of the Robotics Company Victims.  Among other confidential information, the Defendants obtained confidential and proprietary information concerning the technology and design of consumer robotic products, including detailed and confidential proprietary design schematics.  Following these exfiltrations from the Robotics Company Victims, the Defendants exchanged emails containing certain of the confidential information they had caused to be exfiltrated from the Robotics Company Victims, including the proprietary schematics.       

Defendants and Charges

HONG, 26, and HUNG, 50, are residents of Macau.  ZHENG, 30, is a resident of Changsha, China.  HONG was arrested on December 25, 2016, in Hong Kong and is now pending extradition proceedings.  The defendants are charged with the following offenses, which carry the maximum prison terms listed below.  The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants would be determined by the judge.

Count

Defendants

Charge

Maximum Prison Term

One

HONG, ZHENG, HUNG

Conspiracy to Commit Securities Fraud: Insider Trading

5 years

Two

HONG

Securities Fraud: Insider Trading – Intermune

20 years

Three

ZHENG

Securities Fraud: Insider Trading – Intermune

20 years

Four

HONG

Securities Fraud: Insider Trading – Altera

20 years

Five

HUNG

Securities Fraud: Insider Trading – Altera

20 years

Six

ZHENG

Securities Fraud: Insider Trading - Altera

20 years

Seven

HONG

Securities Fraud: Insider Trading - Borderfree

20 years

Eight

HUNG

Securities Fraud: Insider Trading - Borderfree

20 years

Nine

HONG, ZHENG, HUNG

Conspiracy to Commit Wire Fraud

20 years

Ten

HONG, ZHENG, HUNG

Wire Fraud

20 years

Eleven

HONG, ZHENG, HUNG

Conspiracy to Commit Computer Intrusion

5 years

Twelve

HONG, ZHENG, HUNG

Computer Intrusion – Unlawful Access – Law Firm-2

10 years

Thirteen

HONG, ZHENG, HUNG

Computer Intrusion – Intentional Damage – Law Firm-2

10 years

*                      *                      *

Mr. Bharara praised the investigative work of the FBI, and thanked the Securities and Exchange Commission for their assistance.  Mr. Bharara also thanked the Office of International Affairs and Hong Kong law enforcement for their assistance in the arrest and apprehension of HONG.  He added that the investigation is continuing.

The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.  Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.  For more information on the task force, please visit www.StopFraud.gov.       

This case is being handled by the Office’s Securities and Commodities Fraud Task Force and the Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys Andrea M. Griswold, Daniel B. Tehrani, and Kristy J. Greenberg are in charge of the prosecution.  

The allegations contained 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 descriptions of the Indictment set forth below constitute only allegations, and every fact described should be treated as an allegation.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States has filed a federal civil rights lawsuit against ABRAHAM STRULOVITCH to require him to remedy conditions at two rental complexes in the Bronx and in Orange County to make them accessible to people with disabilities and to ensure that two rental complexes currently under construction by STRULOVITCH in the Bronx will be accessible.  

Manhattan U.S. Attorney Preet Bharara said: “The Fair Housing Act’s accessibility provisions were enacted to ensure that people with disabilities have the same access to housing as everyone else.  With today’s lawsuit, we seek to ensure that Strulovitch fixes the current inaccessible conditions at Riverdale Parc and Bluestone Commons as well as at his ongoing construction projects.  This Office will continue to use all available tools to enforce the FHA’s promise of accessibility for people with disabilities.” 

The Fair Housing Act’s (“FHA”) accessible design and construction provisions require multifamily housing complexes constructed after January 1993 to have basic features accessible to persons with disabilities.  According to the allegations in the Complaint, STRULOVITCH has engaged in a pattern and practice of discriminatory conduct, as evidenced by the numerous inaccessible conditions at Riverdale Parc, a 54-unit rental complex in the Riverdale section of the Bronx designed and constructed in 2014, and Bluestone Commons, a 70-unit rental complex for senior residents in Maybrook, New York, designed and constructed in 2015.  The inaccessible conditions alleged include, for example, an excessively high threshold at the main entrance to Riverdale Parc, as well as insufficiently wide doorways within the rental units at both Riverdale Parc and Bluestone Commons.  Other inaccessible conditions include excessively high thresholds to balconies within the rental units at Bluestone Commons and inaccessible locations of thermostats or other environmental controls in the rental units at Riverdale Parc and Bluestone Commons.

The Complaint further alleges that STRULOVITCH currently is actively involved in designing and constructing two other rental complexes in the Bronx – 640 West 238th Street and 3707 Blackstone Avenue – that will contain a total of more than 90 rental units.  In the Complaint, the United States also seeks a court order requiring STRULOVITCH to take steps necessary to ensure that both 640 West 238th Street and 3707 Blackstone Avenue will be constructed in compliance with the Fair Housing Act’s accessibility requirements.

The case is being handled by the Office’s Civil Rights Unit.  Assistant U.S. Attorneys Li Yu, Jacob Lillywhite, Jessica Jean Hu, and Natasha Teleanu are in charge of the case.

Preet Bharara, the United States Attorney for the Southern District of New York, and James Hunt, Special Agent in Charge for the Drug Enforcement Administration (“DEA”), announced the filing and settlement of a civil lawsuit involving Controlled Substances Act (“CSA”) claims brought by the United States against Kinray, LLC. (“Kinray”), a New York-based pharmaceutical subsidiary of Cardinal Health, Inc. (“Cardinal”).  The suit was filed on December 19, 2016.  In the consent decree approved yesterday by U.S. District Judge Ronnie Abrams, Kinray agreed to pay $10 million to the United States, and admitted and accepted responsibility for failing to inform the DEA, as required by CSA regulations, of Kinray’s receipt of suspicious orders for certain controlled substances during the time period between January 1, 2011 and May 14, 2012. 

Under CSA regulations, pharmaceutical distributors (like Kinray) have a responsibility to report suspicious orders of unusual size, orders that deviate substantially from a normal pattern, or orders of unusual frequency.  The DEA relies on this requirement, and on pharmaceutical distributors in particular, as the first line of defense against dishonest medical professionals who fuel the illegal market for opioids.  Pharmaceutical companies, as the makers and distributors of dangerous opioids, have a particular obligation not to fulfill shipments to medical professionals, pharmacies, or other entities that place unusual orders, oversized orders, or orders of unusual frequency.  As alleged in the Complaint filed by this Office, and as admitted in the settlement agreement (the “Consent Decree”), Kinray violated this requirement.

Manhattan U.S. Attorney Preet Bharara said:  “With the opioid crisis reaching epidemic proportions, pharmaceutical companies must be part of the solution, not part of the problem.  When distributors like Kinray fail to alert the DEA to suspicious order activity, they end up facilitating the illegal sale and distribution of highly addictive opioids.  Today’s settlement is part of our ongoing efforts to use all the tools at our disposal to combat opioid abuse.”       

DEA Acting Special Agent in Charge James Hunt said:  “While over 33,000 opioid-related deaths last year have drawn the attention of families and friends wanting to know more about opioid addiction; law enforcement has been red flagging pharmaceutical diversion.  DEA Diversion Investigators conduct regulatory visits in order to confirm companies adhere to strict security measures and reporting responsibilities in a timely matter to deter prescription medication from being illegally distributed.  This settlement is a clear message that law enforcement is looking at pharmaceutical suppliers responsible for safeguarding and distributing prescription medication as well as targeting those responsible for its diversion.”

According to the allegations in the Complaint and the terms of the Consent Decree:

Kinray, a subsidiary of Cardinal, is a pharmaceutical distributor located in Whitestone, Queens, New York.  Among other things, Kinray distributes controlled substances, including Schedule II narcotics (such as oxycodone and its derivatives), to pharmacies, doctors, and medical facilities with a legitimate medical need.

Under regulations promulgated by the DEA, distributors of controlled substances must design and operate a system to disclose suspicious orders of controlled substances, and report any discovered suspicious orders to the DEA.  These reporting requirements are an integral part of the DEA’s efforts to track the illicit distribution of oxycodone and other highly addictive opioids. 

As alleged, during the period from January 1, 2011 to May 14, 2012, the DEA investigated pharmacies in New York City and elsewhere that had placed orders for shipments of oxycodone or hydrocodone (both Schedule II controlled substances) from Kinray that were of unusual size and/or unusual frequency.  For example, the DEA’s internal tracking system revealed that during the relevant period, Kinray had shipped oxycodone or hydrocodone to more than 20 New York-area pharmacy locations that placed orders for a quantity of controlled substances many times greater than Kinray’s average sales of controlled substances to all of its customers.  Such orders should have triggered “red flags” in Kinray’s ordering system, and Kinray should have reported the suspicious orders to the DEA.  But for most of this time period, Kinray did not report a single suspicious order to the DEA.   

In the Consent Decree entered yesterday by Judge Abrams, Kinray admitted that during the period January 1, 2011 to May 14, 2012, it failed to inform the DEA, as required, that certain orders for controlled substances it received from customers were suspicious.  Kinray also agreed to pay the United States a $10 million civil penalty, and agreed to voluntarily submit to DEA inspections of its Whitestone, New York, facility at any time without condition and without advance notice.

In addition, in a separate administrative action, on December 16, 2016, Kinray signed a Memorandum of Agreement with the DEA in which Kinray agreed to revise its standard operating procedures to improve the processes that govern its handling and delivery of controlled substances to its customers.

This settlement is part of a $44 million global resolution announced today by the Department of Justice with Kinray’s parent company, Cardinal, in which Cardinal agreed to pay an additional $34 million to the United States to resolve failure to report suspicious order claims brought by the U.S. Attorney’s Offices for the Middle District of Florida, the District of Maryland, and the Western District of Washington.

Mr. Bharara praised the outstanding investigative work of the DEA and thanked the New York City Police Department for its assistance.

The case is being handled by the Office’s Civil Frauds Unit.  Assistant United States Attorney Louis A. Pellegrino is in charge of the case.

Preet Bharara, the United States Attorney for the Southern District of New York, and Travis LeBlanc, Federal Communications Commission (“FCC”) Enforcement Bureau Chief, announced today a $30 million settlement of a civil fraud lawsuit against TOTAL CALL MOBILE, LLC (“TOTAL CALL”), for defrauding the Lifeline Program, a federal government subsidy program that offers discounted mobile phone services to eligible low-income consumers.  TOTAL CALL, based in Gardena, California, has enrolled Lifeline subscribers in 19 states and territories.  The United States’ Complaint alleges that Total Call, with the knowledge and involvement of its affiliate, co-defendant LOCUS TELECOMMUNICATIONS, LLC, and their shared corporate parent, co-defendant KDDI AMERICA, INC., knowingly submitted false claims for federal payments by seeking reimbursement for consumers who did not meet Lifeline eligibility requirements.  As part of the settlement, TOTAL CALL admitted and accepted responsibility for conduct alleged in the Complaint, including seeking reimbursement for tens of thousands of ineligible consumers, and agreed to no longer participate in the Lifeline Program.  The payment also resolves an administrative investigation conducted by the FCC, and the FCC has entered into a separate administrative agreement with TOTAL CALL as part of this global settlement.

Manhattan U.S. Attorney Preet Bharara said:  “By routinely looking the other way while its sales agents repeatedly engaged in obvious fraud, Total Call Mobile undermined the goals and depleted the resources of a federal subsidy program designed to provide discounted phone services to low-income individuals.  While it certified its compliance with FCC rules, Total Call enrolled and claimed federal payments for tens of thousands of consumers who did not qualify for the program.”

FCC Enforcement Bureau Chief Travis LeBlanc said:  “We have no toleration for fraud.  This unprecedented $30 million settlement along with a permanent ban from the Lifeline Program affirms our commitment to pursue the strongest sanctions for those who defraud or abuse the Universal Service program.  We thank our partners at the Department of Justice for working with us to make sure that companies that commit fraud are held accountable to the fullest extent of the law.”

To be eligible for the Lifeline Program, a consumer must have income that is at or below 135% of the Federal Poverty Guidelines or participate in one of a number of specified federal, state, or Tribal assistance programs.  Eligible Telecommunications Carriers (“ETCs”), such as TOTAL CALL, receive monthly federal payments for providing discounted phone services to qualified consumers.  As a condition of receiving these payments, an ETC must comply with regulations established by the FCC, which, among other things, require the implementation of policies and procedures for ensuring that enrolled subscribers are eligible for the program and that households do not receive more than one Lifeline phone.  ETCs must certify their compliance with Lifeline rules as part of an annual reporting requirement and with each monthly request for payment.

As alleged in the Complaint filed in Manhattan federal court:

TOTAL CALL relied primarily on in-person sales events to enroll consumers in the Lifeline Program.  The company contracted with “master agents,” who in turn hired “field agents” to engage in face-to-face marketing at public events and spaces.  These field agents were expected to enter electronically a consumer’s demographic information and capture images of the consumer’s proof of identification and proof of eligibility for the Lifeline Program (e.g., Medicaid card, food stamp card).  TOTAL CALL had access to the information entered by the field agents. 

TOTAL CALL, with the knowledge and involvement of the other defendants, engaged in a widespread practice of seeking federal reimbursement for consumers who did not meet Lifeline’s eligibility requirements.  TOTAL CALL field agents employed a range of fraudulent enrollment practices, including repeatedly using the same eligibility proof to enroll multiple consumers, tampering with identification or eligibility proof documentation, intentionally altering the way consumer information was input so as to avoid the detection of duplicate subscriber enrollments, and submitting false consumer addresses and social security numbers.  Although TOTAL CALL’s managers were notified that high volume field agents were engaging in blatantly fraudulent enrollment practices, TOTAL CALL continued to approve and seek federal reimbursement for consumers enrolled by these agents.

In addition, defendants failed to implement effective procedures and systems for preventing the enrollment of duplicate or otherwise ineligible Lifeline subscribers.  In many instances, even a cursory review of the submitted information and documentation or a straightforward search of the existing customer database would have shown that an application was faulty and should be denied.  However, to maximize enrollments and meet its aggressive sales targets, TOTAL CALL approved applications with little or no scrutiny, and then submitted grossly inflated reimbursement requests with false certifications of compliance with Lifeline rules.

Today, U.S. District Court Judge Jed S. Rakoff approved a settlement stipulation to resolve the Government’s claims against the defendants.  Under the settlement, defendants are required to pay approximately $22.54 million to the United States, and to forego payment of approximately $7.46 million in Lifeline reimbursements claimed by TOTAL CALL but held by the Government pursuant to a prior FCC Order.  Further, TOTAL CALL has agreed to cease providing Lifeline services by December 31, 2016, and not to participate in the Lifeline Program in the future. 

As part of the settlement, TOTAL CALL admits, acknowledges, and accepts responsibility for the following conduct:

• TOTAL CALL failed to implement effective policies and procedures to ensure the eligibility of the subscribers for whom TOTAL CALL requested reimbursement for Lifeline discounts, as required by Lifeline rules.
   

• For much of the period from September 2012 to May 2016, defendants allocated insufficient staff and resources to verifying the eligibility of Lifeline subscribers, and failed to adequately screen and train the field agents. 

   

•  Hundreds of TOTAL CALL field agents engaged in fraudulent practices to enroll consumers who were duplicate subscribers or who were otherwise not eligible for the Lifeline Program.  TOTAL CALL failed to put in place effective mechanisms to oversee the conduct of field agents and detect and prevent field agent abuses. 
  • Certain field agents repeatedly used the same benefit program eligibility proof to enroll multiple consumers.  Agents frequently enrolled several different individuals by submitting an image of the same improperly obtained program eligibility card or, in some instances, a fake program eligibility card. 
  • Certain field agents slightly altered the way in which a subscriber’s demographic information was input to avoid having TOTAL CALL identify the application as a duplicate. 
  • Certain field agents tampered with identification or program eligibility cards, and intentionally transmitted blurry or partial images of the documentation, to try to conceal the fact that the information on the documentation did not match the subscriber’s actual name or the other information on the Lifeline application. 
  • Certain field agents provided their own signature, printed their own name, or wrote a straight or curvy line where the prospective subscriber’s signature was supposed to appear on Lifeline applications. 
  • Certain field agents submitted false consumer addresses and social security numbers to enroll duplicate or otherwise ineligible subscribers. 

     

• At the time that TOTAL CALL submitted many of its monthly remittance requests, TOTAL CALL knew that its policies and procedures for reviewing Lifeline applications, verifying consumer eligibility, conducting duplicate checks, and detecting duplicate subscribers were deficient. 

   

• TOTAL CALL sought and received reimbursement for tens of thousands of consumers who did not meet the Lifeline eligibility requirements.

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.

Mr. Bharara thanks the FCC’s Office of Inspector General and the FCC’s Enforcement Bureau for their investigative efforts and assistance with the case.

The case is being handled by the Office’s Civil Frauds Unit.  Assistant U.S. Attorneys Jeffrey K. Powell and Jessica Jean Hu are in charge of the case.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ROBERT A. OLINS was sentenced yesterday to two years in prison for conspiracy to obstruct justice and money laundering.  The charges relate to OLINS’s scheme to hide his assets – including his multimillion-dollar art and antiques collection (the “Art and Antiques Collection”), which was subject to liquidation to satisfy a $3.3 million disgorgement judgment entered by a federal court in California – from federal courts in New York and California, in connection with an enforcement proceeding brought by the Securities and Exchange Commission (the “SEC”), and to launder the money derived from the scheme.  OLINS pled guilty on June 10, 2016, and was sentenced yesterday by United States District Judge Jesse M. Furman.

U.S. Attorney Preet Bharara said:  “Robert Olins deceived and hid assets from two federal courts, a court-appointed receiver, and the SEC.  He repeatedly lied to the court, and, rather than satisfy court judgments as required, he used the proceeds to pay for personal luxuries.”

According to the Indictment and statements made during yesterday’s court proceedings:

On February 25, 2011, a federal district court in California (the “California Court”) entered a judgment against OLINS, ordering him to pay disgorgement to the SEC in the amount of $3.3 million (the “Disgorgement Order”).  On July 27, 2011, the SEC filed an action in federal court in the Southern District of New York (the “New York Court”) registering the Disgorgement Order and requesting the appointment of a receiver to liquidate the Art and Antiques Collection and to apply the proceeds of such liquidation toward the Disgorgement Order.  On May 29, 2012, the New York Court issued an order (the “Receiver Order”) appointing American Bank and Trust Company (“AB&T”) as Receiver, as AB&T had a first and prior security interest in the Art and Antiques Collection.  The Receiver Order prohibited OLINS, as well as any other person or entity with “possession, custody, or control” of any item from the Art and Antiques Collection, from engaging in any form of side deal, self-help, set-off, or transaction not approved by the New York Court. 

From August 2011 through August 2015, OLINS engaged in a conspiracy to obstruct the administration of justice in the New York Court and the California Court, by, among other misrepresentations, making false statements in order to mislead those courts concerning OLINS’s financial condition, and to fraudulently obtain court approval for certain transactions concerning the Art and Antiques Collection.  OLINS then received approximately $657,000 from the sale of items in the Art & Antiques Collection that should have gone to the SEC and AB&T, and instead used the proceeds for his own purposes, including to make payments toward the purchase of additional antiques, including a $695,000 set of antique wall brackets.  In June 2012, OLINS directed that certain monies he derived from the scheme be wired to a bank account in the Isle of Man, for the purpose of promoting his unlawful conduct of hiding his assets from the Courts, the SEC, and AB&T.  Once the money was received in the Isle of Man, OLINS then directed that the money be transferred back into the United States and used it to pay personal expenses.  OLINS then purposely concealed his receipt of the $657,000 from the California Court, by not including it on a financial affidavit he was required to file with that court.

*                      *                      *

In addition to the prison sentence, OLINS, 60, was sentenced to two years of supervised release.  The Court further ordered that OLINS forfeit $160,000 and his interest in the antique wall brackets, and pay $657,000 in restitution to the Receiver.

Mr. Bharara praised the work of the Federal Bureau of Investigation and the United States Postal Inspection Service, and thanked the SEC for its assistance. 

The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.  Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.  For more information on the task force, please visit www.StopFraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorneys Christine I. Magdo and Andrea M. Griswold are in charge of the prosecution.   

There will be a press conference today to announce charges against Navnoor Kang, a former portfolio manager at the New York State Common Retirement Fund, and two broker-dealers, Deborah Kelley and Gregg Schonhorn, for participating in a “pay-for-play” scheme involving the Fund.  Relevant charging documents are attached. 

The event will be livestreamed via Facebook at:  www.facebook.com/usaosdny

WHO:             Preet Bharara, United States Attorney for the Southern District of New York

                       William F. Sweeney, Special Agent-in-Charge of the New York Field Office of the Federal Bureau of Investigation

                        Andrew Ceresney, Director of the Division of Enforcement for the Securities and Exchange Commission

WHAT:           Press Conference

WHEN:           Wednesday, December 21, 2016

12:00 p.m.

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

                             1 St. Andrew’s Plaza

                        New York, NY 10007

CONTACT:    James Margolin, Dawn Dearden, Nicholas Biase

(212) 637-2600

NOTE:            Please silence all cell phones, PDAs, and pagers before start of press conference.

Follow us on Twitter: @SDNYnews

DO NOT REPLY TO THIS MESSAGE.  IF YOU HAVE QUESTIONS, PLEASE CALL THE PRESS OFFICE AT (212) 637-2600

Preet Bharara, the United States Attorney for the Southern District of New York, Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), 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 filing of a criminal Complaint charging UMAIR HAMID, a/k/a “Shah Khan,” a/k/a the “Shah,” with wire fraud, conspiracy to commit wire fraud, and aggravated identity theft in connection with a worldwide “diploma mill” scheme that collected at least approximately $140 million from tens of thousands of consumers.  As alleged, HAMID and his co-conspirators made false and fraudulent representations to consumers on websites and over the phone to trick them into enrolling in purported colleges and high schools, and issued fake diplomas upon receipt of upfront fees from consumers.  HAMID was arrested on December 19, 2016, and was presented yesterday in federal court in Fort Mitchell, Kentucky.

Manhattan U.S. Attorney Preet Bharara said:  “As alleged, while promising the rewards of a higher education, Umair Hamid was actually just peddling diplomas and certifications from fake schools.  Hamid allegedly took hefty upfront fees from young men and women seeking an education, leaving them with little more than useless pieces of paper.”

USPIS Inspector-in-Charge Philip R. Bartlett said:  “Mr. Hamid took advantage of the aspirations and dreams of thousands wanting a college education by devising a scheme to issue college coursework, degrees and certifications not worth the paper they were printed on. Postal Inspectors and their law enforcement partners will spare no resource to bring these scammers to justice, protecting those striving for higher education and opportunities.”

FBI Assistant Director-in-Charge William F. Sweeney Jr. said:  “Thousands of people’s hopes were crushed as this alleged diploma mill scheme came crashing down.  Victims took at face value the lies Hamid and his co-conspirators are alleged to have sold them.  Today, we’re rewriting the lesson plan.”           

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

The Axact Scheme

HAMID, using the aliases “Shah Khan” and the “Shah,” and others operated a massive education “diploma mill” through the Pakistani company “Axact,” which has held itself out as one of the world’s leading information technology (“IT”) providers.  Working on behalf of Axact, HAMID and others made misrepresentations to individuals across the world, including throughout the United States and in the Southern District of New York, in order to dupe these individuals into enrolling in supposed high schools, colleges, and other educational institutions.  Consumers paid upfront fees to HAMID and his co-conspirators, believing that in return they would be enrolled in real educational courses and, eventually, receive legitimate degrees.  Instead, after paying the upfront fees, consumers did not receive any legitimate instruction and were provided fake and worthless diplomas.              

Axact promoted and claimed to have an affiliation with approximately 350 fictitious high schools and universities, which Axact advertised online to consumers as genuine schools.  During certain time periods since 2014, Axact received approximately 5,000 phone calls per day from individuals seeking to purchase Axact products or enroll in educational institutions supposedly affiliated with Axact.  At least some of those consumers appeared to believe that they were calling phone numbers associated with the respective schools.  When consumers asked where the schools were located, sales representatives were instructed to give fictitious addresses. 

Once a consumer paid for a school certificate or diploma that falsely reflected a completed course of study, Axact sales agents were trained to use sales techniques to convince the consumer that the consumer should also purchase additional “accreditation” or “certifications” for such certificates or diplomas in order to make them appear more legitimate.  Axact, through HAMID and his co-conspirators, falsely “accredited” purported colleges and other educational institutions by arranging to have diplomas from these phony educational institutions affixed with fake stamps supposedly bearing the seal and signature of the U.S. Secretary of State, as well as various states and state agencies and federal and state officials. 

HAMID’s Role in the Scheme

HAMID served as Axact’s “Assistant Vice President of International Relations.”  While based in Pakistan, HAMID was involved in managing and operating online companies that falsely held themselves out to consumers over the Internet as educational institutions.  Among other things, HAMID made various false and fraudulent representations to consumers in order to sell fake diplomas.  At HAMID’s direction, the websites of purported “schools” (1) falsely represented that consumers who “enrolled” with the schools by paying tuition fees would receive online instruction and coursework, (2) sold bogus academic “accreditations” in exchange for additional fees, (3) falsely represented that the schools had been certified or accredited by various educational organizations, and (4) falsely represented that the schools’ degrees were valid and accepted by employers, including in the United States. 

As a further part of the scheme, HAMID and a co-conspirator (1) opened bank accounts in the United States in the names of shell entities, effectively controlled by HAMID, which received funds transferred by consumers in exchange for fake diplomas, (2) transferred funds from those bank accounts to bank accounts associated with other entities located elsewhere in the United States, the United Arab Emirates, and Canada, at the direction of HAMID, and (3) opened and operated an account with Paypal, the online payment service provider, to collect and distribute consumer funds obtained in connection with their fraudulent scheme.

In or about May 2015, Axact was shut down by Pakistani law enforcement, and certain individuals associated with Axact were prosecuted in Pakistan.  Nevertheless, after May 2015, HAMID resumed his fraudulent business of selling fake diplomas to consumers in the United States for upfront fees based upon false and fraudulent representations.  Most recently, HAMID traveled to the United States in order to open a bank account that he has used to collect money from consumers he defrauded. 

*                *                *

HAMID, 30, of Karachi, Pakistan, is charged with one count of conspiracy to commit wire fraud and two counts of wire fraud, each of which carries a maximum sentence of 20 years in prison; and one count of aggravated identity theft, which carries a mandatory minimum sentence 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.

Mr. Bharara praised the investigative work of the FBI and Postal Inspection Service.  Mr. Bharara noted that the investigation remains ongoing.

If you believe you were a victim of this crime, including a victim entitled to restitution, and you wish to provide information to law enforcement and/or receive notice of future developments in the case or additional information, please contact the Victim/Witness Unit at the United States Attorney’s Office for the Southern District of New York, at (866) 874-8900.  For additional information, go to http://www.usdoj.gov/usao/nys/victimwitness.html.

The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant United States Attorneys Edward A. Imperatore and Noah D. Solowiejczyk 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.

Preet Bharara, the United States Attorney for the Southern District of New York, and Angel M. Melendez, Special Agent In Charge of the New York Field Office of the Department of Homeland Security, Homeland Security Investigations (“HSI”) announced today the unsealing of a complaint charging LUIS DIAZ JR. and LUIS JAVIER DIAZ with operating an unlicensed money transmission business and international money laundering in connection with their transfer of over $100 million from foreign businesses into and through the United States financial system.  In addition to netting the defendants millions of dollars in profits, this illegal scheme allowed foreign businesses to send money into and around the United States while avoiding anti-money laundering safeguards and obligations imposed upon legal money service businesses.  LUIS DIAZ JR. and LUIS JAVIER DIAZ were arrested this morning in Miami, Florida, and will be presented before Magistrate Judge Jonathan Goodman this afternoon in the United States District Court for the Southern District of Florida.

Manhattan U.S. Attorney Preet Bharara said: “Luis Diaz Jr. and Luis Javier Diaz allegedly operated a shadow bank outside the normal financial system to move more than $100 million into and through the United States.  The use of unlicensed money transmission businesses, ones that do not maintain the anti-money laundering safeguards required of licensed institutions, provides a dangerous and unregulated channel for money laundering and other financial crime.  Prosecutions like this one seek to close that underground network that helps move criminal money around the world.”

HSI Special Agent in Charge Angel M. Melendez said:  “This criminal team gives new meaning to ‘family business’ with their alleged role in laundering more than $100 million through U.S. borders.  Their scheme allowed off-shore businesses to move cash into and around the U.S. while sidestepping regulations placed on legitimate businesses.  Moving money for corporations with zero regard for safeguards hurts our financial infrastructure and threatens our national security.  As part of these joint investigations, HSI continues to search out those leaching profits at the risk of the American economy.”

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

THE ILLEGAL MONEY TRANSMITTING SCHEME

Between 2010 and 2016, LUIS DIAZ JR. and LUIS JAVIER DIAZ used a company they owned in Doral, Florida, (the “Company”) to effect the transmission of at least $100 million from entities outside the United States, mostly located in Venezuela, to bank accounts in the United States and elsewhere, in exchange for a fee.  During this time, the Company was not registered with the state of Florida or the Financial Crimes Enforcement Network (FinCEN), a component of the United States Department of the Treasury, as required by both state and federal laws applicable to money transmitting businesses like the Company. 

Unlicensed money transmitting businesses like the Company enables entities and individuals to move money into and through the U.S. financial system while avoiding licensed U.S. financial institutions that monitor for suspicious activity and report it to U.S. authorities, including through suspicious activity reports, or SARs.  Instead, by going through unlicensed entities like the Company, foreign businesses ensure that suspicious patterns of transmissions will not be detected and reported as potential money laundering activity or other financial crime.

THE DEFENDANTS ILLEGALY TRANSMITTED MONEY

ON BEHALF OF NUMEROUS FOREIGN ENTITIES

Through their unlicensed money transmitting business, LUIS DIAZ JR. and LUIS JAVIER DIAZ enabled a number of foreign businesses to move money into and around the United States.  For instance, the defendants used the Company to transmit over $100 million into the United States on behalf of a large Venezuelan consortium of construction companies (the “Venezuelan Company”).  After they received this money from the Venezuelan Company, the defendants received instructions about where to send the money.  In this manner, the defendants sent money on behalf of the Venezuelan Company to U.S. and foreign bank accounts of Venezuelan government officials, employees of the Venezuelan Company, and other beneficiaries that had no relationship with the Company.  Tens of millions of dollars of these payments were made to shell companies located in banking safe havens such as the British Virgin Islands.  For all of these transmitting activities, the Company received a fee of approximately 2 percent of the funds they transmitted.  In addition to the Venezuelan Company, LUIS DIAZ JR. and LUIS JAVIER DIAZ used the Company to effect transfers into and around the United States on behalf of other companies, mainly located in Venezuela and other South American countries.

In connection with these transfers, LUIS DIAZ JR. and LUIS JAVIER DIAZ were often provided with false invoices purporting to be from the recipients of the funds to make it appear as if the payments were for actual goods or services rendered to the Company when, in truth, the money was intended for beneficiaries in the United States and abroad with no business relationship to the Company.  The invoices had the effect of insulating the transmissions from scrutiny by providing an explanation for the many millions of dollars’ worth of payments.   Through this conduct, the defendants and the Company have functioned as an unregulated financial institution allowing foreign entities to move funds into and through the U.S. without any scrutiny, including being subject to the filing of SARs that licensed transmitting businesses are required to file.

*          *          *

LUIS DIAZ JR., 74, of Miami, Florida, and LUIS JAVIER DIAZ, 49, of Miami, Florida, are each charged with one count of conspiracy to operate an unlicensed money transmitting business, which carries a maximum sentence of five years in prison; one count of operating an unlicensed money transmitting business, which carries a maximum sentence of 20 years in prison; one count of conspiracy to commit money laundering, which carries a maximum sentence of five years in prison; and one count of international money laundering, which carries a maximum sentence of 20 years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

Mr. Bharara praised the work of HSI, DEA, the Englewood, New Jersey, Police Department, and the Border Enforcement Security Task Force.

The prosecution of this case is being overseen by the Office’s Money Laundering and Asset Forfeiture Unit.  Assistant U.S. Attorneys Edward B. Diskant, Daniel M. Tracer, and Jennifer L. Gachiri 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 phase 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.

Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of an Indictment charging NAVNOOR KANG, the former Director of Fixed Income and Head of Portfolio Strategy at the New York State Common Retirement Fund (“NYSCRF”), and DEBORAH KELLEY, a managing director of institutional fixed income sales at a New York-based broker-dealer (“Broker-Dealer-1”), with participating in a “pay-for-play” bribery scheme involving the NYSCRF.  KANG was arrested today in Portland, Oregon, and will be presented later today before a U.S. Magistrate Judge in Portland.  KELLEY is expected to surrender today to authorities in San Francisco, California.  The case is assigned to U.S. District Judge J. Paul Oetken. 

Mr. Bharara also announced today the unsealing of charges against GREGG SCHONHORN, a vice president of fixed income sales at a New York-based broker-dealer (“Broker-Dealer-2”), who pled guilty and admitted to his participation in the scheme. 

U.S. Attorney Preet Bharara said:  “Today, we allege a classic, quid-pro-quo bribery scheme at the New York State Common Retirement Fund, the third largest pension fund in the country.  Navnoor Kang, a former portfolio manager at the fund, allegedly steered billions of dollars of business to broker-dealers who bribed him with luxury vacations, high-priced watches, drugs, cash, and more. The hard-earned pension savings of New Yorkers should never serve as a vehicle for corrupt, personal enrichment. The intersection of public corruption and securities fraud appears to be a busy one, but it's one that we are committed to policing.”

FBI Assistant Director-in-Charge William F. Sweeney Jr. said:  “Instead of upholding his fiduciary duty, Kang was allegedly paid in bribes for diverting business to two separate brokerage firms.  When it comes to retirement funds, fixed-income investments are often thought of as a reliable choice.  Members of the New York State Common Retirement Fund likely also relied on the belief that the man directing their investments was an honest public servant. Unfortunately, as alleged, that is not the case here today.”

According to the allegations in the Indictment[1] and Information, which were unsealed today in Manhattan federal court:

The NYSCRF

The NYSCRF was a pension fund administered for the benefit of public employees of the State of New York.  The third largest pension fund in the United States, the NYSCRF held approximately $184 billion in assets in trust for a total of more than one million retirees and other beneficiaries.

From January 2014 through February 2016, KANG served as Director of Fixed Income and Head of Portfolio Strategy for the NYSCRF.  In that capacity, KANG was responsible for investing more than $53 billion in fixed-income securities and was entrusted with discretion to manage those investments on behalf of the NYSCRF.  KANG owed a fiduciary duty to the NYSCRF and its members and beneficiaries, and was required to make investment decisions in their best interests and free of any conflict of interest.  New York State law and NYSCRF policies prohibited KANG and other NYSCRF employees from receiving any bribes, gifts, benefits, or consideration of any kind.

The Scheme to Steer NYSCRF Fixed-Income Business in Exchange for Secret Bribes

From 2014 through 2016, KANG, KELLEY, and SCHONHORN participated in a scheme to defraud the NYSCRF and its members and beneficiaries, and to deprive the NYSCRF of its intangible right to KANG’s honest services.  The scheme involved, among other things, an agreement among KANG, KELLEY, SCHONHORN, and others to pay KANG bribes – in the form of entertainment, travel, lavish meals, prostitutes, nightclub bottle service, narcotics, tickets to sports games and other events, luxury gifts, and cash payments for strippers and KANG’s personal expenses – in exchange for fixed-income business from the NYSCRF.  Such bribes – which totaled more than $100,000 – were strictly forbidden by the NYSCRF, and were paid secretly and without any disclosure to the NYSCRF and its members and beneficiaries concerning the conflicts of interests inherent therein. 

In exchange for the bribes paid by KELLEY, SCHONHORN, and others, KANG used his position as Director of Fixed Income and Head of Portfolio Strategy at the NYSCRF to promote the interests of KELLEY, SCHONHORN, and their respective brokerage firms.  KANG, in exchange for the bribes he received, agreed to steer fixed-income business to Broker-Dealer-1 and Broker-Dealer-2.  In fact, KANG steered more than $2 billion in fixed-income business to Broker-Dealer-1 and Broker-Dealer-2, from which KELLEY, SCHONHORN, and their respective employers earned millions of dollars in commissions from the NYSCRF.  In so doing, KANG, with the knowledge and approval of KELLEY and SCHONHORN, breached his fiduciary duty to make investment decisions in the best interest of the NYSCRF and its members and beneficiaries, and free of conflict, and deprived the NYSCRF of its intangible right to KANG’s honest services.

As the bribes paid by SCHONHORN to KANG increased, so too did Broker-Dealer-2’s fixed-income business with the NYSCRF.  The value of the NYSCRF’s domestic bond transactions with Broker-Dealer-2 skyrocketed from zero in the fiscal year ending March 31, 2013, to approximately $1.5 million in the fiscal year ending March 31, 2014, to approximately $858 million in the fiscal year ending March 31, 2015, and to approximately $2.378 billion in the fiscal year ending March 31, 2016.  Broker-Dealer-2 became the third largest broker-dealer with which the NYSRCF executed domestic bonds transactions for the fiscal year ending March 31, 2016, having not even been on the approved list in the fiscal year ending March 31, 2013.  As the NYSCRF’s third largest broker-dealer in this asset class, Broker-Dealer-2 brokered approximately eight percent of the total value of the NYSCRF’s domestic bond transactions – a figure greater than that of all but two of the major international banks and brokerage houses on the list.  Similarly, the value of NYSCRF’s domestic bond transactions with Broker-Dealer-1 increased from zero in the fiscal year ending March 1, 2014 to approximately $156 million in the fiscal year ending March 1, 2015, and to approximately $179 million in the fiscal year ending March 1, 2016. 

KANG’s trades resulted in the payment of millions of dollars in commissions to Broker-Dealer-1 and Broker-Dealer-2, of which KELLEY and SCHONHORN personally earned approximately 35 to 40 percent.

The Obstruction of Justice

In late 2015, the Securities and Exchange Commission (“SEC”) opened an investigation into the entertainment and benefits that KELLEY had provided KANG, and the SEC subpoenaed both KANG and KELLEY for their testimony.  In advance of their testimony, KANG and KELLEY agreed to align their stories and testify falsely before the SEC in order to conceal their scheme.  In late 2015 and early 2016, KANG and KELLEY each falsely testified under oath before the SEC about expenses KELLEY had paid for KANG.  Moreover, after a federal grand jury investigation was opened, KANG instructed SCHONHORN to testify falsely before the grand jury, and KANG admitted that he had hidden relevant evidence. 

*                      *                      *

KANG, 38, of Portland, Oregon, and KELLEY, 58, of Piedmont, California, are charged with the offenses set forth in the chart attached to this release.  

On December 15, 2016, SCHONHORN, 45, of Short Hills, New Jersey, pled guilty in Manhattan federal court before Judge Paul G. Gardephe to six counts: conspiracy to commit securities fraud; securities fraud; conspiracy to commit honest services wire fraud; honest services wire fraud; bank fraud; and conspiracy to obstruct justice in the SEC investigation.  Count One carries a maximum sentence of five years in prison.  Counts Two, Three, Four, and Six each carry a maximum sentence of 20 years in prison.  Count Five carries a maximum sentence of 30 years in prison.  The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense. 

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

Mr. Bharara praised the investigative work of the FBI and noted that the investigation is continuing.   He also thanked the SEC, which filed civil charges against KANG, KELLEY, and SCHONHORN in a separate civil action today, and the Office of Inspector General for the Office of the New York State Comptroller.

The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.  Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.  For more information on the task force, please visit www.StopFraud.gov.       

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorneys Edward A. Imperatore and Joshua A. Naftalis are in charge of the prosecution.   

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

Count

Charge

Defendant

Maximum Penalties

1

Conspiracy to Commit Securities Fraud (18 U.S.C. § 371)

NAVNOOR KANG

DEBORAH KELLEY

5 years in prison and a $250,000 fine or twice the gross gain or loss from the offense

2

Securities Fraud (15 U.S.C. §§ 78j(b) & 78ff; 17 C.F.R. § 240.10b-5; 18 U.S.C. § 2)

NAVNOOR KANG

DEBORAH KELLEY

20 years in prison and a $5,000,000 fine or twice the gross gain or loss from the offense

3

Conspiracy to Commit Honest Services Wire Fraud (18 U.S.C. § 1349)

NAVNOOR KANG

DEBORAH KELELY

20 years in prison and a $250,000 fine or twice the gross gain or loss from the offense

4

Honest Services Wire Fraud (18 U.S.C. §§ 1343 and 1346)

NAVNOOR KANG

DEBORAH KELLEY

20 years in prison and a $250,000 fine or twice the gross gain or loss from the offense

5

Conspiracy to Obstruct Justice in the SEC Investigation (18 U.S.C.  § 1512(k)

NAVNOOR KANG

DEBORAH KELLY

20 years in prison and a $250,000 fine or twice the gross gain or loss from the offense

6

Obstruction of Justice in the Grand Jury Investigation (18 U.S.C. § 1512(c)(2))

NAVNOOR KANG
 

20 years in prison and a $250,000 fine or twice the gross gain or loss from the offense

[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.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that TERRANCE WILLIAMS, a/k/a “TA,” and WENDELL BELLE, a/k/a “Delly Dell,” pled guilty in Manhattan federal court to racketeering and firearms charges involving multiple acts of violence.  WILLIAMS pled guilty yesterday and BELLE pled guilty this morning before United States District Judge Valerie E..Caproni.  Through their guilty pleas, WILLIAMS admitted his murder of Curtis Smith on July 3, 2011, and BELLE admitted his murder of Moises “Noah” Lora on April 16, 2012.  Both of these murders were committed in the South Bronx within the confines of the New York City Police Department’s 40th Precinct, and both were committed in connection with WILLIAMS and BELLE’s membership in the violent “Young Gunnaz” street gang (“YGz”). 

As part of his guilty plea, WILLIAMS admitted to shooting and killing Curtis Smith, a 23-year-old, on Park Avenue near the Jackson Houses in the South Bronx, and to shooting and injuring a rival gang member in front of the Sweet Corner convenience store at Park Avenue and 158th Street in the South Bronx.  On August 31, 2016, WILLIAMS pled guilty under a prior plea agreement with this Office before Judge Caproni to racketeering conspiracy based on his commission of certain acts of violence and drug crimes for the YGz gang.  As a result of law enforcement’s continuing investigation in this case, at yesterday’s plea proceeding before Judge Caproni, WILLIAMS withdrew his previously entered guilty plea and pled guilty under a new plea agreement with the Office to racketeering conspiracy based on the murder of Curtis Smith and the separate attempted murder described above, and based also on his commission of the acts of violence and drug crimes that he had previously admitted on August 31, 2016.  In light of WILLIAMS’s guilty plea in federal court yesterday, WILLIAMS faces a maximum term of life in prison. 

As part of his guilty plea, BELLE admitted to the brutal assault of Moises “Noah” Lora, during which BELLE and others stomped Lora to death in the courtyard of a residential housing complex located at 700 Morris Avenue in the South Bronx.  BELLE also admitted to the attempted murder of another rival gang member on November 16, 2013, immediately in front of the Bronx Criminal Courthouse, during which BELLE fired multiple shots at his rival. WILLIAMS was previously arrested for murdering Curtis Smith based on state charges filed by the Bronx District Attorney’s Office, but the charges were later dismissed.  In light of BELLE’s guilty plea today, BELL faces a maximum term of life in prison and mandatory term of 30 years in prison.  Both WILLIAMS and BELLE are scheduled to be sentenced later this year before Judge Caproni.

Manhattan U.S. Attorney Preet Bharara said:  “For far too long, members of the YGz gang and their rival gangs have terrorized communities in the Bronx by engaging in all manner of mayhem – including murder, attempted murder, and other racketeering activities.  Terrance Williams and Wendell Belle almost got away with murder, but thanks to the tireless efforts of law enforcement, they have both pled guilty to murders they committed as members of the Ygz gang.”

According to the charging and other documents filed in the case, as well as statements made during the plea proceedings:

WILLIAMS was a member of the Bronx-based street gang known as the YGz, a leading member of a set of the YGz based in Maria Lopez Plaza in the Bronx, and committed acts of violence with other YGz gang members to further the goals of the gang.  BELLE was a leading member of the YGz set based in the River Park Towers in the Bronx, and also committed multiple acts of violence with other YGz gang members.  From at least 2005 to 2016, members and associates of the YGz enriched themselves by committing robberies and by selling drugs, such as crack cocaine, heroin, and marijuana, and committed acts of violence, including murder and attempted murder, against various people, including rival gang members, rival drug traffickers, and innocent bystanders.  As part of this enterprise, members and associates of the YGz killed and attempted to kill other individuals. 

As part of their involvement in the YGz gang, WILLIAMS and BELLE each participated in acts of violence, as well as narcotics trafficking, with other YGz members.  

For example, on July 3, 2011, WILLIAMS and several other YGz members rode on bicycles from YGz territory on Morris Avenue near 151st Street northbound to the territory of a rival gang on Park Avenue near 158th Street in the South Bronx.  Upon arriving in the rival gang’s territory, WILLIAMS saw a rival gang member standing at the corner of Park Avenue and 158th Street in front of the Sweet Corner convenience store.  From his bicycle, WILLIAMS pulled out a gun and fired gunshots at this rival gang member, two of which hit and injured the rival, who survived the shooting. 

On the same date, after that shooting was complete, WILLIAMS decided to ride his bicycle southbound on Park Avenue with the goal of returning to YGz territory.  While WILLIAMS was riding south on Park Avenue, he saw a group of people who appeared to be running at him from an apartment building in the rival gang’s territory.  WILLIAMS fired gunshots at this group of people, and hit one of them – 23-year-old Curtis Smith – in the head.  Smith died several days later.           

Meanwhile, on November 16, 2013, only days before his attempted murder in the shadow of the Bronx County Criminal Court, BELLE and other YGz members and associates approached members of a rival gang based on Courtlandt Avenue in the Bronx and fired several shots in the hope of killing those rivals.  In the chaos of that shooting, one of BELLE’s fellow gang members struck and injured an innocent bystander.   

WILLIAMS, BELLE, and multiple other YGz members were included in a December 2015 federal racketeering prosecution captioned United States v. Ramel Matthews, et al., now before Judge Caproni, in which all of the defendants were charged with racketeering conspiracy for participation in the YGz gang, and various of the defendants were also charged with participation in several murders, attempted murders, narcotics trafficking, and firearms offenses.    

WILLIAMS was the third defendant and BELLE was the fourth defendant in a racketeering prosecution by this Office of multiple YGz members to admit participation in YGz gang-related murders.  Earlier this year, as part of guilty plea proceedings before Judge Caproni in that case, co-defendant Anthony Scott, a/k/a “Tyson,” admitted to shooting and killing Darrel Ledgister on June 27, 2009, in the South Bronx within the 40th Precinct, during an attempted robbery, and Paul Gilbert, a/k/a “2Fly Tay,” admitted to participating in the murder of Cody Dubose on September 27, 2014, near the Taft Houses in Manhattan during an attempted robbery.

WILLIAMS was previously arrested for murdering Curtis Smith based on state charges filed by the Bronx District Attorney’s Office, but the charges were later dismissed.  Through the subsequent federal investigation of the YGz gang, this Office and its law enforcement partners further developed the evidence of WILLIAMS’s guilt, culminating in his plea yesterday.   

*                      *                     *

Mr. Bharara praised the work of the Bureau of Alcohol, Tobacco, Firearms and Explosives, the Drug Enforcement Administration, and the New York City Police Department in the investigation of this case.  He also thanked the Bronx District Attorney’s Office for their support in this case.

This case is being handled by the Office’s Violent and Organized Crime Unit.  Assistant United States Attorneys Samson Enzer, Andrew C. Adams, Gina Castellano, and James McDonald are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that PEDRO JARAMILLO, a/k/a “Enrique Jaramillo,” was arrested this morning on commodities fraud, wire fraud, and money laundering charges stemming from his scheme to defraud more than two dozen investors, mostly retirees and professionals from Peru and countries in Latin America, of more than $1.2 million. JARAMILLO solicited investments largely for the purported purpose of short-term commodity futures contracts but instead diverted the funds for his own use.  Among other false and misleading statements, JARAMILLO represented to clients that he was an accomplished Wall Street commodities trader who partnered with a certain well-known international investment bank (the “Global Investment Bank”) to earn returns of 25 percent every 90 days for his investors.  In fact, JARAMILLO utterly failed to invest monies as promised, had no partnership with the Global Investment Bank, and instead diverted the majority of investor funds to his own use through cash withdrawals, debit purchases, and by wiring funds offshore.  The investor funds not diverted offshore or directly to JARAMILLO were used to repay earlier investors whose redemption requests could not be forestalled, in a Ponzi-like fashion. 

JARAMILLO was presented today in Magistrate Court before the Honorable Ronald L. Ellis and detained. 

U.S. Attorney Preet Bharara said:  “Pedro Jaramillo allegedly lured customers through slick promotional material, selling them investment accounts with guaranteed returns.  But as alleged, what he sold them was a false bill of goods.  Jaramillo allegedly used his investors’ money for his own personal use and to pay back other duped investors.  Thanks to the dedicated work of the FBI, Jaramillo will now have to answer for his crimes.”  

FBI Assistant Director-in-Charge William F. Sweeney Jr. said:  “As alleged, Jaramillo more than breached the trust of his would-be victims by engaging in activity that caused them to lose their life savings, retirement funds, and more.  When he took money from his clients, he led them to believe it would be invested for their benefit.  In the end, their rate of return was nothing short of heartache. Financial crimes have a negative impact on the economy and individuals alike.  We will continue to investigate those who engage in these illegal acts to help prevent future fraudulent activity in the financial markets.”

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

Beginning in at least January 2014 through December 2016, JARAMILLO solicited more than $1.2 million in investments from more than two dozen investors, primarily for the purported purpose of investing in commodity futures contracts, by falsely representing, orally and in writing, that investor monies would be invested in short-term commodities contracts with a guaranteed rate of return.

To help attract investors, JARAMILLO maintained an office on Wall Street (the “Wall Street Office”) where he met with prospective investors to tout his prior success and relationship with the Global Investment Bank.  JARAMILLO also starred in a youtube.com video (the “Video”) set to the soundtrack of Frank Sinatra’s “New York, New York.”  The Video featured a series of images of Wall Street, the New York Stock Exchange, and JARAMILLO in front of the Wall Street Office.  In the video, JARAMILLO told prospective investors that he was a “proven winner” and “trusted partner” who would maintain individually managed and federally insured accounts for each client.  JARAMILLO told prospective investors that these safeguards would ensure that prospective investors would “be protected against fraud and brokerage failure.” 

In truth and in fact, JARAMILLO not only failed to create individual investment accounts, he failed to use investor funds to make any legitimate investments, instead diverting the majority of funds to his own use, out of the country, or to repay earlier investors whose redemption requests could not be forestalled.  In total, JARAMILLO diverted more than $700,000 to his own use in the form of cash withdrawals and debit card purchases used to fund his lifestyle, including thousands of dollars on three vacations to Disney World for JARAMILLO, family, and guests. 

To hide his misappropriations and continue to fund his personal lifestyle, JARAMILLO also used new investor funds to pay back other investors in a Ponzi-like fashion.  In total, since January 2014, JARAMILLO distributed more than $200,000 back to investors from funds deposited by new investors.  During that time, JARAMILLO also diverted more than $100,000 of investor funds out of bank accounts he controlled in the United States to foreign bank accounts, including in Peru, where JARAMILLO is a citizen.

As a result of their investments with JARAMILLO, investors have lost their life savings, retirement funds, and/or their homes.

*                      *                      *

JARAMILLO, 47, was arrested this morning in Queens, New York.  He is charged with one count of commodities fraud, which carries a maximum sentence of 10 years in prison; one count of wire fraud, which carries a maximum sentence of 20 years in prison; and one count of money laundering, 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.

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

The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.  Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.  For more information on the task force, please visit www.StopFraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorney Andrea M. Griswold 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 herein, constitute only allegations, and every fact described should be treated as an allegation.

Preet Bharara, 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”), George P. Beach II, the Superintendent of the New York State Police (“NYSP”), and Peter J. Graziano, Jr., Chief of the Village of Chester Police Department (“Chester PD”), announced charges against NICHOLAS TARTAGLIONE, a retired police officer, for a quadruple murder committed in Chester, New York, in April 2016.  TARTAGLIONE was arrested yesterday and charged in a five-count Indictment for his participation in a conspiracy to distribute 5 kilograms and more of cocaine and for the murders of Martin Luna, Urbano Santiago, Miguel Luna, and Hector Gutierrez in furtherance of that conspiracy.  He was presented in White Plains federal court yesterday before U.S. Magistrate Judge Paul E. Davison

Manhattan U.S. Attorney Preet Bharara stated: “While all murders tear at the fabric of our communities, when the alleged perpetrator of a gangland-style, quadruple homicide is a former police officer, that strikes at the heart of civilized society.  As alleged, Nicholas Tartaglione, a former Briarcliff Manor police officer, participated in the senseless murder of four people in a bar in Chester, New York.  These four men had not been seen or heard from since the day of their alleged murder.  We hope that today’s arrest brings some measure of comfort to the victims’ families and loved ones.”

FBI Assistant Director-in-Charge William F. Sweeney Jr. stated:  “The despicable acts of murder are more egregious in this case because the alleged murderer, a former police officer, once swore to serve and protect people from harm.  The FBI Hudson Valley Safe Streets Task Force works day after day to battle the crimes that accompany the drug trade to keep criminals and their illegal actions from impacting innocent people.  We hope the victims’ families and community find some solace in an arrest being made.”

NYSP Superintendent George P. Beach II said:  “Once again the work of a strong law enforcement partnership has resulted in an alleged dangerous man being taken off the streets.  These brutal murders are prime examples of the dangerous crimes that are associated with drug distribution.  Narcotics destroy communities and put lives at risk. State Police and our partners will continue to work together to rid our communities of these dangerous substances, and the violence that comes with them.”

Chester PD Chief Peter Graziano, Jr. stated:  “I am grateful for the hard work everyone put into this case and the cooperation of the agencies involved.  This unspeakable crime shows how destructive the drug trade is and why we must all endeavor to continue the fight.  This scourge is not limited to large urban areas, but small rural ones as well.  I hope the victims’ families can find some peace and closure as a result of this arrest.”

As alleged in the Indictment filed today in White Plains federal court[1]:

From June 2015 up to April 2016, TARTAGLIONE and others conspired to sell five kilograms or more of cocaine.  In April 2016, TARTAGLIONE participated in the killing of Martin Luna, Urbano Santiago, Miguel Luna, and Hector Gutierrez in furtherance of that cocaine distribution conspiracy, some of whom were just in the wrong place at the wrong time.  The murders all took place in and around a bar called the Likquid Lounge in Chester, New York. 

*                      *                     *

A chart containing the charges and maximum penalties faced by TARTAGLIONE, 49, of Otisville, New York, is attached.  The statutory maximum 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.

Mr. Bharara praised the outstanding investigative work of the FBI, the New York State Police, and the Village of Chester Police Department.  Mr. Bharara also thanked the City of Middletown Police Department for its assistance in the case.

This case is being handled by the Office’s White Plains Division.  Assistant United States Attorneys Maurene Comey and Michael Gerber 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.

United States v. Nicholas Tartaglione, S1 16 Cr. 832 (KMK)

CHARGES

MAXIMUM PENALTIES

Conspiracy to distribute and possess with intent to distribute 5 kilograms or more of cocaine.

Life in prison

Mandatory minimum: 10 years in prison

Murder of Martin Luna in furtherance of a conspiracy to distribute 5 kilograms or more of cocaine.

Life in prison or death

Mandatory minimum: 20 years in prison

Murder of Urbano Santiago in furtherance of a conspiracy to distribute 5 kilograms or more of cocaine.

Life in prison or death

Mandatory minimum:

20 years in prison

Murder of Miguel Luna in furtherance of a conspiracy to distribute 5 kilograms or more of cocaine.

Life in prison or death

Mandatory minimum:

20 years in prison

Murder of Hector Gutierrez in furtherance of a conspiracy to distribute 5 kilograms or more of cocaine.

Life in prison or death

Mandatory minimum:

20 years in prison

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

Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that DAVID W. KENT, the founder of professional networking website Oilpro.com (“Oilpro”), pled guilty this morning before U.S. District Judge Denise L. Cote in Manhattan federal court to a superseding Information, which charged him with one count of intentionally accessing a protected computer without authorization.  The charge stemmed from KENT’s role in repeatedly hacking into a competitor’s database to steal customer information and attempting to sell Oilpro to the same company whose database KENT had hacked.

Manhattan U.S. Attorney Preet Bharara said:  “David Kent has admitted to his role in hacking into a competitor’s network and stealing client data in order to boost the value of Oilpro, a company he founded.  Kent then attempted to sell Oilpro to the very company he hacked.  Using cyber hacking to gain advantage over a competitor is not only an unfair business practice, but is a federal crime for which Kent has now pled guilty.”           

FBI Assistant Director William F. Sweeney said:  "Today, David Kent pled guilty to intentionally accessing a protected computer without authorization. This is a stern reminder to others that unauthorized access to a computer is a federal crime with severe penalties; even just a quick look at the data on the computer can lead to a prison sentence and that never leads to a leg up in business.”

According to the superseding Information, the previously filed Complaint, and statements made at public court proceedings:

In or about March 2000, KENT founded a website (“Website-1”) that provides, among other things, networking services to professionals working in the oil and gas industry.  Website-1 allows its members to create profiles, which includes personal and professional information.  As part of their profiles, members can also upload their resumes.  The profiles are contained in a database maintained by Website-1 (the “Members Database”).  Members are assigned login credentials (i.e., usernames and passwords) when they create their profiles.  Members use these login credentials to access their profiles.

In or around August 2010, KENT sold Website-1 for approximately $51 million to a publicly traded company headquartered in New York, NY (“Company-1”).  KENT entered into an employment agreement with Company-1 and agreed to continue to serve as the president of Website-1 after the acquisition.  However, KENT left Website-1 in September 2011 and launched Oilpro in October 2013.  Like Website-1, Oilpro provides networking services to professionals working in the oil and gas industry.  Oilpro is headquartered in Houston, Texas.

Between October 2013 and February 2016, KENT conspired to access information belonging to Website-1 without authorization and to defraud Company-1.  KENT accessed the Website-1 Members Database without authorization and stole customer information, including information from over 700,000 customer accounts.  KENT then exploited this information by inviting Website-1’s members to join Oilpro.  Similarly, one of Kent’s employees at Oilpro who previously worked for Website-1 (“CC-1”) accessed information in Website-1’s Google Analytics account without authorization and forwarded the information to KENT.  In the meantime, KENT attempted to defraud Company-1 by misrepresenting during discussions about a potential acquisition of Oilpro by Company-1 that Oilpro had increased its membership through standard marketing methods.          

*                *                *

KENT, 41, of Spring, Texas, was arrested on March 30, 2016.  KENT pled guilty today to one count of intentionally accessing a protected computer without authorization, which carries a maximum penalty of five years in prison.

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

KENT is scheduled to be sentenced by Judge Cote on March 17, 2017, at 2:00 p.m.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation.  Mr. Bharara also thanked the Office of International Affairs and the United Kingdom’s National Cyber Crime Unit (NCCU), and noted that the investigation is continuing.

This case is being handled by the Office’s General Crimes Unit.  Assistant United States Attorneys Sidhardha Kamaraju and Andrew K. Chan are in charge of the prosecution.

Preet Bharara, 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”), today announced the unsealing of an Indictment charging SHALOM LAMM, KENNETH NAKDIMEN, and VOLVY SMILOWITZ, a/k/a “Zev Smilowitz,” with conspiracy to corrupt the electoral process, in connection with an election in Bloomingburg, New York.   Bharara also today announced the guilty plea of HAROLD BAIRD, a former Town Supervisor of Mamakating, New York, to conspiracy to submit false voter registrations, charged in a one-count Information unsealed today.   

Manhattan U.S. Attorney Preet Bharara stated:  “In pursuit of millions of dollars in profits from a real estate development project, the defendants allegedly hatched a cynical ploy to corrupt the electoral process in Bloomingburg.  As alleged, to get public officials supportive of their development project elected to local government, the defendants concocted a scheme to falsely register voters who did not live in Bloomingburg, including some who had never even set foot there.  And to cover up their voter fraud scheme, the defendants allegedly back-dated fake leases and even placed toothpaste and toothbrushes in empty apartments to make them appear occupied by the falsely registered voters.  Profit-driven corruption of democracy cannot be allowed to stand no matter who does it or where it happens.”

FBI Assistant Director-in-Charge William F. Sweeney Jr. stated:  “Today’s charges allege the defendants corruptly advanced their own personal real estate projects in Bloomingburg, New York, at the expense of honest citizens who expect and deserve a fair election system.  In their scheme to promote their own real estate development projects, the defendants violated federal law as they schemed to put themselves first.  This type of behavior simply won’t be tolerated.”  

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

SHALOM LAMM, KENNETH NAKDIMEN, and VOLVY SMILOWITZ, a/k/a “Zev Smilowitz,” the defendants, were real estate developers who, starting in or about 2006, sought to build and sell real estate in Bloomingburg, New York.  From these real estate development projects, the defendants hoped for and anticipated making hundreds of millions of dollars.  But by late 2013, the first of their real estate developments had met local opposition, and still remained under construction and uninhabitable.  When met with resistance, rather than seek to advance their real estate development project through legitimate means, the defendants instead decided to corrupt the democratic electoral process in Bloomingburg by falsely registering voters and paying bribes for voters who would help elect public officials favorable to their project.

Specifically, in advance of an election in March 2014 for Mayor of Bloomingburg and other local officials, LAMM, NAKDIMEN, and SMILOWITZ, the defendants, and others working on their behalf, developed and worked on a plan to falsely register numerous people who were not entitled to register and vote in Bloomingburg, because they actually lived elsewhere.  People the defendants falsely sought to register to vote in Bloomingburg included those who never intended to live in Bloomingburg, those who had never kept a home in Bloomingburg, and indeed, some who had never even set foot in Bloomingburg in their lives.  The defendants took steps to cover up their scheme to register voters who did not actually live in Bloomingburg by, among other things, creating and back-dating false leases and placing items like toothbrushes and toothpaste in unoccupied apartments to make it seem as if the falsely registered voters lived there.

LAMM, NAKDIMEN, and SMILOWITZ, the defendants, also bribed potential voters by offering payments, subsidies, and other items of value to get non-residents of Bloomingburg to unlawfully register and vote there.  LAMM, for example, agreed to pay an individual $500 for every voter that the individual procured, and LAMM and NAKDIMEN’s real estate company ultimately paid the individual more than $30,000 per month for his efforts.

As alleged in a separate Information unsealed today in White Plains federal court:

From in or about January 2014 through in or about March 2014, BAIRD conspired with others to submit false voter registrations so that he could run for political office and vote in Bloomingburg.  In fact, however, BAIRD did not live in Bloomingburg, and his voter registrations were false. 

*                      *                     *

LAMM, NAKDIMEN, and SMILOWITZ were arrested this morning and will be arraigned today on the charges in the Indictment before United States Magistrate Judge Judith C. McCarthy in the White Plains federal courthouse.                                     

LAMM, 57, of Bloomingburg, NAKDIMEN, 64, of Monsey, New York, and SMILOWITZ, 28, of Monroe, New York, are each charged with one count of conspiracy to commit an offense against the United States, in particular to corrupt the electoral process by submitting false voter registrations, buying voter registrations, and offering bribes for voter registrations and votes.  The offense carries a maximum penalty of five years in prison and a $250,000 fine.

BAIRD, 60, of Sullivan County, New York, pled guilty to one count of conspiracy to submit false voter registrations, which carries a maximum sentence of five years in prison and a $250,000 fine.  The defendant will be sentenced at a future date.  The case is assigned to United States District Judge Cathy Seibel.

The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants would be determined by the judge.

Mr. Bharara praised the outstanding investigative work of the FBI-Hudson Valley White Collar Crime Task Force, the Sullivan County District Attorney’s Office, the Sullivan County Sherriff’s Office, the Orange County Sheriff’s Office, the Orange County District Attorney’s Office, the Internal Revenue Service, and the United States Postal Inspection Service.  Mr. Bharara also thanked the Department of Justice’s Public Integrity Section, Election Crimes Branch, for its assistance in the case.

This case is being handled by the Office’s White Plains Division.  Assistant United States Attorneys Kathryn Martin, Benjamin Allee, and Perry Carbone 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.

16-338

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

“Today, a unanimous jury in Manhattan federal court affirmed that the protections of the U.S. Constitution extend into the walls of our prisons, including Rikers Island.  For his brutal and heartless beating of 52-year-old Ronald Spear, a sickly Rikers inmate, and his lies to cover it up, Brian Coll now stands convicted of serious federal crimes.  As the evidence at trial established, Coll killed Spear by repeatedly kicking him in the head as he lay restrained on the ground, telling him before he died not to forget who did this to him.  The FBI investigators and career prosecutors on this case did not forget.  And today, neither did the jury.”

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that ROBERT LEES, a former senior executive of Universal Forest Products, Inc. (“UFP”), was sentenced today by U.S. District Judge Kenneth M. Karas to 50 months in prison for conspiracy, mail fraud, money laundering, and making false statements in a loan application.  LEES was found guilty by a jury on May 20, 2016, after a seven-day trial before Judge Karas.

Manhattan U.S. Attorney Preet Bharara said:  “Robert Lees, a senior executive at Universal Forest Products, defrauded both HUD and a mortgage lender, causing millions of dollars in losses.  With the jury verdict earlier this year and today’s sentence, Lees has been held accountable for his crimes.”

The evidence at trial proved that, in 2009, Michael Barnett, a real-estate developer, hired JK Scanlan Company, Inc. (“Scanlan”), to be the general contractor on Vineyard Commons, a senior housing community in Ulster County.  In 2009, Scanlan entered into falsely inflated contracts with Shawnlee Construction, LLC (“Shawnlee”), a subsidiary of UFP for which LEES had responsibility, to be the subcontractor on Vineyard Commons responsible for framing and rough carpentry.

In 2009, a private lender (the “Mortgagor”), agreed to provide financing to Vineyard Commons, which financing would be insured by HUD.  The Mortgagor and the borrower agreed that the proceeds would be disbursed incrementally after the borrower submitted draw requests based upon its completion of phases of the project.

On January 19, 2009, Shawnlee provided Scanlan a final bid to supply labor and materials for Vineyard Commons.  In March and April 2009, representatives of UFP – including LEES – Shawnlee, and Scanlan entered into an agreement by which UFP and Shawnlee agreed to provide labor and materials in an amount approximately $865,000 greater than the final bid.  LEES and others intended for the approximately $865,000 difference between the final bid and the inflated contract price to be returned to Barnett as a kickback, and further intended that the Mortgagor would unwittingly finance the kickback by disbursing HUD-insured funds on the basis of inflated draw requests.

In early 2009, Scanlan’s owner agreed to provide Barnett and Vineyard Commons with a million-dollar loan.  In order to obtain this loan, Barnett informally pledged the anticipated $865,000 kickback to Scanlan’s owner as collateral.

In June 2009, Barnett needed additional funds in order to secure HUD-insured financing from the Mortgagor.  UFP provided a $650,000 letter of credit to the Mortgagor.  Barnett informally pledged the anticipated approximately $865,000 kickback to UFP as collateral, even though it was already pledged to Scanlan’s owner.

On July 2, 2009, Barnett and others provided HUD with a written estimate of the cost of Shawnlee’s work (the “Final Framing Price”) that exceeded Shawnlee and UFP’s actual price for labor and materials by approximately $865,000.

Beginning in July 2009, and continuing until January 2012, Barnett and Scanlan submitted contractor’s requisitions (the “Contractor Requisitions”) on forms provided by HUD to the Mortgagor, which the Mortgagor then sent to HUD.  These Contractor Requisitions included a certification by a representative of Scanlan that “all the information stated herein, as well as any information provided in the accompaniment herewith, is true and accurate.”  Each of these forms set forth the Final Framing Price as the actual cost of rough carpentry.  Each month, the Mortgagor disbursed HUD-insured funds on the basis of the Contractor Requisitions.  UFP set aside the “extra” from the Shawnlee/Scanlan contract in an accrual account falsely labeled as a rebate accrual.

In January 2010, LEES agreed with Barnett to pay Scanlan’s owner $200,000, which payment they understood would be guaranteed by part of Barnett’s interest in the approximately $865,000 difference between the contract price and the actual price for labor and materials provided by Shawnlee and UFP.  Barnett sought this payment, and LEES agreed to make this payment, as a partial payment of Barnett’s obligation to Scanlan’s owner.  LEES arranged for UFP to send a $200,000 check to a company controlled by Barnett that was not involved in the development of Vineyard Commons – which would then pass the money on to Scanlan’s owner.  On January 15, 2010, UFP issued a check for $200,000 to Barnett’s company and mailed it from Michigan to Barnett in Dutchess County, New York.

On January 20, 2010, Barnett sent to Scanlan’s owner in Massachusetts a $200,000 check that he drew on the account into which Barnett had deposited the check he received from UFP.

Later in 2010, Barnett sought a $5 million loan from UFP.  Among other incentives, Barnett offered to surrender the remainder of his kickback to UFP, allowing UFP to take that money into its own profit.  With LEES’S encouragement, UFP issued the loan to Barnett.

The developer of Vineyard Commons defaulted on the loan after the project failed.  HUD assumed the loan and sold the project, losing $28 million.

*                *                *

In addition to the prison sentence, LEES, 62, of Lititz, Pennsylvania, was sentenced to three years of supervised release.  Judge Karas also ordered LEES to forfeit $865,000 in ill-gotten gains and to pay $865,000 in restitution.

LEES’s co-defendants have been convicted.  Barnett pled guilty on January 19, 2016, to conspiracy, and was sentenced by Judge Karas on October 26, 2016, to 37 months in prison.  DiCello pled guilty on April 20, 2016, to conspiracy, mail fraud, money laundering, and making false statements in a loan application, and is scheduled to be sentenced by Judge Karas on January 19, 2017.

Mr. Bharara praised the outstanding efforts of HUD-Office of Inspector General.

This case is being handled by the Office’s White Plains Division.  Assistant United States Attorneys Michael D. Maimin, James McMahon, and Won S. Shin are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that BRIAN COLL, a former New York City Correction Officer, was convicted of causing the death of Ronald Spear, a pre-trial detainee at Rikers Island.  COLL, then a correction officer on Rikers Island, had been charged in a superseding indictment returned on November 17, 2016, with causing Mr. Spear’s death by repeatedly kicking him in the head while he was restrained and lying prone on the floor, in violation of his rights under the United States Constitution.  Mr. Spear died shortly after the attack.  COLL was arrested on a complaint on June 10, 2015, and has been in federal custody since that time.  COLL was convicted after a 10-day trial before U.S. District Judge Loretta A. Preska.

Manhattan U.S. Attorney Preet Bharara said:  “Today, a unanimous jury in Manhattan federal court affirmed that the protections of the U.S. Constitution extend into the walls of our prisons, including Rikers Island.  For his brutal and heartless beating of 52-year-old Ronald Spear, a sickly Rikers inmate, and his lies to cover it up, Brian Coll now stands convicted of serious federal crimes.  As the evidence at trial established, Coll killed Spear by repeatedly kicking him in the head as he lay restrained on the ground, telling him before he died not to forget who did this to him.  The FBI investigators and career prosecutors on this case did not forget.  And today, neither did the jury.”

According to the evidence introduced at trial: 

Rikers Island is a jail complex, located in the Bronx, New York, maintained by the New York City Department of Correction.  At the time of his death, Ronald Spear was a pretrial detainee incarcerated on Rikers Island in the North Infirmary Command, a facility housing detainees who, like Mr. Spear, have serious or chronic medical needs.  In the early morning hours of December 19, 2012, Mr. Spear left the housing area in the infirmary unit in an attempt to see the on-duty doctor but was stopped by COLL, who said that the doctor was not available to see him.  In an altercation that ensued, COLL punched Mr. Spear several times in the face and stomach, and Mr. Spear was then restrained by two other correction officers, Anthony Torres and Byron Taylor.  While Mr. Spear was lying prone on the ground and was still restrained, COLL repeatedly kicked Spear in the head, even after Torres attempted to shield the inmate’s head with his hand and shouted to COLL to stop.  After COLL stopped kicking Mr. Spear, COLL lifted Mr. Spear’s head up, told him to remember who had done this to him, and then dropped Spear’s head to the ground.  Mr. Spear was pronounced dead at the scene shortly after the assault.

Spear’s autopsy was conducted at the Bronx Office of the Chief Medical Examiner.  The autopsy revealed that Spear had at least three recent contusions on his skull, and that he had suffered a “brain bleed” caused by blunt force trauma to the head, consistent with Spear being kicked in the head while he was lying prone on the ground.  Mr. Spear suffered a cardiac arrhythmia as a result of the head trauma.  The assault by COLL was therefore, as the jury found, the cause of Spear’s death.

After Spear’s death, COLL, Taylor, Torres and others, covered up the true cause of Spear’s death by concocting a false story that turned Spear into the aggressor, falsely claiming that Spear had attacked COLL with a cane.  Specifically, COLL falsely claimed that Spear had attacked him with a cane, and Torres agreed to support this false version of events and further agreed not to not relay that COLL had repeatedly kicked Spear in the head.  Additionally, at the request of TAYLOR, COLL, TORRES, and an additional correction officer agreed to falsely claim that TAYLOR was not present for the incident.  Consistent with their agreement, the conspirators filed false use of force reports with the Department of Correction and lied repeatedly to Department of Correction supervisors, investigators, and to the Bronx District Attorney’s Office.

The conspirators propagated this false version of events after being advised by a Rikers captain to be consistent in the use of force reports the officers were required to submit following Spear’s death.   Additionally, when no cane was recovered from the crime scene – potentially calling into doubt COLL’s claim that Spear had attacked him with a cane – a Rikers captain simply directed a correction officer to take a cane from a supply area and to pass it off to investigators as the cane used in the incident.               

*                      *                      *

BRIAN COLL, 47, of Smithtown, New York, was convicted of one count of death resulting from deprivation of rights under color of law, which carries a maximum penalty of  life in prison or death, one count of conspiracy to obstruct justice, which carries a maximum penalty of 20 years in prison, one count of obstruction of justice, which carries a maximum penalty of 20 years in prison, one count of filing false forms, which carries a maximum penalty of 20 years in prison, and one count of conspiracy to file false forms, which carries a maximum sentence of five years in prison.  COLL is scheduled to be sentenced by Judge Preska on April 24, 2017.

Byron Taylor, 32, of Brentwood, New York, has pled guilty to one count of perjury for lying to a federal grand jury, which carries a maximum sentence of 5 years in prison, and one count of conspiracy to obstruct justice, which carries a maximum sentence of 20 years in prison.    

Anthony Torres, 50 of New Rochelle, New York, pled guilty to one count of conspiracy to obstruct justice and file false reports, which carries a maximum penalty of five years in prison, and one count of filing a false report, which carries a maximum sentence of 20 years in prison. 

The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants would be determined by the judge.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and the Criminal Investigators at the United States Attorney’s Office.  Mr. Bharara also thanked the New York City Department of Correction, Investigative Division, and the Bronx District Attorney’s Office for their assistance in the investigation.

This case is being handled by the Office’s Civil Rights and Public Corruption Units.  Assistant U.S. Attorneys Brooke E. Cucinella, Jeannette A. Vargas, and Martin S. Bell are in charge of the prosecution.   

Preet Bharara, 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 David E. Beach, Special Agent in Charge of the U.S. Secret Service New York Field Office (“USSS”), announced that JOSHUA SAMUEL AARON, a/k/a “Mike Shields,” was arrested earlier today at John F. Kennedy International Airport.  AARON, along with defendant 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,” is charged with crimes arising out of Shalon’s and AARON’s orchestration of massive computer hacking crimes against U.S. financial institutions, brokerage firms, and financial news publishers, including the largest theft of customer data from a U.S. financial institution in history.  Shalon and AARON are charged with committing these crimes in furtherance of securities market manipulation schemes that Shalon and AARON perpetrated with defendant Ziv Orenstein, a/k/a “Aviv Stein,” a/k/a “John Avery.”  AARON will be presented this afternoon in Manhattan federal court before U.S. Magistrate Judge James C. Francis IV.  AARON is expected to appear before United States District Judge Laura Taylor Swain tomorrow at 10:30 a.m.  The charges against AARON, Shalon, and Orenstein were made public on November 10, 2015.  (To read the November 10, 2015, press release, click here.)

Manhattan U.S. Attorney Preet Bharara said: “Joshua Samuel Aaron allegedly worked to hack into the networks of dozens of American companies, ultimately leading to the largest theft of personal information from U.S. financial institutions ever.  For pursuing what we have called ‘hacking as a business model,’ and thanks to the efforts of the FBI and the U.S. Secret Service, Aaron will now join his co-defendants to face justice in a Manhattan federal courtroom.”

FBI Assistant Director William F. Sweeney Jr. said:  “Today, Josh Aaron was taken into the custody of the FBI to face charges filed against him more than a year and a half ago for his alleged role orchestrating a massive computer hack into U.S. financial institutions, brokerage firms, and financial news publishers and for his role in a multimillion-dollar stock manipulation scheme.”

U.S. Secret Service Special Agent in Charge David E. Beach said:  “The arrest of this alleged transnational cybercriminal illustrates the dedication of the Secret Service and reach of the U.S. Government in the disruption and dismantling of global criminal networks.  The precedent set by this successful United States deportation should serve as a warning to criminals that the Secret Service will relentlessly investigate, detect, and defend the Nation’s financial infrastructure both domestically and internationally.”

Shalon and Orenstein were arrested by Israeli authorities in July 2015, and were extradited from Israel in June 2016. 

*                      *                     *

AARON, 32, a U.S. citizen who had been residing in Moscow, Russia, is charged in a Superseding Indictment, S1 15 Cr. 333 (LTS), along with his co-defendants with the following offenses, which carry the maximum prison terms listed below.  The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

Count

Defendants

Charge

Maximum Prison Term

One

SHALON and AARON

Conspiracy to commit computer hacking

5 years

Two

SHALON and AARON

Computer hacking

5 years

Three

SHALON and AARON

Computer hacking

5 years

Four

SHALON, AARON, and ORENSTEIN

Conspiracy to commit securities fraud

5 years

Five

SHALON, AARON, and ORENSTEIN

Conspiracy to commit wire fraud: Securities Market Manipulation Scheme

20 years

Six

SHALON, AARON, and ORENSTEIN

Securities fraud

20 years

Seven

SHALON, AARON, and ORENSTEIN

Eight

SHALON, AARON, and ORENSTEIN

Nine

SHALON, AARON, and ORENSTEIN

Ten

SHALON, AARON, and ORENSTEIN

Eleven

SHALON, AARON, and ORENSTEIN

Twelve

SHALON, AARON, and ORENSTEIN

Thirteen

SHALON, AARON, and ORENSTEIN

Wire fraud

20 years

Fourteen

SHALON, AARON, and ORENSTEIN

Conspiracy to commit identification document fraud

15 years

Fifteen

SHALON, AARON, and ORENSTEIN

Aggravated identity theft

Mandatory 2 years

Twenty-Two

SHALON, AARON, and ORENSTEIN

Conspiracy to commit money laundering: Securities Market Manipulation Scheme

20 years

Mr. Bharara praised the investigative work of the FBI and the United States Secret Service, and expressed his sincere gratitude to the Office of the State Attorney of the Israel Ministry of Justice’s Department of International Affairs and the Israel National Police, including its Cyber Unit - Lahav 433, for their support and assistance with the investigation.  He also thanked the Securities and Exchange Commission, Immigration and Customs Enforcement - Homeland Security Investigations, the Financial Industry Regulatory Authority, the National Credit Union Administration, the Office of International Affairs of the U.S. Department of Justice, 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.  Assistant U.S. Attorney Daniel Tracer of the Office’s Money Laundering and Asset Forfeiture Unit is in charge of the forfeiture aspects of the case.

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

Preet Bharara, the United States Attorney for the Southern District of New York, Leslie R. Caldwell, the Assistant Attorney General of the Department of Justice’s Criminal Division, 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 MAHMOUD THIAM was arrested in Manhattan this morning on money laundering charges stemming from his scheme to launder $8.5 million in bribes that THIAM received from senior representatives of a Chinese conglomerate.  The charges allege that THIAM used his official position as Minister of Mines for the Republic of Guinea to facilitate the award to the Chinese conglomerate of exclusive and highly valuable investment rights in various sectors of the Guinean economy.  THIAM was presented today in Manhattan federal court before Magistrate Judge James C. Francis. 

Manhattan U.S. Attorney Preet Bharara said: “Mahmoud Thiam, a former high-ranking official of Guinea, allegedly used his position to accept millions in bribes from a Chinese conglomerate and laundered the money through New York.  Thiam, a U.S. citizen, will now face justice.” 

Assistant Attorney General Leslie R. Caldwell said: “Former Minister Thiam is accused of enriching himself at the expense of the people of the Republic of Guinea. We cannot allow the United States to be a safe haven for the spoils of official corruption.  The department is committed to pursuing both those who pay bribes, and also the corrupt officials who receive them.”

FBI Assistant Director-in-Charge William Sweeney, Jr. said: “Today’s action shows that the FBI, along with our partners, is committed to investigating all levels of corruption. The United States will be relentless in its efforts to uphold fair, equal and competitive markets.  The actions of a few who use corruption for personal gain will not be tolerated.”         

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

MAHMOUD THIAM, a United States citizen who was Minister of Mines and Geology of the Republic of Guinea in 2009 and 2010, engaged in a scheme to accept bribes from senior representatives of a Chinese conglomerate and to launder that money into the United States and elsewhere.  In exchange for these multimillion-dollar bribe payments, THIAM used his position as Minister of Mines to facilitate the award to the Chinese conglomerate of exclusive and highly valuable investment rights in a wide range of sectors of the Guinean economy, including near total control of Guinea’s significant mining sector.  

In order to receive the bribes covertly, THIAM opened a bank account in Hong Kong (the “Hong Kong Account”) and misreported his occupation to the Hong Kong bank to conceal his status as a public official in Guinea.  Upon receiving the bribes, THIAM transferred millions of dollars in bribe proceeds from the Hong Kong Account to, among other things, THIAM’s bank accounts in the United States; a Malaysian company that facilitated and concealed THIAM’s purchase of a $3,750,000 estate in Dutchess County, New York; private preparatory schools in Manhattan attended by THIAM’s children; and at least one other West African public official.   

To further conceal the unlawful source of the bribery proceeds that THIAM transferred from the Hong Kong Account to banks in the United States, THIAM lied to two banks based in Manhattan and on tax returns filed with the Internal Revenue Service regarding the bribe payments, his position as a foreign public official, and the source of the funds in the Hong Kong Account.  In total, THIAM received approximately $8.5 million in bribes from the Chinese conglomerate. 

*                *                *

THIAM, 50, of Manhattan, is charged with two counts of money laundering, each of which carries a maximum sentence of 15 years in prison. 

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

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

The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant United States Attorney Elisha J. Kobre and Assistant Chief Tarek Helou, Senior Trial Attorney Jason Linder and Trial Attorney Sarah Edwards of the Fraud Section of the Justice Department’s Criminal Division are in charge of the prosecution.

[1] As the introductory phase 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. 

Preet Bharara, the United States Attorney for the Southern District of New York, Angel M. Melendez, Special Agent In Charge of the New York Field Office of the Department of Homeland Security, Homeland Security Investigations (“HSI”), and Deirdre L. Fike, Assistant Director in Charge of the Los Angeles Field Office of the Federal Bureau of Investigation (“FBI”), announced the unsealing of an Indictment charging six defendants with conspiracy, wire fraud, impersonation of Federal Reserve Bank of New York (“New York Fed”) officials, money laundering, and other crimes in connection with a fraudulent high-yield investment scheme that resulted in the theft of over $50 million from investors in the United States and around the world. 

Manhattan U.S. Attorney Preet Bharara said:  “Edwards and his co-defendants allegedly concocted and carried out an audacious scam, promising investors exponential returns on investments they claimed were overseen by the New York Federal Reserve and backed by the U.S. government.  In reality, it was all a lie; there was no government-backed program and no plan to invest, only an alleged plan to steal the investors’ money.”

HSI Special Agent in Charge Angel M. Melendez said: “Using forged and counterfeit Federal Reserve documents, these individuals allegedly orchestrated a complex international scheme that cost unwitting investors both here and abroad over $50 million dollars. This indictment shows the great length that criminals will go to steal the money of hard working individuals. HSI is up to the challenge to uncover these schemes and bring the participants to justice.”

FBI Assistant Director Deirdre L. Fike said: “The defendants in this case allegedly used complicated terminology and claimed to have international sophistication as they swindled their victims. Skilled investigators with the FBI and with the HSI will continue our joint efforts to mitigate the threat to capital markets around the world.”

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

From at least June 2013 through August 2016, RIENZI EDWARDS, MICHAEL JACOBS, RUBY HANDLER-JACOBS, F.K. HO, LAWRENCE LESTER, and RACHEL GENDREAU orchestrated and executed a fraudulent high-yield investment program known as the “Cities Upliftment Program,” or CUP, which the defendants falsely told investors was operated by the New York Fed.  The scheme was principally designed and operated by EDWARDS, with the assistance of JACOBS and HANDLER-JACOBS, and was marketed to investors around the world through brokers, including HO, LESTER, and GENDREAU.

The defendants pitched the CUP to investors as a highly exclusive, invitation-only, public-private investment partnership designed to raise capital and generate large returns through a purported “trading program” run by the New York Fed.  The defendants promised investors that the CUP would generate extremely high returns on their investments, in some cases as much as $150 million for every $1 million invested.  The defendants claimed that half of the returns would be used to help revitalize American cities recovering from the 2008 financial crisis, and that the other half would be returned to the investors at the rate of $1 million per day for 75 banking days.  The defendants told numerous other lies to victims to convince them to invest, including that their funds would be held in a trust account established by the New York Fed and that CUP investments were risk-free because they were “guaranteed” by the United States government.  In truth, and as the defendants well knew, the CUP was a complete scam. 

One of the primary ways in which the defendants tricked victims into investing millions of dollars in the CUP scheme was the use of forged and counterfeit New York Fed documents.  On numerous occasions, the defendants sent, or caused to be sent, investment contracts, guarantees, correspondence, and other CUP-related documents printed on what appeared to be New York Fed letterhead and bearing the names and purported signatures of New York Fed officials, including the president, certain board members, and other senior officials of the New York Fed.  In addition, EDWARDS, JACOBS, and HO, with the assistance of HANDLER-JACOBS, pretended to be New York Fed officials during in-person meetings and phone calls with investors to convince them to invest in the CUP.

Instead of holding investors’ funds in the purported trust accounts as promised, the defendants simply stole the money.  EDWARDS, JACOBS, and HANDLER-JACOBS caused the bulk of the funds to be laundered through various domestic and overseas bank accounts in Hong Kong, Barbados, the United Kingdom, and Sri Lanka held in the names of shell companies that they controlled.  A portion of the proceeds was then kicked back to the brokers who had recruited the investors.  Altogether, the defendants stole over $50 million from investors in the United States and several foreign countries. 

*                *                *

JACOBS was arrested at Los Angeles International Airport in California on December 11, 2016, and was presented in federal court before a U.S. Magistrate Judge in Santa Ana, California, on December 12.  HANDLER-JACOBS was arrested in Albuquerque, New Mexico, on December 11, 2016, and was presented in federal court before a U.S. Magistrate Judge in Albuquerque on December 12.  LESTER was arrested in Mount Vernon, Washington, on December 12, 2016, and presented the same day in federal court before a U.S. Magistrate Judge in Seattle, Washington.  GENDREAU was arrested on December 12, 2016, in Savanna, Illinois, and was presented in federal court before a U.S. Magistrate Judge in Rockford, Illinois, earlier today.  EDWARDS and HO are currently at large. 

The case is assigned to U.S. District Judge Paul G. Gardephe.  Arraignment is scheduled for December 20, 2016, in federal court in Manhattan. 

EDWARDS, 55, of Sri Lanka, JACOBS, 64, of Albuquerque, New Mexico, and HANDLER-JACOBS, 64, of Albuquerque, New Mexico are each charged with one count of conspiracy to commit wire fraud and one count of wire fraud, each of which carries a maximum sentence of 10 years in prison; one count of conspiracy to commit money laundering and two counts of money laundering, each of which carries a maximum sentence of 20 years in prison; one count of conducting monetary transactions in unlawful funds, which carries a maximum sentence of 10 years in prison; one count of conspiracy to impersonate employees of the United States, which carries a maximum sentence of five years; one count of impersonating employees of the United States, which carries a maximum sentence of three years; and aggravated identity theft, which carries a maximum sentence of two years in prison. 

HO, 80, of Singapore, LESTER, 71, of Mount Vernon, Washington, and GENDREAU, 46, of Savanna, Illinois, are each charged with one count of conspiracy to commit wire fraud and one count of wire fraud, each of which carries a maximum sentence of 10 years in prison; and one count of aggravated identity theft, which carries a maximum sentence of two years in prison.   In addition, HO is charged with one count of conspiracy to impersonate employees of the United States, which carries a maximum sentence of five years; and one count of impersonating employees of the United States, which carries a maximum sentence of three years. 

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

Mr. Bharara praised the investigative work of HSI and the FBI.  Mr. Bharara also thanked the Federal Reserve Bank of New York for its ongoing cooperation in this investigation. 

The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit.  Assistant United States Attorney Daniel S. Noble 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.

[1]  As the introductory phase 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.

Preet Bharara, the United States Attorney for the Southern District of New York, Angel M. Melendez, Special Agent In Charge of the New York Field Office of the Department of Homeland Security, Homeland Security Investigations (“HSI”), and Deirdre L. Fike, Assistant Director in Charge of the Los Angeles Field Office of the Federal Bureau of Investigation (“FBI”), announced the unsealing of an Indictment charging six defendants with conspiracy, wire fraud, impersonation of Federal Reserve Bank of New York (“New York Fed”) officials, money laundering, and other crimes in connection with a fraudulent high-yield investment scheme that resulted in the theft of over $50 million from investors in the United States and around the world. 

Manhattan U.S. Attorney Preet Bharara said:  “Edwards and his co-defendants allegedly concocted and carried out an audacious scam, promising investors exponential returns on investments they claimed were overseen by the New York Federal Reserve and backed by the U.S. government.  In reality, it was all a lie; there was no government-backed program and no plan to invest, only an alleged plan to steal the investors’ money.”

HSI Special Agent in Charge Angel M. Melendez said: “Using forged and counterfeit Federal Reserve documents, these individuals allegedly orchestrated a complex international scheme that cost unwitting investors both here and abroad over $50 million dollars. This indictment shows the great length that criminals will go to steal the money of hard working individuals. HSI is up to the challenge to uncover these schemes and bring the participants to justice.”

FBI Assistant Director Deirdre L. Fike said: “The defendants in this case allegedly used complicated terminology and claimed to have international sophistication as they swindled their victims. Skilled investigators with the FBI and with the HSI will continue our joint efforts to mitigate the threat to capital markets around the world.”

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

From at least June 2013 through August 2016, RIENZI EDWARDS, MICHAEL JACOBS, RUBY HANDLER-JACOBS, F.K. HO, LAWRENCE LESTER, and RACHEL GENDREAU orchestrated and executed a fraudulent high-yield investment program known as the “Cities Upliftment Program,” or CUP, which the defendants falsely told investors was operated by the New York Fed.  The scheme was principally designed and operated by EDWARDS, with the assistance of JACOBS and HANDLER-JACOBS, and was marketed to investors around the world through brokers, including HO, LESTER, and GENDREAU. 

The defendants pitched the CUP to investors as a highly exclusive, invitation-only, public-private investment partnership designed to raise capital and generate large returns through a purported “trading program” run by the New York Fed.  The defendants promised investors that the CUP would generate extremely high returns on their investments, in some cases as much as $150 million for every $1 million invested.  The defendants claimed that half of the returns would be used to help revitalize American cities recovering from the 2008 financial crisis, and that the other half would be returned to the investors at the rate of $1 million per day for 75 banking days.  The defendants told numerous other lies to victims to convince them to invest, including that their funds would be held in a trust account established by the New York Fed and that CUP investments were risk-free because they were “guaranteed” by the United States government.  In truth, and as the defendants well knew, the CUP was a complete scam. 

One of the primary ways in which the defendants tricked victims into investing millions of dollars in the CUP scheme was the use of forged and counterfeit New York Fed documents.  On numerous occasions, the defendants sent, or caused to be sent, investment contracts, guarantees, correspondence, and other CUP-related documents printed on what appeared to be New York Fed letterhead and bearing the names and purported signatures of New York Fed officials, including the president, certain board members, and other senior officials of the New York Fed.  In addition, EDWARDS, JACOBS, and HO, with the assistance of HANDLER-JACOBS, pretended to be New York Fed officials during in-person meetings and phone calls with investors to convince them to invest in the CUP.

Instead of holding investors’ funds in the purported trust accounts as promised, the defendants simply stole the money.  EDWARDS, JACOBS, and HANDLER-JACOBS caused the bulk of the funds to be laundered through various domestic and overseas bank accounts in Hong Kong, Barbados, the United Kingdom, and Sri Lanka held in the names of shell companies that they controlled.  A portion of the proceeds was then kicked back to the brokers who had recruited the investors.  Altogether, the defendants stole over $50 million from investors in the United States and several foreign countries.       

*                *                *

 JACOBS was arrested at Los Angeles International Airport in California on December 11, 2016, and was presented in federal court before a U.S. Magistrate Judge in Santa Ana, California, on December 12.  HANDLER-JACOBS was arrested in Albuquerque, New Mexico, on December 11, 2016, and was presented in federal court before a U.S. Magistrate Judge in Albuquerque on December 12.  LESTER was arrested in Mount Vernon, Washington, on December 12, 2016, and presented the same day in federal court before a U.S. Magistrate Judge in Seattle, Washington.  GENDREAU was arrested on December 12, 2016, in Savanna, Illinois, and was presented in federal court before a U.S. Magistrate Judge in Rockford, Illinois, earlier today.  EDWARDS and HO are currently at large. 

The case is assigned to U.S. District Judge Paul G. Gardephe.  Arraignment is scheduled for December 20, 2016, in federal court in Manhattan. 

EDWARDS, 55, of Sri Lanka, JACOBS, 64, of Albuquerque, New Mexico, and HANDLER-JACOBS, 64, of Albuquerque, New Mexico are each charged with one count of conspiracy to commit wire fraud and one count of wire fraud, each of which carries a maximum sentence of 10 years in prison; one count of conspiracy to commit money laundering and two counts of money laundering, each of which carries a maximum sentence of 20 years in prison; one count of conducting monetary transactions in unlawful funds, which carries a maximum sentence of 10 years in prison; one count of conspiracy to impersonate employees of the United States, which carries a maximum sentence of five years; one count of impersonating employees of the United States, which carries a maximum sentence of three years; and aggravated identity theft, which carries a maximum sentence of two years in prison. 

HO, 80, of Singapore, LESTER, 71, of Mount Vernon, Washington, and GENDREAU, 46, of Savanna, Illinois, are each charged with one count of conspiracy to commit wire fraud and one count of wire fraud, each of which carries a maximum sentence of 10 years in prison; and one count of aggravated identity theft, which carries a maximum sentence of two years in prison.   In addition, HO is charged with one count of conspiracy to impersonate employees of the United States, which carries a maximum sentence of five years; and one count of impersonating employees of the United States, which carries a maximum sentence of three years.   

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

Mr. Bharara praised the investigative work of HSI and the FBI.  Mr. Bharara also thanked the Federal Reserve Bank of New York for its ongoing cooperation in this investigation. 

The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit.  Assistant United States Attorney Daniel S. Noble 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.

[1]  As the introductory phase 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.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that CHRISTOPHER AHERN was sentenced today to 30 months in prison for preparing and filing false and fraudulent tax returns that claimed more than $4.7 million in credits and expenses.  AHERN pled guilty on July 5, 2016, before United States District Judge Deborah A. Batts, who imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara said:  “Christopher Ahern used his clients’ tax returns to bilk the IRS of more than $3 million in fraudulent credits, pocketing more than a million dollars in fees.  But because of the investigative efforts of the IRS, Ahern’s dishonest business is closed.”

According to the allegations in the Information to which AHERN pled guilty, other documents filed in Manhattan federal court, and statements made in court proceedings:

AHERN, owned and operated a tax preparation business called Get My Refund Fast, located in the Bronx, New York.  From 2012 through 2013, AHERN’s business prepared and submitted to the Internal Revenue Service (“IRS”) nearly 5,000 tax returns.  These tax returns were false and fraudulent in that they claimed education credits to which the clients were not entitled.  The IRS issued approximately $3 million pursuant to the false and fraudulent returns AHERN filed.  AHERN received more than $1.5 million in fees from his clients for preparing and filing the fraudulent returns. 

*                *                *

In addition to his prison term, AHERN, 40, of Little Neck, New York, was sentenced to three years of supervised release and ordered to pay $3 million in restitution.

 Mr. Bharara praised the investigative work of the IRS, Criminal Investigations. 

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

Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today a complaint charging LEON ZINDER with the interstate sale of stolen property in connection with his theft and attempted sale of more than a dozen works of art.  ZINDER was arrested this morning at his home in Forest Hills, Queens, and will be presented this afternoon in Manhattan federal court before U.S. Magistrate Judge Katherine H. Parker. 

U.S. Attorney Preet Bharara said:  “As alleged, Leon Zinder stole works of art worth more than $600,000 from his employer and then sought to sell them through a flea market in Manhattan.  This Office, working with our law enforcement partners at the FBI, have helped recover and return countless works of stolen art and artifacts to their rightful owners.  And today, we do so again, as well as seeking to hold the alleged thief accountable.”

FBI Assistant Director-in-Charge William F. Sweeney Jr. said:   “As we allege in our case, Leon Zinder stole African tribal and Native American art from his employer over a two year period then fabricated stories of the pieces coming from a storage-unit close-out sale or from an elderly widow in Arizona to establish a consignment sale relationship with an unsuspecting art dealer.  This case was brought forward to the FBI by an art dealer who started to realize these stories were too good to be true.”

According to the allegations in the Complaint[1]:

From approximately July 2010 through April 2012, LEON ZINDER was employed as an art handler by a New York-based company (the “Company”) that manages an extensive art collection consisting of thousands of individual artworks, including an extensive collection of Native-American and African ethnographic artwork.  During that time, ZINDER stole at least 13 works of art from facilities maintained by the Company. 

Beginning in approximately September of 2015 through October 2016, ZINDER sold, or attempted to sell, the stolen artwork through a consignment relationship with an art dealer who conducted his business through an outdoor flea market in lower Manhattan (the “Dealer”).  As part of his efforts to sell the stolen artwork, ZINDER falsely claimed he had obtained the works from both the elderly widow of a sheriff in Phoenix, Arizona, and from a storage-unit close-out sale.

In total, ZINDER attempted to sell at least 13 works of art through the Dealer, worth more than $600,000.  This included at least three items that ZINDER had stolen from the Company’s Greenwich, Connecticut, facility and transported to Manhattan: a Fang Reliquary Guardian Head statue valued at approximately $85,000; a Native American mask valued at approximately $75,000; and a Pende mask valued at approximately $5,000.

Eventually, the Dealer became aware that several of the artworks he had helped ZINDER to sell had been reported stolen by the Company.  At that point, the Dealer contacted the FBI and began assisting in the subsequent investigation, including turning over the majority of the stolen works to the FBI.

*                      *                      *

ZINDER, 48, of Forest Hills, Queens, is charged with one count of interstate sale of stolen property, which carries a maximum penalty of 10 years in prison and a maximum fine of $250,000, or twice the defendant’s gross gain or twice the victim’s gross loss resulting from the defendant’s conduct, whichever is greater.  The statutory maximum 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.

Mr. Bharara thanked the FBI’s Art Crime Team for its outstanding work on this matter.

Anyone with information relevant to this investigation is asked to contact the FBI’s Art Crime Team at (212) 384-1000 or https://tips.fbi.gov/.

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

[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.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that NORMAN D’SOUZA, the former chief financial officer and vice president of finance of a New Jersey-based furniture wholesaler and retailer (“Company-1”) and an Indiana-based furniture manufacturer affiliated with Company-1 (“Company-2”) (collectively, the “Companies”), was sentenced yesterday to two years in prison for orchestrating a fraudulent scheme to obtain $17 million in loans from a commercial bank based in New York, New York (the “Bank”), and $1 million in municipal loans from Gas City, Indiana (the “City”).  D’SOUZA and his co-conspirators obtained this financing by making false statements and providing false and fraudulent documents concerning the Companies’ financial condition.  D’SOUZA pled guilty on April 1, 2016, before U.S. District Judge Ronnie Abrams, who imposed yesterday’s sentence.  

Manhattan U.S. Attorney Preet Bharara said:  “Norman D’Souza repeatedly misrepresented the financial condition of two companies to deceive a bank and a municipality into lending the companies millions of dollars.  He will now spend time in a federal prison for his crimes.”

According to the allegations contained in the criminal information to which D’SOUZA pled guilty, other documents filed in Manhattan federal court, and statements made in court proceedings:

From 2011 until September 2014, Company-1, through D’SOUZA and others, fraudulently induced the Bank into lending Company-1 millions of dollars by repeatedly making false and misleading statements about Company-1’s financial condition.  D’SOUZA falsely inflated Company-1’s sales and accounts receivable on “borrowing base certificates” and in financial statements that D’SOUZA provided to the Bank pursuant to loan agreements.  D’SOUZA used those falsely inflated sales and accounts receivable to mislead the Bank about Company-1’s true financial performance, which enabled Company-1 to secure and draw down a $17 million revolving credit facility from the Bank.  Company-1 ultimately defaulted on the loans issued by the Bank in September 2014.  At that time, the outstanding balance of the loans was approximately $16.99 million.

Separately, in 2012, the City offered loans and other financial incentives to Company-2 in return for Company-2’s agreement to operate a furniture factory in the City and employ local residents.  To secure this arrangement, among other things, D’SOUZA falsely inflated Company-2’s sales figures in financial statements provided to the City.  The false financial statements misled the City about Company-2’s true financial performance and enabled Company-2 to secure and draw down more than $1 million in loans from the City.  Company-2 ultimately defaulted on the loans issued by the City in September 2014, causing approximately 60 City residents to lose their jobs.  At that time, the outstanding balance of the loans was $1 million.

*                *                *

In addition to his prison term, D’SOUZA, 50, of Monmouth Junction, New Jersey, was sentenced to two years of supervised release, and ordered to pay forfeiture and restitution, both in the amount of $12,256,871.48.

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

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States has filed a lawsuit against 111 EAST 88TH PARTNERS, a partnership, for violating the Fair Housing Act.  The Government alleges that 111 EAST 88TH PARTNERS discriminated against a disabled tenant, Gregory Reich, by failing to permit a reasonable accommodation of the tenant’s psychiatric disability.

U.S. Attorney Preet Bharara said: “We have repeatedly filed lawsuits of this sort, and will continue to do so, until housing providers understand that the Fair Housing Act plainly allows tenants with disabilities to keep assistance animals.” 

As alleged in the Complaint filed in Manhattan federal court:

Reich is a statutory lessee of an apartment in a building located at 111 East 88th Street, New York, New York.  Reich suffers from depression and a personality disorder, and has long suffered from chronic kidney disease.  In March 2015, Reich was diagnosed with end stage renal disease, which led to a significant deterioration of his mental health and a reduced capacity to care for himself.  On June 18, 2015, Reich requested a reasonable accommodation to keep an emotional support dog based on updated medical information related to his recent diagnosis of end stage renal disease.  Reich attached letters from his physician and his therapist.  In response, 111 EAST 88TH PARTNERS requested that Reich provide copies of all of the therapist’s notes from his sessions with Reich from May 2014 through present, and copies of Reich’s medical records and medical history.  111 EAST 88TH PARTNERS also reserved the right to have Reich examined by a physician it had selected, and to require Reich, his physician, and his therapist to appear to answer questions under oath relating to Reich’s disability and accommodation request. 

Believing that 111 EAST 88TH PARTNERS’ requests for medical information were so burdensome as to constitute a denial of the reasonable accommodation request, Reich filed an administrative complaint with the U.S. Department of Housing and Urban Development (“HUD”).  Upon investigation, HUD determined that there was reasonable cause to believe that the Fair Housing Act had been violated.  Thereafter, 111 EAST 88TH PARTNERS elected pursuant to the Fair Housing Act to have HUD’s determination resolved in federal court.

In these circumstances, the Fair Housing Act authorizes the Department of Justice to commence an action in United States District Court on behalf of Reich.  The Complaint seeks declaratory, injunctive, and monetary relief for Reich.

Mr. Bharara thanked HUD for its efforts in the investigation.

The case is being handled by the Office’s Civil Rights Unit.  Assistant United States Attorney Sharanya Mohan is in charge of the case.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that EDMUND QUINCY MUNTSLAG, a citizen of Suriname, was sentenced yesterday in Manhattan federal court to 135 months in prison for conspiring to import cocaine into the United States.  MUNTSLAG was convicted on March 22, 2016, after a four-day jury trial before former U.S. District Judge Shira A. Scheindlin.  Sentence was imposed yesterday by U.S. District Judge Alison J. Nathan.

Manhattan U.S. Attorney Preet Bharara said:  “Edmund Muntslag conspired to create a drug route for hundreds of kilograms of cocaine from his home country of Suriname to the streets of New York City.  Thanks to the outstanding work of the Drug Enforcement Administration, Muntslag will join co-defendant Dino Bouterse in serving a long sentence in a federal prison.”

According to the allegations contained in the Indictment, other documents publicly filed in Manhattan federal court, and the evidence introduced at trial:

In 2013, MUNSTLAG, along with co-defendant Dino Bouterse, the son of the President of Suriname who declared himself the head of that country’s Counterterrorism Unit, conspired to sell hundreds of kilograms of cocaine to a purported Mexican cartel for importation to the U.S. In furtherance of this conspiracy, Bouterse supplied to individuals that he and MUNTSLAG believed to be representatives of the cartel, but who in fact were confidential sources working at the direction and under the supervision of the Drug Enforcement Administration (“DEA”), with genuine Surinamese passports bearing false identification information. 

Approximately three weeks later, MUNTSLAG received $60,000 in cash as a payment to allow a 10-kilogram “test load” of cocaine to pass through the airport in Paramaribo, Suriname, where it was to be loaded onto a commercial airline flight concealed inside luggage.  Thereafter, MUNTSLAG worked with corrupt airport employees in Suriname to send the 10-kilogram test load to Port-of-Spain, Trinidad and Tobago, from where MUNTSLAG and Bouterse believed it would be further transported and sold by the purported cartel in New York, New York. MUNTSLAG and Bouterse expected to receive proceeds from the sale of the cocaine in New York, and also expected to send additional, 100-kilogram cocaine shipments to the purported cartel using a similar method upon the successful completion of the test load. 

The cocaine was seized by Trinidadian law enforcement officers, in coordination with agents of the DEA, in Port-of-Spain on July 27, 2013.  MUNTSLAG was arrested in Port-of-Spain on August 29, 2013, and Bouterse was arrested in Panama City, Panama, on August 29, 2013.

*                *                *

MUNTSLAG was convicted of conspiring to import five kilograms and more of cocaine into the United States.  In addition to his prison term, MUNTSLAG, 33, of Suriname, was ordered to pay a $100 special assessment.

On August 29, 2014, Bouterse, 43, also of Suriname, pled guilty to attempting to provide material support to Hezbollah, a Foreign Terrorist Organization; using and carrying a firearm or during and in relation to a drug-trafficking crime; and conspiring to import five kilograms and more of cocaine into the United States.  On March 10, 2015, Bouterse was sentenced principally to a term of 195 months in prison.

Mr. Bharara praised the outstanding efforts of the Special Operations Division of the DEA.  Mr. Bharara also thanked the DEA’s Miami Field Division, Panama City Country Office, Port-of-Spain Country Office, and Bogota Country Office; the Government of Trinidad and Tobago; and the U.S. Department of Justice’s Office of International Affairs.

This case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant United States Attorneys Michael D. Lockard and Andrew DeFilippis are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced the unsealing of charges today against NIMESH PATEL, a former information technology employee at a large national nonprofit organization (the “Society”) and DILIP VADLAMUDI, the owner of an information technology outsourcing company located in Indiana, for engaging in a bribery and kickback scheme.  PATEL was arrested this morning in New Jersey, and was presented today before United States Magistrate Judge Katharine H. Parker.  VADLAMUDI was arrested this morning in Indiana, and was expected to be presented

U.S. Attorney Preet Bharara said:  “As alleged, the defendants conspired to defraud a national nonprofit organization.  Patel allegedly abused his position at the nonprofit to funnel millions in fees to Vadlamudi’s company in exchange for hundreds of thousands in kickbacks.  Thanks to the investigative work of the U.S. Postal Inspection Service, the defendants’ alleged fraud scheme has been put to an end.”

USPIS Inspector-in-Charge Philip R. Bartlett said:  “These individuals took advantage of their business relationship by devising a scheme to ‘fatten their wallets,’ while having no regard for the victimized nonprofit organization.  Postal Inspectors will always be on the forefront of bringing criminals to justice for their greedy misdeeds against the American public.”

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

The Society is a large nonprofit health care organization with national headquarters in Westchester, New York.  PATEL was employed as a senior director in the information technology group at the Society.  During the time PATEL worked at the Society, he signed acknowledgements of its conflict-of-interest policy, which prohibited employees from soliciting or accepting payments from any individual or organization that had business with the Society.  VADLAMUDI owned a company headquartered in Indiana (“VADLAMUDI Company-1”) that, among other things, acted as a temporary staffing company for information technology (“IT”) professionals.  VADLAMUDI Company-1 had a contract with the Society pursuant to which Society employees, including PATEL, were authorized to hire temporary employees on behalf of the Society from VADLAMUDI Company-1.

From in or about October 2012 through in or about September 2014, PATEL hired numerous temporary IT employees from VADLAMUDI Company-1, which caused the Society to pay VADLAMUDI Company-1 millions of dollars in fees.  During that same time period, VADLAMUDI paid PATEL approximately $274,000 in kickbacks.  PATEL and VADLAMUDI exchanged emails regarding this kickback scheme.  For instance, on a regular basis PATEL and VADLAMUDI exchanged spreadsheets listing the names of VADLAMUDI Company-1 temporary IT employees hired by the Society, along with a kickback amount calculated per employee.

In order to make payments to PATEL, VADLAMUDI used a bank account associated with a different company he controlled to transfer approximately $274,000 to the bank account for a shell corporation set up by PATEL.  PATEL used that money for his personal expenses, including $80,000 toward a down payment on his residence and over $100,000 transferred into his personal bank account.

When the Society conducted an investigation into allegations of bribery and kickbacks in the IT department in the fall of 2014, PATEL falsely denied receiving money from VADLAMUDI.

*                      *                      *

PATEL, 45, of Woodcliff Lake, New Jersey, and VADLAMUDI, 45, of Carmel, Indiana, are both charged in three counts: one count of conspiracy to commit honest services wire fraud; one count of conspiring to violate the Travel Act; and one count of conspiring to commit money laundering.  Counts One and Three each carry a maximum sentence of 20 years in prison.  Count Two carries a maximum sentence of five years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

Mr. Bharara praised the work of the USPIS.   

This case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorney Richard Cooper is in charge of the prosecution.   

The allegations contained 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 set forth herein, constitute only allegations, and every fact described should be treated as an allegation.

Preet Bharara, the United States Attorney for the Southern District of New York, Angel Melendez, Special Agent in Immigration and Customs Enforcement’s Homeland Security Investigations in New York (“HSI”), George P. Beach II, Superintendent of the New York State Police, and Daniel C. Cameron, the Chief of the City of Newburgh Police Department announced the arrest of VICTOR M. RIVAS, EDWARD CARDONA, JULIO A. DAVILA, and RONALD L. MATIAS a/k/a “Ronald Louis” stemming from a narcotics conspiracy to establish a retail heroin-selling organization.  VICTOR M. RIVAS was arrested at his home in Newburgh, New York, and MATIAS was arrested at a motel in Newburgh.   CARDONA and DAVILA were arrested at the retail shop at 427 Broadway in Newburgh.  They will be presented today before U.S. Magistrate Judge Lisa Margaret Smith in White Plains federal court.

Law enforcement officers also executed search warrants on several locations where they believed the organizers were storing narcotics.  They seized a brick containing a substance that appeared to be heroin from behind the shop, and approximately $250,000 in cash from a storage unit used by the defendants.  Law enforcement also recovered a quantity of a substance that appeared to be heroin from DAVILA that was on his person when he was arrested.

VICTOR R. RIVAS, was also charged.  He is currently incarcerated on state charges and will be transported to federal custody to face the federal narcotics conspiracy charges.  

Manhattan U.S. Attorney Preet Bharara said:  “As alleged, these defendants blatantly sold heroin from a storefront on a main street in Newburgh, New York.  By flouting the law and selling heroin like newspapers or lottery tickets, the Complaint alleges, they also helped fuel the tragic epidemic of opioid abuse that is devastating so many of our communities.”

HSI Special Agent-in-Charge Angel Melendez said:  “This organization allegedly operated daily selling drugs out of their store while posing as a legitimate business. Using fake storefronts has been a way for criminals to hide in our neighborhoods while poisoning our communities.  Whether it’s a sham barber shop or a bogus sports store, there is no place to hide.  HSI and its law enforcement partners continue to work tirelessly, day and night, to find these drug pushers and take them off our streets.”

New York State Police Superintendent George P. Beach II said:  “Once again, a strong law enforcement partnership has brought down an illegal narcotic operation.  State Police members each day see the harmful effects of heroin on individuals, families and our neighborhoods.  A drug like heroin destroys communities and puts lives at risk.  I applaud our members and our partners for their strong police work.  We will continue to work together to make our communities safer from crime.”

City of Newburgh Police Chief Daniel C. Cameron stated: “The City of Newburgh Police Department is proud to have played an integral role in the arrest of these defendants - alleged drug deals blatantly operating a storefront to sell heroin on the streets of our city.  This arrest would not have been possible without the combined efforts of local, state, and federal law enforcement, working cooperatively and without agendas.  Today, the residents of Newburgh are all a bit safer, as several alleged heroin dealers are behind bars.”

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

Since January 2016, law enforcement agents have been involved in an investigation of a narcotics trafficking organization (the “Organization”) run by VICTOR M. RIVAS, with the assistance of CARDONA, DAVILA, VICTOR R. RIVAS, and MATIAS that operates in and around Newburgh, New York, and specifically at a storefront location at 427 Broadway in Newburgh that alternately operates as a soccer shop and a barbershop (the “Soccer Shop”). 

During this investigation, undercover New York State Police officers (the “UCs”) and confidential sources (the “CSs”) conducted dozens of controlled buys of heroin at the Soccer Shop from several of the defendants.  In aggregate, from January 2016 to November 2016, the UCs and CSs purchased approximately 515 glassine envelopes of a substance sold as, and later determined to be heroin, at the Soccer Shop.  Ten glassine envelopes typically contain approximately 0.25 grams of heroin.

Law enforcement officials believe that the Organization distributed well over 1 kilogram of heroin from January 2016 through November 2016.  That belief is based, in part, on:  (i) the fact that, on the numerous occasions when the UCs and CSs sought to purchase heroin from the defendants, the heroin was readily available; (ii) the UCs and CSs frequently observed other customers of the Organization inside the Soccer Shop purchasing heroin; (iii) surveillance footage from a camera facing the Soccer Shop indicated that the Organization operated daily from approximately 5:30 a.m. to 6:30 p.m., and that a steady stream of customers tended to enter the shop while it  was open and remain inside for only a few minutes each; and (iv) the observations of the UCs and CSs, as well as recorded audio and video surveillance, which indicate that the Soccer Shop is not engaged in any legitimate business as a barbershop, sports shop, or otherwise.  During the course of this investigation, the only business observed to be conducted inside the Soccer Shop was the illegal sale of narcotics.

*          *          *

VICTOR M. RIVAS, 51, of Newburgh, CARDONA, 33, of Newburgh, DAVILA, 26, of Newburgh, VICTOR R. RIVAS, 28, of Newburgh, and MATIAS, 35, are each charged with one count of conspiring to violate the narcotics laws of the United States, by conspiring to distribute and possess with intent to distribute 1 kilogram and more of a mixture or substance containing a detectable amount of heroin.  The charge carries a maximum sentence of life in prison and a mandatory minimum 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.

Mr. Bharara thanked the Drug Enforcement Administration and the City of Newburgh Police Department for their assistance with this investigation.  He added that the investigation is continuing.

This case is being handled by the Office’s White Plains Division.  Assistant United States Attorneys Jacqueline C. Kelly and Allison Nichols 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 below constitute only allegations and every fact described should be treated as an allegation.

Joon Kim, Deputy United States Attorney for the Southern District of New York, and Michael McGarrity, Special Agent in Charge of the Criminal Division of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that a Roman marble peplophoros statue (the “Torlonia Peplophoros”), stolen from the Villa Torlonia in Rome in 1983, was returned to Italy today at a repatriation ceremony at the New York Historical Society in Manhattan.  The Torlonia Peplophoros was sold in Manhattan in 2001 after being unlawfully brought into the United States in the late 1990s, and was forfeited to the United States as a result of civil forfeiture action brought by the U.S. Attorney’s Office.

Deputy U.S. Attorney Joon Kim said: “On a November night in 1983, the Torlonia Peplophoros, a marble statute listed on Italy’s national archive, was stolen from its home in a Roman villa.  When it emerged in New York City more than 30 years later, having been unlawfully smuggled into the United States, our Office, working with the FBI, forfeited the statue as stolen property.  Today, we have the pleasure returning the Torlonia Peplophoros home where it belongs, with the Italian people.”

FBI Special Agent in Charge Michael McGarrity said, “Today’s ceremony is just one example of the FBI’s commitment to restore significant arts and antiquities to their rightful owners, and we remind everyone of the significant role they serve in preserving the history of the world.”

According to court filings and other publically available information:

In 1797, Giovanni Torlonia, a famous Vatican banker in Rome, purchased what is now called the Villa Torlonia (the “Villa”) after inheriting the title of Marchese.  The Torlonia family owned the Villa until 1977, though it was used by Benito Mussolini as his personal residence from 1925 to 1943, and then occupied by the Allied High Command from 1944 to 1947.  After 1947, the Villa was abandoned and deteriorated until the Municipality of Rome purchased it from the Torlonia family in 1977. 

Since 1978, the Villa has been opened to the public and restored by the Municipality of Rome.  It contained various works of art and other significant cultural property, including the Torlonia Peplophoros, a statue depicting a woman wearing a body-length garment, known as a peplos (or peplum), that was common in ancient Greece.

During the night of November 11, 1983, and the following morning, an unknown number of thieves stole 15 statues and other items from the Villa.  The Torlonia Peplophoros was among the stolen statues.

In the late 1990s, the Torlonia Peplophoros was imported into the United States by the owner of a New York City art gallery (the “Gallery”).  In 2001, the Gallery sold the Torlonia Peplophoros to an individual residing in New York City (the “Buyer”) for approximately $75,000.

The Buyer became aware that the Torlonia Peplophoros was stolen when the Buyer attempted to offer it for sale through a New York City auction house, and voluntarily turned it over to the FBI in late 2015.

On February 25, 2016, the U.S. Attorney’s Office for the Southern District of New York filed a civil forfeiture Complaint alleging that the Torlonia Peplophoros had been imported into the United States illegally.  On June 29, 2016, United States District Court Judge Katherine P. Failla entered a default judgment forfeiting the Torlonia Peplophoros to the United States.

*          *         *

Mr. Kim thanked the FBI’s Art Crime Team for its outstanding work on this matter.

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

Today, the U.S. Supreme Court unanimously and ‘easily’ rejected the Second Circuit’s novel reinterpretation of insider trading law in U.S. v. Newman.  In its swiftly decided opinion, the Court stood up for common sense and affirmed what we have been arguing from the outset – that the law absolutely prohibits insiders from advantaging their friends and relatives at the expense of the trading public. Today’s decision is a victory for fair markets and those who believe that the system should not be rigged.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ALONZO KNOWLES, a/k/a “Jeff Moxey,” was sentenced today to five years in prison for criminal copyright infringement of scripts of movies and television shows that had not yet aired, as well as theft of personally identifiable information, all of which KNOWLES obtained by hacking into the email accounts of numerous individuals in the entertainment, sports, and media industries.  KNOWLES pled guilty on May 9, 2016, before U.S. District Judge Paul A. Engelmayer, who imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara said:   “Alonzo Knowles hacked into the private emails of entertainment and sports celebrities, stole personal information and property, including unreleased movie and television scripts, and attempted to sell them to the highest bidder.  For his frightful violation of privacy, Knowles has been sentenced to substantial term of imprisonment.”

According to the Indictment, other documents filed in Manhattan federal court, and statements made at various proceedings in this case, including the guilty plea:

KNOWLES unlawfully accessed the personal email accounts of numerous individuals in the entertainment, sports, and media industries (the “Victims”).  As a result of this hacking scheme, KNOWLES obtained Victims’ copyrighted and confidential documents, including scripts of movies and television shows that had not yet been publicly released, personal identifying information such as Social Security numbers, and private sexually explicit photographs and videos. 

Over the course of two weeks in December 2015, KNOWLES and an undercover law enforcement agent (the “UC”) communicated about the stolen materials KNOWLES sought to sell to the UC.  KNOWLES claimed to the UC that he had “exclusive content” that was “really profitable” and worth “hundreds of thousands of dollars.”  KNOWLES stated that he obtained the material directly from the Victims without their knowledge, and claimed to be able to acquire such material from at least some of the approximately 130 Victims whose email addresses and phone numbers he had in his possession. 

On December 21, 2015, KNOWLES met with the UC in New York, New York.  During their meeting, KNOWLES described two methods he used to hack each Victim’s email account.  The easier method involved sending a virus to the Victim’s computer that would enable KNOWLES to access it.  The more difficult method involved KNOWLES sending a false hacking notification to the Victim and asking the Victim for his passcodes.  Once KNOWLES had used the Victim’s passcodes to successfully access the Victim’s email account, KNOWLES, unbeknownst to the Victim, would change the settings in the Victim’s email account in order to continue to access to the email account.  In order to avoid detection from the Victim, KNOWLES would delete notifications from the email service provider regarding changes to the settings of the Victim’s email account.  On December 21, 2015, KNOWLES attempted to sell numerous movie and television scripts and personally identifiable information that he had unlawfully obtained from the Victims to the UC in exchange for thousands of dollars, whereupon KNOWLES was arrested.

KNOWLES possessed a laptop computer in the Bahamas (the “Computer”), which he did not bring to New York in December 2015.  According to KNOWLES, the Computer contained confidential information, which he obtained via hacking, relating to various celebrities.  KNOWLES intended to sell this confidential information after serving a prison term for the instant offense.  After his arrest in December 2015 and before his sentencing, KNOWLES stated in his prison correspondence that he was willing to serve additional time in prison in order to retain the Computer.  Pursuant to a Consent Preliminary Order of Forfeiture issued by Judge Engelmayer, KNOWLES produced a laptop computer to a court-appointed receiver, which the receiver concluded was the Computer containing stolen materials at issue in this case.  Pursuant to Judge Engelmayer’s order, KNOWLES’s laptop has been subsequently destroyed.

*                *                *

In addition to the prison term, KNOWLES, 24, of Freeport, Bahamas, was ordered to pay a $200 special assessment.  A money judgment in the amount of $1,982.71 was also entered, and the defendant’s right, title, and interest in specific property seized by the Department of Homeland Security – including copyrighted materials, personally identifiable information of others, sexually explicit content of others, an iPad, and a phone – were ordered to be forfeited to the United States.

Mr. Bharara praised the investigative work of the Department of Homeland Security.

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

Preet Bharara, 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”), and Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced the unsealing of charges today against IRFAN AMANAT for his schemes to defraud the auditors and investors of KIT digital (“KITD”), a publicly traded technology start-up company based in New York and Prague, Czech Republic, and the investors of Maiden Capital LLC (“Maiden Capital”), an investment advisory firm based in North Carolina.

U.S. Attorney Preet Bharara said:  “As alleged, Irfan Amanat lied to auditors, investors, and the SEC about millions of dollars of KIT digital and Maiden Capital funds that were lost and misappropriated.  For his alleged deception, Irfan Amanat now faces multiple counts of federal fraud charges.”

FBI Assistant Director-in-Charge William F. Sweeney, Jr. said:  “Amanat allegedly engaged in a systematic scheme to scam investors and auditors alike.  He played cat and mouse with shareholders’ money, but couldn’t escape the final pursuit.  The FBI has dedicated a significant amount of resources to uncovering financial crimes targeted against individuals, businesses, and industries, and securities and commodities fraud remains at the top of our list of priorities.” 

USPIS Inspector-in-Charge Philip R. Bartlett said:  “Mr. Amanat allegedly participated in a scheme to mislead investors, while knowing the company Enable was totally insolvent.  He continued to solicit and receive investor funds and then lied on annual reports in an effort to conceal the misappropriation of funds from investors.  Postal Inspectors have no tolerance for these types of fraud schemes and will continue to dedicate resources to investigate and bring to justice those who participate in securities fraud.”

IRFAN AMANAT – the brother of Omar Amanat and an associate of Kaleil Isaza Tuzman (“Tuzman”), the former Chairman and CEO of KITD – was charged with securities fraud and conspiring to commit securities fraud, make false statements in annual and quarterly SEC reports filed by KITD, and make false statements to KITD’s auditors.  These charges relate to IRFAN AMANAT’s participation in a scheme to mislead KITD’s auditors and investors regarding KITD’s investment with Enable, an investment vehicle he at times controlled.  Instead of informing KITD’s auditors and investors that more than $2 million that KITD invested with Enable had been lost or fraudulently misappropriated, IRFAN AMANAT falsely represented that KITD’s investment with Enable was sound and earning steady interest.  IRFAN AMANAT was also charged with conspiracy to commit wire fraud, wire fraud, and aiding and abetting investment adviser fraud for participating in a scheme, along with Stephen Maiden (“Maiden”), to defraud investors in Maiden Capital, also regarding investments in Enable.  IRFAN AMANAT was arrested in Pine Brook, New Jersey, this morning and is expected to be presented today in federal court in Manhattan before a United States Magistrate Judge.

Maiden previously pled guilty to charges relating to his own involvement in manipulating the market in KITD shares, defrauding KITD shareholders concerning KITD’s investment in Maiden Capital, and defrauding Maiden’s investors concerning the Enable investment.  Maiden is cooperating with the Government in this investigation.

Tuzman was arrested in Colombia in September 2015 on market manipulation, accounting, and wire fraud charges and extradited to the United States in July 2016.  Omar Amanat was arrested in July 2016 on market manipulation and wire fraud charges, and for aiding and abetting Maiden’s fraud against his investment advisory clients.  Both Tuzman and Omar Amanat have been released on bail pending an October 2017 trial before the Honorable Paul G. Gardephe.           

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

Fraudulent Schemes Involving Enable

As alleged in the Complaint, between 2009 and 2012, IRFAN AMANAT engaged in two interrelated fraudulent schemes in which he falsely represented to auditors and investors that Enable maintained millions of dollars in accounts held for the benefit of KITD and Maiden Capital.  In truth, as IRFAN AMANAT well knew, KITD’s and Maiden Capital’s investments in Enable had long been lost, including through poor trading and misappropriations.

In 2008 and 2009, IRFAN AMANAT and Omar Amanat raised more than $10 million for a series of Amanat investment vehicles, including Enable, from more than 10 investors.  These funds included investments made by Tuzman, on behalf of KITD, and by Maiden, on behalf of Maiden Capital.  Of this money, IRFAN AMANAT lost more than $5.5 million through poor trading.  Omar Amanat, with the knowledge of IRFAN AMANAT, improperly diverted more than $3 million for his personal use. 

The Scheme to Defraud KITD’s Auditors and Investors

Between 2008 and 2012, KITD, a now-defunct but once publicly traded software company, was obligated to accurately report the nature of its purported assets, including whether assets were held in cash or otherwise.  As of on or about September 30, 2008, over 70% of KITD’s cash was invested with Enable.  By at least February 2009, however, Enable was insolvent.

Between 2009 until at least April 2012, IRFAN AMANAT, with the knowledge of Tuzman, Omar Amanat, and others, deceived KITD’s auditors and investors about KITD’s true financial health by misrepresenting that Enable maintained more than $2 million in liquid assets in an asset management account on behalf of KITD when, as IRFAN AMANAT well knew, the money had been lost or misappropriated.  In particular, IRFAN AMANAT misled KITD’s auditors by sending, or causing to be sent, balance confirmations, for the benefit of KITD’s auditors, falsely claiming that Enable maintained more than $2 million of KITD’s funds in an asset management account earning a steady interest rate.  IRFAN AMANAT made these misrepresentations knowing that they were material to the audit of KITD’s financial statements and, ultimately, to the investing public.  As a result of IRFAN AMANAT’s misrepresentations, various KITD annual financial filings were materially false.

The Scheme to Defraud Maiden Capital Investors

Maiden was the managing member of Maiden Capital, an unregistered investment advisory firm that managed portfolios of securities.  Clients empowered Maiden Capital and Maiden to make investment decisions on their behalf.  Maiden, in turn, was obligated to make such decisions based on the best interests of his clients.  In 2008, Maiden made a series of investments in Enable, for a total investment of more than $2 million.  In or about March 2009, Maiden learned that Enable was insolvent.

Between March 2009 until at least June 2012, IRFAN AMANAT, working with Maiden, Omar Amanat, and others, devised and carried out a scheme to hide the fact that Maiden Capital’s investment in Enable had been lost.  Rather than disclose the Enable losses to Maiden Capital’s investors, as he was legally obligated to do, Maiden concealed the Enable losses, thereby acting in his own self-interest and the interests of IRFAN AMANAT, his close associate, who did not want the Enable losses to be exposed.  IRFAN AMANAT aided and abetted Maiden’s investment advisory fraud by providing Maiden with fictitious account statements reflecting a positive Enable balance, knowing that the information in these statements would be provided to Maiden’s investors.  IRFAN AMANAT’s fraudulent assistance helped Maiden cover up the Enable losses for over three years.

IRFAN AMANAT, 45, is charged with one count of conspiracy to commit securities fraud, make false statements in annual and quarterly SEC reports, and make false statements to auditors, one count of securities fraud, one count of conspiracy to commit wire fraud, one count of wire fraud, and one count of aiding and abetting investment adviser fraud.  Counts Two, Three, and Four each carry a maximum sentence of 20 years in prison.  Counts One and Five each carry a maximum sentence of five years in prison.  Count Two carries a maximum fine of $5 million, or twice the gross gain or loss from the offense.  Counts One, Three, and Four each carry a maximum fine of $250,000 or twice the gross gain or loss from the offense.  Count Five carries a maximum fine of $10,000, or twice the gross gain or loss from the offense. 

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

*                      *                      *

Mr. Bharara praised the work of the FBI and the U.S. Postal Inspection Service, and thanked the Securities and Exchange Commission for their assistance.  He added that the investigation is continuing.

The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.  Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.  For more information on the task force, please visit www.StopFraud.gov.      

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorneys Damian Williams and Andrea M. Griswold are in charge of the prosecution.  

The allegations contained in the Complaint are merely accusations, and the defendant is

[1] As the introductory phase 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. 

Preet Bharara, the United States Attorney for the Southern District of New York, and James Schrant, Acting Special Agent in Charge of the United States Drug Enforcement Administration (“DEA”) Special Operations Division, announced today the arrest of SHAHBAZ KHAN for conspiring to import and attempting to import heroin into the United States.  KHAN was taken into custody by Liberian authorities on December 1, 2016, and expelled to the United States later that same day.  He was presented before United States Magistrate Judge James L. Cott today. 

U.S. Attorney Preet Bharara stated: “Shahbaz Khan allegedly had designs on establishing an international narcotics smuggling empire.  As alleged, Khan sought to arrange for five kilos of ‘100% pure’ heroin to be imported to New York from Asia, promising to supply hundreds of kilograms more.  Thanks to the work of the DEA, Khan’s plans have changed dramatically, from arranging massive shipments of heroin to American cities to defending federal narcotics charges in a Manhattan courtroom.”       

According to the allegations contained in the Complaint,[1] which was unsealed today:

Between at least in or about August 2016 and October 2016, KHAN participated in a series of telephone calls and in-person meetings in countries in Southwest Asia with individuals who KHAN believed were heroin traffickers interested in purchasing kilogram quantities of heroin for importation into the United States.  Those individuals were, in fact, working at the direction of the DEA, including an undercover law enforcement officer (the “UC”).  During those meetings and telephone calls, which were recorded, KHAN agreed to supply hundreds of kilograms of heroin from Southwest Asia for importation into the United States and distribution in New York City.  KHAN represented that he could send heroin to the United States, Canada, and “anywhere else in the world,” and that he was able to send the narcotics by plane or ship.  

In late September 2016, KHAN traveled to a country in Southwest Asia where KHAN met with the UC, among others.  During the meeting, KHAN agreed to provide the UC with an initial shipment of five kilograms of heroin for importation into the United States.  KHAN informed the UC that, once the five kilograms of heroin successfully arrived in New York City, KHAN would begin supplying the UC with larger quantities of heroin on a regular basis.  KHAN further assured the UC that the heroin KHAN would provide was 100% pure.

In early October 2016, one of KHAN’s employees, acting at his direction, delivered the five-kilogram initial shipment of heroin in the same country in Southwest Asia.  Through a series of recorded telephone calls, KHAN confirmed with the UC that the heroin his employee had provided was KHAN’s, that the heroin was to be transported to New York City, and that KHAN would be paid for the heroin once it arrived in the United States.

*                *                *

The Complaint charges KHAN, 68, a citizen of Pakistan, in two counts:

KHAN is charged with one count of conspiracy to import heroin into the United States, and one count of attempting to import heroin into the United States.  If convicted of Count One or Count Two, the defendant faces a maximum sentence of life in prison and a mandatory minimum sentence of 10 years in prison.  The statutory minimum and maximum 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.

Mr. Bharara praised the outstanding investigative efforts of the DEA Special Operations Division’s Bilateral Investigations Unit; the DEA Accra, Canberra, Dubai, Islamabad, Kabul, Nairobi, and New Delhi Country Offices; the DEA New York Organized Crime Drug Enforcement Strike Force Financial Investigative Team; the Government of Liberia; the Australian Criminal Intelligence Commission; and the Maldives Police Service.  The defendant’s arrest and subsequent expulsion are also the result of the close cooperative efforts of the U.S. Attorney’s Office for the Southern District of New York and the Department of Justice’s Office of International Affairs.

The case is being prosecuted by the Office’s Terrorism and International Narcotics Unit.  Assistant U.S. Attorneys Shawn G. Crowley and Rebekah Donaleski are 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.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that VIRGIL FLAVIU GEORGESCU was sentenced to 10 years in prison for conspiring to sell large quantities of military-grade weaponry to the Fuerzas Armadas Revolucionarias de Colombia (the “FARC”) – a designated foreign terrorist organization – to be used to kill Americans in Colombia.  GEORGESCU was sentenced today in Manhattan federal court by U.S. District Judge Ronnie Abrams.

Manhattan U.S. Attorney Preet Bharara said:  “Virgil Flaviu Georgescu was convicted by a unanimous jury of conspiring to sell the FARC military weapons, including anti-aircraft cannons and rocket-propelled grenades, to be used against American personnel and aircraft.  Having sought to profit from the murder of U.S. officers abroad, Georgescu will now spend years in a U.S. prison.”

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

Between May 2014 and December 2014, GEORGESCU, a Romania-based weapons broker, conspired with his co-defendants, a former Romanian government official and a former member of the Italian Parliament, to sell an arsenal of weapons, including machine guns and anti-aircraft cannons, to the FARC, with the understanding that the FARC would use the weapons against United States personnel in Colombia.  During a series of recorded telephone calls and in-person meetings, GEORGESCU and his co-conspirators agreed to sell the weapons to three confidential sources (the “CSs”), who represented that they were acquiring these weapons for the FARC but were, in fact, working with the Drug Enforcement Administration (“DEA”).  GEORGESCU and his co-conspirators agreed to provide these weapons to the CSs with the specific understanding that the weapons would be used to kill Americans and, in particular, to shoot down American helicopters and airplanes.

GEORGESCU first spoke with a CS in May 2014.  Thereafter, GEORGESCU recruited both of his co-conspirators to help obtain the weapons for the CSs, with the understanding that the former Romanian government official would provide weapons expertise and the former Italian member of Parliament would help secure fraudulent end-user certificates, in order to make the illegal sale of weapons look legitimate.  GEORGESCU instructed his co-conspirators and others involved in the deal to use encrypted applications when communicating about the weapons deal to avoid detection by U.S. authorities.

Over the course of five consensually recorded meetings with the CSs in Romania and Montenegro, GEORGESCU and his co-conspirators provided the CSs with catalogues of weapons that included anti-aircraft cannons, rocket-propelled and thermobaric grenades, and other high-powered weapons, as well as military-grade optical equipment.  During these meetings, the CSs explained that the arms would be used to kill Americans and GEORGESCU offered his thoughts on what weapons would best suit the FARC’s needs.

Between September 2014 and December 2014, GEORGESCU and his co-conspirators traveled to Romania, Montenegro, Italy, Germany, Albania, Poland, and Bulgaria to advance the weapons deal.  During this period, the co-conspirators met with weapons suppliers, obtained sample fraudulent end-user certificates, and test-fired military-grade rifles.  In December 2014, GEORGESCU and his co-conspirators secured a signed contract from a European weapons supplier to provide more than $17 million dollars’ worth of weapons to a straw purchaser.  After obtaining the signed contract, GEORGESCU and one of his co-conspirators secretly altered the document in order to increase the conspirators’ personal profits from the weapons sale.  On December 15, 2014, GEORGESCU met with the CSs, showed them the contract, and discussed means of payment and transportation of the weapons to Colombia.

*                      *                      *

GEORGESCU, 43, was arrested by Montenegrin authorities on the charges in the Indictment on December 15, 2014, and extradited to the United States on February 25, 2015.  On May 25, 2016, following a 10-day jury trial in Manhattan federal court before Judge Abrams, GEORGESCU was convicted of one count of conspiracy to kill United States officers or employees and one count of conspiracy to provide material support or resources to a designated foreign terrorist organization.  In addition to the prison term, GEORGESCU was sentenced to three years of supervised release.

Mr. Bharara praised the outstanding investigative efforts of the DEA’s Special Operations Division’s Bilateral Investigations Unit, the DEA’s Bucharest Country Office, the DEA’s Rome Country Office, the Montenegrin National Police, and the Romanian Authorities.  Mr. Bharara also thanked the Counterterrorism Section of the Department of Justice’s National Security Division and the Department of Justice’s Office of International Affairs.

This prosecution is being handled by the Office’s Terrorism and International Narcotics Unit.  Assistant U.S. Attorneys Andrea Surratt and Ilan Graff are in charge of the prosecution, with assistance from Trial Attorneys Josh Parecki and Benita Corlett of the Counterterrorism Section.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ROBERT SMUTEK was sentenced today to eight years in prison for selling 1,4 butanediol, an illegal analogue of the date rape drug gamma hydroxybutyric acid, or GHB.  SMUTEK, a former police officer and resident of Sleepy Hollow, New York, sold 1,4 butanediol in a product called Potion 9 through his Internet website called Online Coral Calcium.  SMUTEK was sentenced yesterday in White Plains federal court by the Honorable Kenneth M. Karas.

U.S. Attorney Preet Bharara stated: “Smutek, a former police officer, was peddling a date rape drug over the Internet from his suburban home.  The sentence imposed on him by the Court properly reflects the callous nature of his years-long drug dealing.”

According to the allegations contained in the Indictment as well as the evidence presented during trial and at sentencing:

SMUTEK sold Potion 9, which was packaged in a one-ounce plastic bottle containing a pink liquid, between 2009 and 2014, advertising it on his website as a “mood enhancer” that supposedly made the user feel euphoric.  According to the label, Potion 9 contained yohimbe, a derivation of a tree root found in South Africa, as well as other natural ingredients.  But according to the evidence at trial, Potion 9 actually contained 1,4 butanediol, an industrial solvent that converted to GHB in the body when ingested.  At sentencing, SMUTEK was held responsible for distributing 200,000 bottles of Potion 9 over five years and ordered to forfeit $1.2 million in proceeds from the scheme.

In addition to his prison term SMUTEK, 53, of Sleepy Hollow, New York, was sentenced to three years of supervised release. 

Mr. Bharara praised the outstanding investigative work of the Rhode Island Task Force of the Office of Criminal Investigations, Food & Drug Administration.  Mr. Bharara also thanked the Internal Revenue Service, Criminal Investigation Division, and the U.S. Postal Inspection Service for their assistance in the investigation.

The prosecution of this case is being handled by the Office’s White Plains Division.  Assistant United States Attorneys Maurene Comey, James McMahon, and Douglas Zolkind are in charge of the case.

Preet Bharara, the United States Attorney for the Southern District of New York, James J. Hunt, Special Agent in Charge of the U.S. Drug Enforcement Administration’s New York Division (“DEA”), James P. O’Neill, the Commissioner of the New York City Police Department (“NYPD”), and Maria T. Vullo, Superintendent of the New York State Department of Financial Services, announced the arrest of Dr. EMMANUEL LAMBRAKIS, a state licensed doctor who wrote thousands of medically unnecessary prescriptions for oxycodone, totaling nearly 2.4 million pills, over a five-year period.  LAMBRAKIS was arrested yesterday in connection with the charge and is expected to be presented before U.S. Magistrate Judge James L. Cott later today.  

U.S. Attorney Preet Bharara said:  “Although licensed as a doctor, as alleged, Emmanuel Lambrakis was a prolific and dangerous drug dealer.  He allegedly pumped medically unnecessary oxycodone pills into our communities, feeding the addiction of countless people.  This arrest is a critical part of our overall fight against the devastating opioid abuse epidemic.”

Special Agent in Charge James C. Hunt said:  “Drug dealers selling scripts for money give doctors a bad name.  The dismantling of a modern day opium den masquerading as a medical clinic in the heart of Queens shows the result of law enforcement collaboration.  The investigation identified that Emmanuel Lambrakis allegedly diverted oxycodone pills to New York City streets enabling the one thing law enforcement, communities, and health professionals are trying to avoid – opioid addiction and overdose deaths.”     

Superintendent Maria T. Vullo said:  “New York is a safer place because law enforcement authorities worked together to shut down the criminal activities this defendant pursued to enrich himself while endangering the public.  The Department of Financial Services appreciates the opportunity to have worked on this case with the office of U.S. Attorney Bharara and the Drug Enforcement Administration.”

The following allegations are based on the Complaint and other documents filed in Manhattan federal court[1]:

Oxycodone is a highly addictive, narcotic opioid that is used to treat severe and chronic pain conditions.  Oxycodone prescriptions are in high demand and have significant cash value to drug dealers.  In fact, oxycodone tablets can be resold on the street for thousands of dollars.  For example, 30-milligram oxycodone tablets have a current street value of approximately $20 to $30 per tablet in New York City, with street prices even higher in other parts of the country.  A single prescription for 120 30-milligram tablets of oxycodone can net an illicit distributor $2,400 in cash or more.

From at least approximately January 2011 until December 2016, EMMANUEL LAMBRAKIS operated two medical clinics in Queens, New York, where LAMBRAKIS wrote thousands upon thousands of prescriptions for large quantities of oxycodone in exchange for cash payments.  LAMBRAKIS typically charged $150 in cash for “patient visits,” and these visits often involved numerous “patients” being seen by LAMBRAKIS at the same time in the same examination room.  During these “patient visits,” LAMBRAKIS would perform simple, perfunctory body manipulations (such as rotating the patient’s arm or leg) and engage in little or no conversation with the alleged “patient.”  Nonetheless, LAMBRAKIS would then cause the patient to receive a prescription for a large quantity of oxycodone, most often 120 30-milligram tablets or more.

Between January 2011 and the present, LAMBRAKIS wrote approximately 17,000 oxycodone prescriptions at one of his clinics, resulting in the distribution of nearly 2.4 million oxycodone tablets, which have a street value of at least $48 million.  On over 200 occasions, LAMBRAKIS wrote 30 or more prescriptions for 30-milligram oxycodone pills in a single day. As a result of LAMBRAKIS’s actions, it is estimated that LAMBRAKIS collected at least $2.5 million in fees from his “patients.”

*               *               *

LAMBRAKIS, 69, of Manhattan, is charged with one count of conspiring to distribute and possess with intent to distribute oxycodone.  This offense carries a maximum sentence of 20 years in prison.  The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the outstanding investigative work of the DEA’s Tactical Diversion Squad, which comprises agents and officers from the DEA, the NYPD, the New York State Police, Town of Orangetown Police Department, Rockland County Drug Task Force, Westchester County Police Department, and New York City Department of Investigation.  He also acknowledged the assistance of Health & Human Services, U.S. Immigration and Customs Enforcement’s Homeland Security Investigations, New York City Human Resources Administration, and the National Insurance Crime Bureau.

The case is being prosecuted by the Office’s Narcotics Unit.  Assistant U.S. Attorneys Kimberly J. Ravener and Jessica K. Fender are in charge of the prosecution. 

[1] As the introductory phase 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.

Preet Bharara, 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 Division of the Federal Bureau of Investigation (“FBI”), and Christina Scaringi, the Special Agent-in-Charge of the Northeast Region of the U.S. Department of Housing and Urban Development (“HUD”), today announced the unsealing of an Indictment charging five defendants with conspiracy to commit bank fraud, wire fraud, and mail fraud in connection with a debt-elimination scheme to defraud homeowners and banks.

Manhattan U.S. Attorney Preet Bharara stated:  “The defendants allegedly preyed on vulnerable homeowners struggling with their mortgage payments and, with their greed, victimized them further.  When the defendants were done with the victims, after falsely promising to reduce or even eliminate their mortgage debt for fees, these homeowners were left much worse off, in even greater debt.  With the charges today, and thanks to the investigative work of the FBI and HUD, the defendants now face federal fraud charges.”

FBI Assistant Director-in-Charge William F. Sweeney stated:  “As charged, the defendants exploited a program designed to help cost-burdened individuals enjoy the privilege of affordable housing.  Crimes of this nature not only hurt their victims financially, but often force upon them other forms of anguish while harming the financial integrity of the very programs established to help them. We urge everyone to protect themselves against this type of fraud and abuse.  If something doesn’t sound right, trust your instincts and do some checking. If you think you may be or have been a victim of mortgage fraud, we urge you to contact your nearest FBI office.”

HUD-OIG Special Agent-in-Charge Christina Scaringi stated:  “HUD’s reverse mortgage program was created to help our senior citizens find greater financial security through FHA-insured loans.  The defendants’ alleged scheme to unjustly enrich themselves through the victimization of our senior citizens is a shameful act that will not be tolerated by the HUD OIG.  We will continue to aggressively pursue those who would prey on America’s senior citizens and encourage anyone having knowledge of such schemes to contact our HUD hotline.”

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

In at least 2011 and 2012, BRUCE LEWIS, 65, JACQUELINE GRAHAM, 47, and an unindicted co-conspirator were partners in a business that they called the Pillow Foundation or the Terra Foundation (collectively, “Terra”).  Terra held itself out as a business that would investigate and eliminate mortgage debt in exchange for a fee.  Terra solicited clients who were having difficulties making their mortgage payments.

ANTHONY VIGNA, 59, was a lawyer who worked in-house at Terra and provided legal services to it and its clients.  ROCCO CERMELE, 54, was Terra’s director of operations who recruited clients, among other duties.  PAULA GUADAGNO, 58, was a real estate title professional who performed real estate title work for Terra.

LEWIS, GRAHAM, VIGNA, CERMELE, GUADAGNO, and others at Terra told potential clients that Terra could eliminate their mortgage debt in exchange for a fee.  In reality, Terra filed fraudulent discharges of mortgages at local county clerk’s offices in Westchester and Putnam Counties and in Connecticut.  These fraudulent documents made it appear as if Terra’s clients’ mortgages had been discharged, when in fact they had not. 

To profit from their scheme, Terra and the defendants charged monthly fees that they said covered, among other things, audits of the clients’ properties that they often failed to perform.  Terra and the defendants also encouraged their clients to take out second or reverse mortgages on the properties for which Terra had claimed to have discharged the first mortgages.  Once the clients had taken out these second or reverse mortgages, Terra and the defendants retained substantial portions of the proceeds.  Some of these second or reverse mortgages were made under HUD’s Home Equity Conversion Mortgage Program.

In total, Terra and the defendants filed nearly 60 fraudulent discharges in Westchester and Putnam Counties in New York and in Connecticut.  The fraudulent discharges claimed to discharge mortgages with a total loan principal of over $33 million.  In reality, the Terra clients for whom the fraudulent discharges were filed were often left with both a second or reverse mortgage and their original mortgage that had not actually been discharged.

*                      *                     *

VIGNA, CERMELE, and GUADAGNO were taken into federal custody this morning and were presented in White Plains federal court this afternoon before U.S. Magistrate Judge Judith C. McCarthy.  LEWIS and GRAHAM remain at large.                                   

Each defendant is charged with one count of conspiracy to commit wire fraud, bank fraud, and mail fraud, which carries a maximum penalty of 30 years in prison and a $1 million fine.  The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants would be determined by the judge.

Mr. Bharara praised the outstanding investigative work of the FBI and HUD-OIG.  Mr. Bharara also thanked the Westchester and Putnam County District Attorney’s Offices and the Cheshire Police Department in Cheshire, Connecticut, for their ongoing assistance in the case.

This case is being handled by the Office’s White Plains Division.  Assistant United States Attorneys Jennifer Beidel, Michael Maimin, and James McMahon are in charge of the prosecutions.

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that DAVID HOPE, a/k/a “Capo,” pled guilty before U.S. District Judge Sidney H. Stein to his involvement in the sex trafficking of minor girls, possession of child pornography, and possession of a firearm as a convicted felon.

U.S. Attorney Preet Bharara said:  “For years, David Hope manipulated and exploited vulnerable minor girls in the cruelest of ways, selling them for sex for his own profit.  With David Hope’s guilty plea today, we seek to deliver justice to the victims, as well as a measure of real hope.  Protecting girls and young women from sex traffickers like Hope remains a top law enforcement priority for us and the FBI.”

According to the Indictment, Complaint, and other documents filed in the case, as well as statements made during HOPE’s plea proceedings:

Since at least 2013, HOPE directed and conducted a criminal sex trafficking and prostitution enterprise (the “Enterprise”) that recruited and exploited minor girls and young women, and then prostituted them using an online classified ad website for his own profit.  HOPE, who was wheelchair-bound, operated the Enterprise at his apartment in the Bronx, New York (the “Hope Apartment”), Connecticut, and elsewhere.

HOPE recruited minors who looked up to him to participate in the Enterprise and other criminal activity.  HOPE, who was known to carry a firearm, employed myriad tactics – including manipulation, intimidation, coercion, threats, and violence – to recruit and maintain the girls and young women he sold for sex.  At least four minor victims were involved in the Enterprise. 

In or about November 2015, when he was arrested, HOPE also possessed on his cellphone a sexually explicit video of one of the minor girls he trafficked. 

In or about January 2015, HOPE possessed a defaced firearm (the “Firearm”) after he had been previously convicted of a felony crime.  Specifically, on January 16, 2015, when New York City Police Department (“NYPD”) officers were executing a search warrant at the Hope apartment, HOPE instructed a minor female to throw the loaded Firearm out of the rear window of the Hope Apartment.  Before it was thrown out the window, the Firearm was in the bed where Hope was sleeping.

*                *                *

HOPE, 29, of the Bronx, New York, was arrested on November 19, 2015, in the Bronx, New York, and has been in federal custody since.  HOPE pled guilty today to one count of sex trafficking of a minor, which carries a mandatory minimum sentence of 10 years in prison and a maximum sentence of life in prison; one count of conspiracy to commit sex trafficking, which carries a maximum sentence of life in prison; one count of possession of child pornography, which carries a maximum 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 the defendant’s sentence will be determined by the judge.  HOPE is scheduled to be sentenced by Judge Stein on March 1st, 2017, at 2:30 p.m.

Mr. Bharara praised the extraordinary investigative work of the FBI.  He thanked the NYPD for its assistance throughout the investigation, and the United States Attorney’s Office for the District of Connecticut and the Connecticut Child Exploitation Task Force for its assistance with investigating HOPE’s operations in Connecticut.  Mr. Bharara also thanked the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”) and the ATF/NYPD Joint Robbery Task Force (SPARTA) for its assistance in the early stages of the investigation.

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

This case is being handled by the Office’s Violent and Organized Crime Unit.  Assistant United States Attorneys Sagar K. Ravi and Christopher J. DiMase are in charge of the prosecution.       

Preet Bharara, the United States Attorney for the Southern District of New York, Kenneth Magidson, the United States Attorney for the Southern District of Texas, Julián Castro, Secretary of the United States Department of Housing and Urban Development (“HUD”), and David A. Montoya, Inspector General of HUD (“HUD-OIG”), announced today that a unanimous jury has found the entities formerly known as ALLIED HOME MORTGAGE CAPITAL CORPORATION (“ALLIED CAPITAL”) and ALLIED HOME MORTGAGE CORPORATION (“ALLIED CORPORATION”) (collectively, “ALLIED”), as well as ALLIED’s president and chief executive officer JIM C. HODGE (“HODGE”), liable for violating the False Claims Act (“FCA”) and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) in connection with over a decade of fraudulent misconduct related to ALLIED’s participation in the Federal Housing Administration (“FHA”) mortgage insurance program.  The jury awarded the United States a total of $92,982,775 in damages, including $7,370,132 against HODGE.  Pursuant to the FCA, damages in this case are subject to mandatory trebling.  In addition, the FCA provides for a penalty of $5,500 to $11,000 for each violation.  Separately, FIRREA provides for a penalty for each statutory violation.  The Court will determine the amount of the penalties at a later date.  The verdict was returned yesterday following a five-week trial in Houston before United States District Judge George C. Hanks, Jr., of the United States District Court for the Southern District of Texas.  

Manhattan U.S. Attorney Preet Bharara said:  “For years, Jim Hodge and Allied lied to HUD in order to fraudulently reap profits from the FHA mortgage insurance program.  After a month-long public trial where all their misconduct was exposed, a jury has held Mr. Hodge and Allied responsible for their lies and has made them pay for losses the United States suffered on loans that would never have been insured by HUD absent their lies.  This case represents yet another recovery by the United States – this time after a trial – for fraud perpetrated against HUD by participants in the Direct Endorsement Lender program.”

Houston U.S. Attorney Kenneth Magidson said:  “The excellent coordination between personnel from our two U.S. Attorney’s Offices and with HUD investigators has resulted in a tremendous win for the government.  Working together, we ensured a successful outcome following a lengthy trial and investigation against Allied and its CEO.  We will continue to apply our resources whenever and wherever we can to ensure those that perpetuate such egregious fraud against the United States are held accountable for their actions.”

HUD Inspector General David A. Montoya said:  “The heart of our mission is to weed out actors such as these that are intent on defrauding federal housing programs.  This should serve as a notice to all those determined to engage in illegal schemes such as these that they are not beyond the reach of the federal law enforcement community.”

According to the evidence presented at trial:

FHA mortgage insurance makes home ownership possible for millions of American families by protecting lenders against mortgage defaults.  FHA mortgage insurance also makes mortgage loans valuable in the resale market.  To protect the continued availability of FHA mortgage insurance funds, HUD must accurately assess the risk of default on the loans it insures.  To accomplish this task, HUD relies on assurances by lenders that they, and the loans they submit for insurance, comply with program requirements. 

As a HUD-approved loan correspondent, ALLIED CAPITAL originated FHA-insured mortgage loans.  ALLIED CAPITAL was required to seek HUD approval for each branch office from which it originated FHA loans.  Instead of complying with this requirement, however, ALLIED CAPITAL, with HODGE’s knowledge and approval, operated over one hundred “shadow” branch offices that originated FHA loans without HUD authorization.  As part of its scheme to deceive HUD, ALLIED CAPITAL submitted loans originated by those branches to HUD using the ID numbers of approved branches.  ALLIED CAPITAL’s undisclosed shadow branches were not subject to HUD oversight and their default rates were disguised by the default rates of branches whose IDs they were using.  This fraudulent misconduct resulted in $7,370,132 in losses to HUD when certain of those loans defaulted. 

ALLIED CORPORATION, as a participant in HUD’s Direct Endorsement Lender program, underwrote FHA-insured mortgage loans.  For each FHA-insured mortgage loan, ALLIED CORPORATION was required to certify to HUD that the loan was underwritten according to HUD’s guidelines.  Those guidelines ensure that FHA-insured loans are made only to borrowers who can repay them, thereby seeking to avoid losses to HUD’s FHA insurance fund and foreclosures on borrowers’ homes.  ALLIED CORPORATION, however, recklessly underwrote and certified at least 1,192 loans for FHA insurance that were ineligible for insurance under HUD’s guidelines.  This fraudulent misconduct resulted in losses to HUD of $85,612,643 when those loans defaulted.

To compound matters, ALLIED and HODGE operated a dysfunctional quality control program and lied to HUD about it.  HUD requires lenders participating in its programs to timely perform quality control audits of their FHA loans to identify and correct systemic problems, including underwriting problems.  ALLIED, however, employed only a handful of quality control employees to review loans from as many as 600 branch offices.  Many of those employees were unqualified to audit FHA-insured loans.  In addition, HODGE personally directed his employees to falsify quality control reports to give the impression that required reviews had been performed, when in fact they had not.  When HUD auditors later asked for those quality control reports, ALLIED provided the falsified reports.  ALLIED and HODGE also falsely certified to HUD on an annual basis that ALLIED was in compliance with HUD’s quality control requirements.

The United States filed a complaint-in-intervention in this lawsuit in November 2011.  At that time, the action was pending as a qui tam whistleblower lawsuit in the United States District Court for the Southern District of New York.  In September 2012, the action was transferred to the United States District Court for the Southern District of Texas. 

*                *                *

Mr. Bharara and Mr. Magidson thanked HUD’s Office of General Counsel and HUD-OIG for their extraordinary assistance with this case.    

This case is being handled by the Civil Frauds Unit of the United States Attorney’s Office for the Southern District of New York.  Assistant United States Attorneys Jeannette A. Vargas, Joseph N. Cordaro, Jean-David Barnea, Caleb Hayes-Deats, and Stephen Cha-Kim, who were designated as Special Assistant United States Attorneys for the Southern District of Texas for purposes of this matter, are in charge of the case.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States has settled a federal civil rights lawsuit against the CITY OF PORT JERVIS (“PORT JERVIS”) in Orange County, New York.  Under the agreed-upon Consent Decree, PORT JERVIS will repeal a local law enacted in December 2015 that bans places of worship from two of the City’s central business and commercial zoning districts.  The Consent Decree also provides that the lawsuit can be reinstated if Port Jervis fails to amend its zoning laws to comply with federal law prohibiting discrimination and unreasonable impositions on religious freedom by January 23, 2017.  The Consent Decree was entered on November 23, 2016, by U.S. District Judge Kenneth M. Karas.

U.S. Attorney Preet Bharara said: “With this lawsuit and consent decree requiring the City of Port Jervis to repeal or amend a local law that banned places of worship in two of its central business districts, we help to ensure free religious exercise in the city.” 

According to the Complaint, filed in federal court in White Plains on November 21, 2016:

PORT JERVIS violated the Religious Land Use and Institutionalized Persons Act (“RLUIPA”) by passing a local law in December 2015 that banned the use of land for purposes of places of worship in two of Port Jervis’s main commercial and business zones, the Central Business District and the Service Commercial District.  Prior to the passage of the local law, use of land for these purposes was permitted as of right in these districts.  While City officials claimed that the local law was justified by concerns relating to parking, commercial development, and liquor licensing, PORT JERVIS continues to permit nonreligious uses in these areas that will have similar effects.  Accordingly, the Complaint charged that PORT JERVIS treated religious assemblies on unequal terms with comparable nonreligious assemblies or institutions, in violation of RLUIPA.

Moreover, PORT JERVIS substantially burdened the religious exercise of the Goodwill Evangelical Presbyterian Church (the “Church”), which had sought to establish a place of worship in PORT JERVIS’s Central Business District.  After the Church was in contract to purchase property in that district and had received assurances from City officials that it could use the property as a branch of the Church, PORT JERVIS adopted the local law to ban places of worship in the zoning district.  The local law precluded the Church from its intended use of the property for religious exercise and caused the Church to suffer delay and expense in establishing a permanent place of worship in the City.  The Complaint charged that PORT JERVIS substantially burdened the Church’s religious exercise, also in violation of RLUIPA.

Pursuant to the Consent Decree entered on November 23, 2016, PORT JERVIS has until January 23, 2017, to repeal the local law banning places of worship from two of its central zoning districts.  PORT JERVIS also has agreed not to treat religious assemblies or institutions on unequal terms with nonreligious assemblies or institutions, and not to implement any land use regulation in a manner that imposes a substantial burden on the religious exercise of any person, assembly, or institution.  PORT JERVIS has further agreed to comply with certain notice, training, and recordkeeping requirements to ensure that City officials are knowledgeable about and comply with RLUIPA, and to allow the Government to monitor PORT JERVIS’s compliance.

The case is being handled by the Office’s Civil Rights Unit.  Assistant United States Attorney Samuel Dolinger is in charge of the case.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that LILIAN JAKACKI, a/k/a/ “Lilian Wieckowski,” was sentenced today by U.S. District Judge Jed Rakoff to four years in prison for illegally distributing 100,000 tablets of oxycodone, Medicare fraud, and money laundering.  JAKACKI pled guilty on July 28, 2016, before Judge Rakoff.

Manhattan U.S. Attorney Preet Bharara said:  “Through her pharmacies in Queens and Brooklyn, Lilian Jakacki dumped 100,000 illegally diverted oxycodone pills into the City’s streets.  Driven by greed, Jakacki abused her pharmacy license, helping to fuel the opioid abuse epidemic that is ravaging too many of our communities.  For her crimes, Jakacki will spend four years in prison and forfeit her ill-gotten gains.”           

According to the allegations in the Indictment and the civil Complaint, and other information in the public record:

Between in or about March 2010 and October 2015, JACKACKI owned and operated two pharmacies in Queens and Brooklyn doing business as “Chopin Chemists.”  During that time period, at these pharmacies, JACKACKI knowingly distributed approximately 100,000 tablets of oxycodone based on fraudulent prescriptions, including prescriptions made out in the names of famous luxury brands, such as Coach and Chanel.  In addition, JACKACKI used the proceeds of that illegal narcotics trade to help finance the purchase of a multimillion-dollar home.  Finally, JACKACKI deliberately overbilled Medicare by more than $500,000, submitting reimbursement claims for medication that she never actually distributed to patients. 

In addition to the prison term, JACKACKI was also directed to forfeit $800,000 and to pay restitution of $520,000.   

Mr. Bharara praised the outstanding investigative work of the DEA’s Tactical Diversion Squad, the U.S. Internal Revenue Service, and the U.S. Department of Health and Human Services.  The DEA’s Tactical Diversion Group includes agents and officers of the DEA, the New York City Police Department, the New York State Police, the Town of Orangetown Police Department, and the Westchester County Police Department.

The prosecution of this case is being handled by the Office’s Narcotics Unit.  Assistant United States Attorneys Sidhardha Kamaraju, Jordan Estes, and Louis A. Pellegrino are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that REZA OLANGIAN, a dual citizen of the United States and Iran, was found guilty of conspiring and attempting to send surface-to-air missiles (“SAMs”) and military aircraft parts to the Government of Iran.  OLANGIAN was arrested in Estonia on October 10, 2012, pursuant to a U.S. request for his provisional arrest, and he was extradited to the United States on March 26, 2013.  OLANGIAN was convicted after a two-week jury trial before U.S. District Judge Loretta A. Preska.

According to the evidence presented during the trial:

In 2008, OLANGIAN worked with Iranian officials to obtain approximately 375 SAMs for use by the Iranian government.  Ultimately, that missile deal was unsuccessful.

Beginning in early 2012, OLANGIAN worked to negotiate another, separate missile deal, this time with a confidential source (the “CS”), who was working with the Drug Enforcement Administration (“DEA”) and who purported to be a weapons and aircraft broker.  From his base of operations in Tehran, and from approximately May 2012 through October 2012, OLANGIAN arranged for the purchase of “IGLA-S” SAMs and various aircraft components.  During covertly recorded meetings in May 2012, and in subsequent recorded conversations and e-mails with the CS, OLANGIAN described in detail his plans for procuring the SAMs and aircraft parts and then smuggling them over land into Iran, from Afghanistan or from another neighboring country.  OLANGIAN also expressed his interest in purchasing numerous other types of weapons and military parts for the Iranian government, including the so-called “S-300” missile defense system and Russian-made naval vessels.

OLANGIAN’s 2012 negotiations included his participation in a videoconference with the CS, during which OLANGIAN remotely inspected a missile that the CS presented as a sample of the larger quantity of the SAMs that OLANGIAN sought to purchase.  After inspecting the sample missile and inquiring about its specifications, OLANGIAN stated that he would want “at least 200 . . . minimum 200” of such SAMs.  In his communications with the CS, OLANGIAN also indicated that he was arranging for a missile expert to inspect and test the SAMs.

At the same time that he was negotiating with the CS, OLANGIAN was also working with other individuals, both inside and outside Iran, to acquire numerous other items for the Iranian government and Iran-based entities.  For example, OLANGIAN worked with individuals and entities in China, Russia, and Europe to acquire commercial aircraft for use by Iranian airlines.  In one of these commercial aircraft deals, OLANGIAN and his coconspirators planned to purchase aircraft for $80 million and sell them to an Iranian company for $110 million.

During October 2012, OLANGIAN traveled to Estonia in connection with the SAMs deal and in anticipation of later traveling to Russia in connection with one of the aircraft deals.  He was arrested in Estonia, and following his arrest, he was interviewed by U.S. law enforcement agents.  OLANGIAN stated, among other things, that he had been working with Iranian government officials, that the SAMs he had arranged to purchase were being obtained for the Iranian government, and that the aircraft parts he attempted to acquire were to be used in Iranian military aircraft.

OLANGIAN was extradited to the United States on March 26, 2013.

*  *  *

OLANGIAN, 56, was found guilty of all four counts of the Indictment.  Counts One and Two charged him with conspiring to acquire and transfer surface-to-air missile systems and attempting to acquire and transfer surface-to-air missile systems.  Counts Three and Four charged him with conspiring to violate the International Emergency Economic Powers Act (“IEEPA”) and attempting to violate IEEPA. 

OLANGIAN faces a mandatory minimum sentence of 25 years in prison and a maximum sentence of life in prison on each of Counts One and Two, and a maximum sentence of 20 years in prison on each of Counts Three and Four.  The statutory minimum and maximum penalties are prescribed by Congress and are provided here for information purposes only, as any sentencing of the defendant will be determined by the judge.  Sentencing is scheduled for March 13, 2017, at 4:30 p.m., before Judge Preska.

Mr. Bharara praised the outstanding investigative work of the DEA’s Special Operations Division, Bilateral Investigations Unit.  Mr. Bharara also thanked the DEA’s Copenhagen Country Office, as well as the U.S. Department of Justice’s Office of International Affairs and its National Security Division.

This prosecution is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Sean S. Buckley and Shane T. Stansbury are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that DAVID KEITH, a/k/a “David Wright,” a/k/a “David Lee Keith,” a/k/a “David Lee,” a/k/a “Lee David,” pled guilty this afternoon before U.S. District Judge Alison J. Nathan in Manhattan federal court to five counts stemming from his sexual exploitation of minors, related child pornography offenses, and making false statements to a federal agent concerning his abuse of children.

Manhattan U.S. Attorney Preet Bharara said:  “Through lies and trickery, David Keith lured a minor girl into his vehicle and then sexually abused her, videotaping his sick assault and exploitation.  Protecting children from predators like Keith remains a critical priority for law enforcement, and we hope the victims here will take some measure of comfort in knowing that Keith has admitted to and been convicted of his abominable crimes.”   

According to the Indictment, publicly filed documents, and statements made in court:

On at least one occasion in 2013, KEITH produced child pornography during his sexual abuse of a child.  On October 13, 2013, KEITH approached three girls, approximately 12 to 14 years old, on the street, presented himself as part of the entertainment industry, and encouraged the girls to model for him.  KEITH induced one of the girls to enter his vehicle, where he video recorded, among other things, himself engaging in forcible sexual conduct with her.  KEITH threatened the victim not to tell anyone and told her that he had been watching her.

Just one day earlier, on or about October 12, 2013, KEITH, lured a young girl, approximately 8 to 9 years old, into his vehicle where he tricked her into removing some of her clothing and video recorded her exposed genitals. 

In addition, for a period of at least two years, KEITH downloaded and possessed images and videos of child pornography.

During the investigation, KEITH made statements to federal agents, claiming he had an alibi for October 12 and 13.  Those statements were proven false. 

*          *          *

KEITH, 39, of the Bronx, New York, was arrested on November 17, 2015, in the Bronx, New York, and has been in federal custody since.  KEITH pled guilty today to two counts of sexual exploitation of a child, each of which carries a maximum penalty of 50 years in prison, one count of receipt of child pornography, which carries a maximum penalty of 40 years in prison, one count of possession of child pornography, which carries a maximum penalty of 20 years in prison, and one count of making false statements involving sexual abuse of children, which carries a maximum penalty of eight years in prison. 

The statutory maximum 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. 

KEITH is scheduled to be sentenced by Judge Nathan on March 10, 2017, at 1:00 p.m.

Mr. Bharara praised the extraordinary efforts of the FBI, and thanked the New York City Police Department Special Victims Unit and the Town of Poughkeepsie Police Department for invaluable assistance in the investigation. 

This case is being handled by the Office’s General Crimes Unit.  Assistant United States Attorneys Matthew Podolsky and Stephen Ritchin are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, today announced the appointment of Lisa Zornberg as Chief of the Office’s Criminal Division.

Ms. Zornberg returns to the Office from the law firm of Lankler, Siffert & Wohl LLP, where she was a partner representing individuals and entities in white collar criminal, complex civil, and regulatory matters. Ms. Zornberg was previously an Assistant United States Attorney in the Office for 14 years, from 1998 to 2012, serving in both the Civil and Criminal Divisions and rising to supervisory ranks in each division.  From 2011 to 2012, Ms. Zornberg was chief of the Complex Frauds Unit in the Criminal Division, and from 2004 to 2005, she was Deputy Chief of Appeals in the Civil Division. Ms. Zornberg graduated magna cum laude from Harvard College in 1991 and cum laude from Harvard Law School in 1994.  Upon graduation from law school, Ms. Zornberg served as a law clerk to then United States District Judge for the Southern District of New York and now United States Supreme Court Justice Sonia Sotomayor.

In making the appointment, Manhattan U.S Attorney Preet Bharara said: “I am extremely pleased and excited that Lisa Zornberg will be returning to public service as Chief of the Office’s Criminal Division.  Lisa was an outstanding AUSA during her prior tour in the Office and has since become an accomplished criminal defense lawyer.  I am confident that with her intellect, energy and vision, Lisa will be a terrific Criminal Division Chief.  I welcome Lisa’s return, and I thank Joan Loughnane, the Office’s Chief Counsel, who on top of her regular duties has served exceptionally as the Acting Chief of the Criminal Division over the past few weeks.”

Preet Bharara, the United States Attorney for the Southern District of New York, and Carl J. Kotowski, the Special Agent in Charge of the Drug Enforcement Administration’s New Jersey Division, announced today the arrest of ANDREW COOK on a charge of distributing and possessing with intent to distribute methoxetamine hydrochloride (“MXE”), an illegal analogue of the hallucinogenic drug. 

The defendant had an initial appearance in the District of New Hampshire today before Magistrate Judge Andrea K. Johnstone.

U.S. Attorney Preet Bharara said:  “As alleged, Andrew Cook was the sole proprietor of an illegal online distributor of MXE, a dangerous hallucinogenic drug.  Thanks to the work of the DEA, Cook has been arrested and his illegal business taken offline.”

DEA Special Agent in Charge Carl J. Kotowski said:  “Today, the men and women of DEA have arrested a dangerous individual.  Mr. Cook was hiding behind the anonymity of his computer screen.  We will continue to pursue those peddling their drugs whether they are selling them on the street or via the internet.”

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

MXE, a designer drug, is an analogue of a controlled substance and has been “designed” to circumvent drug laws.  MXE belongs to the same class of drugs as ketamine, phenycyclidine (“PCP”), and PCE.  Drugs in this class produce dissociative anesthetic and hallucinogenic effects.        

COOK was the sole owner and operator of an internet business, called Downlow Labs, which shipped various drugs, including MXE, to individuals across the country.  COOK operated a drug manufacturing facility at his home in Long Branch, New Jersey.  A search of COOK’s residence uncovered, among other things, numerous baggies labeled “methoxetamine,” a pill press, masks, beakers, rubber gloves, shipping supplies, invoices, approximately $14,500 in cash, and approximately 395 grams of MXE.

*                      *                      *

COOK, 23, of Long Branch, New Jersey, was charged with one count of distributing and possessing with intent to distribute a controlled substance analogue, which carries a maximum sentence of 20 years in prison.  The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. 

U.S. Attorney Bharara praised the outstanding investigative work of the DEA New Jersey Tactical Diversion Squad, the New Jersey State Police Hazardous Material Unit, the United States Postal Inspection Service, the Long Branch Police Department, and the Monmouth County Prosecutor’s Office.

This case is being handled by the Office’s Narcotics Unit.  Assistant United States Attorney Dina McLeod is in charge of the prosecution.

[1] As the introductory phase 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.

Preet Bharara, the United States Attorney for the Southern District of New York, Angel M. Melendez, the Special Agent-in-Charge of the New York Field Office of the U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (“HSI”), and George P. Beach II, the Superintendent of the New York State Police (“NYSP”), announced the arrest of NICHOLAS PAGLIUCA, a teacher at a high school in the town of Mamaroneck, stemming from his possession and receipt of child pornography.  PAGLIUCA was arrested today and will be presented today before United States Magistrate Judge Judith C. McCarthy in White Plains federal court. 

Manhattan U.S. Attorney Preet Bharara said:  “As alleged, Nicholas Pagliuca, a teacher at a local high school, tapped into a website full of illegal child pornography to download images and videos.  Investigation and prosecution of these crimes are critical in protecting our children.”     

HSI Special Agent-in-Charge Angel Melendez said:  “Individuals who take pleasure in downloading videos and photos of young children being sexually exploited need to be brought to justice, especially those whose jobs give them access to children, as in this case.  HSI is putting child predators on notice that we will not stop tracking and arresting these depraved individuals until the threat to children is no more.” 

Superintendent George P. Beach II said:  “Anyone involved in child pornography, promoting the acts of child predators, or who performs predatory acts against children must understand that such crimes will not be tolerated. We will continue to work with our partners to thoroughly investigate and prosecute these illicit activities. Children must be protected, not preyed upon.”

According to the Complaint[1] filed today in federal court:

In October 2012, an individual who was later identified as PAGLIUCA registered for a 30-day subscription to a website that is a popular means for individuals to trade child pornography images and videos.  PAGLIUCA downloaded hundreds of files containing images and videos of child pornography, many of which depicted prepubescent children engaged in sexual activity with adults or other children.  Using the email address PAGLIUCA used to register with the website, agents with HSI and officers of the NYSP confirmed PAGLIUCA’s identity and his occupation as a teacher at a public high school in Mamaroneck, New York.  PAGLIUCA was arrested at his residence in Somers, New York.

*          *       *     

NICHOLAS PAGLIUCA, 65, of Somers, New York, is charged with one count of possession of child pornography (Count One), which carries a maximum sentence of 20 years in prison, and one count of receipt of child pornography (Count Two), which carries a mandatory minimum sentence of five years in prison and a maximum sentence of 20 years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Any individuals who believe they have information concerning NICHOLAS PAGLIUCA that may be relevant to the investigation should contact HSI at through its toll-free hotline at 1-866-DHS-2ICE; TTY for hearing impaired: (802) 872-6196. This hotline is staffed around-the-clock by investigators.

Mr. Bharara praised the efforts of HSI and the New York State Police in this investigation.  He added that the investigation is continuing.

This case is being handled by the Office’s White Plains Division.  Assistant United States Attorney Gillian Grossman is in charge of the prosecution.

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

[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.

Preet Bharara, the United States Attorney for the Southern District of New York, William F. Sweeney, the Assistant Director-in-charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Robert Mahon, the Acting Chief of the Clarkstown Police Department (“CPD”), announced the arrest of WILLIAM MATEO on charges of bank robbery and a firearms offense.  MATEO was arrested yesterday in Elmsford, New York, and will be presented later today in the Southern District of New York in White Plains before United States Magistrate Judge Judith C. McCarthy.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, William Mateo entered a bank in Central Nyack with a mask and a gun, robbed the bank of over $6,000, and then fired a shot toward one of the bank tellers.  Thanks to the investigative work of the FBI and Clarkstown Police, just three days after the bank robbery, Mateo is under arrest facing federal criminal charges.”

FBI Assistant Director-in-Charge William F. Sweeney said:  “The FBI Westchester County Safe Streets Task Force worked tirelessly to find the suspect accused in this bank robbery because of the threat he posed to the community.  Bank tellers complied and gave him the money he demanded, but before leaving, he fired a round in the direction of the tellers.  His alleged disregard for the harm he could have cause the people and workers show why it was extremely important to find and arrest him.”

CPD Acting Police Chief Captain Robert Mahon said: “I’m so proud of the entire Clarkstown Police Department for bringing this suspect to justice without any injuries to the public or our officers.  Our detectives and the FBI agents assigned to this case worked tirelessly over the past weekend to identify, surveil and apprehend William Mateo for this alleged violent crime.  This arrest exemplifies the highest level of dedication and professionalism shown by both the Clarkstown Police Department and the Federal Bureau of Investigation.”

According to the allegations contained in the Complaint[1] charging MATEO, and other documents in the public record:

On November 18, 2016, MATEO committed a gunpoint robbery of the Key Bank in Central Nyack, New York.  At the time of the robbery, he was wearing a mask and gloves, and carrying a semi-automatic handgun.  After entering the bank, MATEO approached two bank tellers, who handed him cash.  Before exiting, he fired a round in the direction of one of the tellers.  The bullet hit a wooden partition between two tellers, and no one was injured.  MATEO then exited the bank and fled in a car.  MATEO’s vehicle was captured on the bank’s surveillance cameras and observed by a witness.  In a search of MATEO’s residence, law enforcement recovered a mask, a box of gloves matching those worn during the robbery, and a safe containing, among other items, shell casings, live ammunition, and more than $2,000.  After arresting MATEO at a hotel in Elmsford, New York, law enforcement recovered from his hotel room a semi-automatic handgun, a glove, and a firearm magazine.  MATEO subsequently gave a post-arrest statement admitting that he had committed the bank robbery and that he had discharged a firearm during the crime.  In total, MATEO obtained approximately $6,400.

*              *             *

MATEO, 24, of Valley Cottage, New York, is charged with one count of bank robbery, which carries a maximum sentence of 25 years in prison, and one count of use of a firearm during and in relation to a crime of violence, which carries 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 defendant will be determined by a judge.

Mr. Bharara praised the investigative work of the Clarkstown Police Department and the FBI’s Westchester County Safe Streets Task Force, which is comprised of agents and task force officers from the FBI, the U.S. Probation Office, the Westchester County Police Department, the Westchester County District Attorney’s Office, the New York City Police Department, the City of Yonkers Police Department, the Peekskill Police Department, and the Mount Vernon Police Department. 

The case is being prosecuted by the Office’s White Plains Division.  Assistant United States Attorneys Christopher J. Clore and Gillian Grossman 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 below constitute only allegations, and every fact described should be treated as an allegation.