Southern District of New York

Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that FADI EWIESS, a/k/a “Fadi Awise,” was arrested Saturday morning on wire fraud charges stemming from his participation in a scheme to defraud investors through the operation of a purported foreign exchange (“forex”) trading company.  EWIESS was charged with raising over $5.8 million by representing to investors that his company would trade foreign currencies on their behalf, that he would generate high rates of return in so doing, and that his investors’ capital would be guaranteed by third-party financial institutions.  Instead of engaging in forex transactions with his investors’ money, however, EWIESS largely spent the money on personal expenses like gambling or making distributions to other investors.  EWIESS was arrested Saturday morning in Fort Lauderdale, Florida.

U.S. Attorney Preet Bharara said:  “As alleged, Fadi Ewiess lied to prospective investors about his company’s expertise in the foreign exchange markets and sent them forged ‘guarantees’ from New York banks to lure them into investing with him.  Through his fraud scheme, Ewiess allegedly raised more than $5.8 million from victims around the globe, spending much of that money on his own gambling and personal expenses.”

FBI Assistant Director-in-Charge Diego Rodriguez said:  “As alleged, Ewiess ran a multimillion dollar ponzi scheme under the guise of a foreign exchange trading company. Instead of using investor money for foreign exchanges, Ewiess traveled and gambled the money away or paid investors to continue to invest in his scheme. Making sure our markets are fair to all investors and bringing charges against those who profit remains a top priority for the FBI.”

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

From 2015 through 2016, EWIESS operated a company (the “Company”) that purported to host an online foreign currency trading platform.  Investors could either trade currencies themselves, or have the Company trade on their behalf.  EWIESS represented that the Company had expertise in forex trading and could achieve outsized returns, and that investor funds being traded by the Company would be fully guaranteed against losses by a particular United States bank—assuming that the investor provided a sufficiently high amount of money.  To substantiate this purported guarantee, moreover, EWIESS distributed forged documents that appeared to have been (but in actuality were not) issued by the relevant bank.  EWIESS also employed other individuals in his scheme, promising large commissions, as well as prizes like watches and cellular telephones, to individuals who raised money for the scheme.

EWIESS and others raised more than $5.8 million during the course of the scheme, with much of this money coming from investors in Saudi Arabia and other countries.  Instead of using investor proceeds to trade currencies, as the he and the Company had promised, however, EWIESS spent millions of his investors’ money on personal expenses like travel and hotels, on gambling trips, and on transfers to his family members.  Other investor money was used to pay returns to investors so that they would invest or refer additional money to EWIESS and the Company, thereby allowing the scheme to continue for a longer period of time. 

*                      *                      *

EWIESS, 38, of Israel, is charged with one count of conspiring to commit wire fraud and one count of wire fraud.  Each count carries a maximum sentence of 20 years in prison and a maximum fine of $250,000, or twice the gross gain or loss from the offense.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

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’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.  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 Robert Allen is in charge of the prosecution.  

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

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

Preet Bharara, the United States Attorney for the Southern District of New York, and Shantelle P. Kitchen, Special Agent in Charge of the Internal Revenue Service-Criminal Investigation (“IRS-CI”), announced that REBECCA BAYUO pled guilty today to charges related to her preparation and filing of false and fraudulent income tax returns that resulted in inflated refunds to taxpayers, and her use of stolen identities to collect fraudulent tax refunds.  BAYOU’s conduct resulted in a loss to the United States government of more than $500,000.  BAYUO pled guilty to aiding and assisting in the preparation of false and fraudulent United States income tax returns, theft of government funds, passport fraud, and aggravated identity theft before U.S. District Court Judge John G. Koeltl.

Manhattan U.S. Attorney Preet Bharara said: “Rebecca Bayuo used her Bronx tax preparation business to file fraudulent tax returns for her clients, costing the government over $500,000 in lost tax revenue.  Bayou went beyond simply falsely overstating expenses, business losses, and charitable gifts, also using stolen identifying information to claim false minor dependents.”

IRS-CI Special Agent in Charge Shantelle P. Kitchen said: “Today, Ms. Bayuo is held accountable for the frauds she committed, including using stolen identities on tax returns she prepared for her clients and on her own tax returns.  IRS-Criminal Investigation remains committed to investigating individuals who allegedly prepare false tax returns to obtain fraudulent refunds.  We are especially vigilant when it comes to schemes involving stolen identities, as these frauds victimize not only law-abiding taxpayers, but specifically the individuals whose identities were stolen.”

According to the allegations contained in the Indictment filed against BAYUO, and statements made in related court filings and proceedings:

BAYUO owned and operated a tax preparation business located in the Bronx, New York.  From 2010 through 2012, BAYUO prepared and submitted to the IRS false and fraudulent tax returns for her clients that resulted in increased tax refunds by fabricating or overstating unreimbursed employment expenses, gifts to charity, and business losses.  BAYUO also charged clients additional fees to use stolen identifying information of minors, including names, dates of birth, and social security numbers, to claim false minor dependents on their tax returns to increase the taxpayers’ refund amount.

In addition, from 2010 through 2014, BAYUO used stolen identifying information to file fraudulent income tax returns that generated tax refunds to which BAYUO was not entitled.  Finally, BAYUO used the stolen identifying information of one victim to illegally obtain a United States passport, which she used to travel internationally on multiple occasions from 2007 through 2014.

*                *                *

BAYUO, 45, of Bronx, New York, pled guilty to one count of aiding and assisting in the preparation of false and fraudulent United States income tax returns, which carries a maximum sentence of three years in prison; one count of theft of government funds, which carries a maximum sentence of 10 years in prison; one count of passport fraud, which carries a maximum sentence of 10 years in prison; and one count of aggravated identity theft, which carries a mandatory, consecutive term 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 a judge.

In pleading guilty, BAYUO agreed to forfeit to the United States a sum of money no less than $102,865.67 and to pay restitution to the IRS in the amount of $575,000.  

She is scheduled to be sentenced by Judge Koeltl on December 2, 2016, at 11:00 a.m.

Mr. Bharara praised the investigative work of IRS-CI.

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

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Preet Bharara, the United States Attorney for the Southern District of New York, John P. Carlin, Assistant Attorney General for National Security, and Diego Rodriguez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that Kun Shan Chun, a/k/a “Joey Chun,” pled guilty to a criminal Information charging him with acting in the United States as an agent of the People’s Republic of China (“China”), without providing prior notice to the Attorney General.  CHUN, an employee of the FBI, pled guilty earlier today before United States Magistrate Judge James C. Francis IV.

Manhattan U.S. Attorney Preet Bharara said: “Americans who act as unauthorized foreign agents commit a federal offense that betrays our nation and threatens our security.  And when the perpetrator is an FBI employee, like Kun Shan Chun, the threat is all the more serious and the betrayal all the more duplicitous.  Thanks to the excellent investigative work of the FBI’s Counterintelligence Division, the FBI succeeded in identifying and rooting out this criminal misconduct from within its own ranks.”

Assistant Attorney General John P. Carlin said:  “Kun Shan Chun violated our nation’s trust by exploiting his official U.S. Government position to provide restricted and sensitive FBI information to the Chinese Government.  Holding accountable those who work as illegal foreign agents to the detriment of the United States is among the highest priorities of the National Security Division.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “No one is above the law, to include employees of the FBI.  We understand as an agency we are trusted by the public to protect our nation's most sensitive information, and we have to do everything in our power to uphold that trust.”

According to the Complaint, the Information, and statements made during today’s court proceeding:

CHUN, a native of China and a naturalized citizen of the United States, began working at the FBI’s New York Field Office in approximately 1997, as an electronics technician assigned to the Computerized Central Monitoring Facility of the FBI’s Technical Branch.  In approximately 1998, and in connection with his employment, the FBI granted CHUN a top secret security clearance, and his duties included accessing sensitive, and in some instances, classified information.  As discussed in more detail below, in connection with a progressive recruitment process, CHUN received and responded to requests from Chinese nationals and at least one Chinese government official (“Chinese Official-1”), some (if not all) of whom were aware that CHUN worked at the FBI.  On multiple occasions prior to his arrest in March 2016, CHUN collected sensitive FBI information and caused it to be transmitted to Chinese Official-1 and others, while at the same time engaging in a prolonged and concerted effort to conceal from the FBI his illicit relationships with these individuals.

CHUN’s Purported Consulting for Zhuhai Kolion Technology Company Ltd.

Beginning in 2006, CHUN and certain of his relatives maintained relationships with Chinese nationals purporting to be affiliated with a company in China named Zhuhai Kolion Technology Company Ltd. (“Kolion”).  CHUN maintained an indirect financial interest in Kolion, including through a previous investment by one of his relatives.  In connection with these relationships, Chinese nationals asked CHUN to perform research and consulting tasks in the United States, purportedly for the benefit of Kolion, in exchange for financial benefits, including partial compensation for international trips.      

Between 2006 and 2010, CHUN’s communications and other evidence reflect inquiries to CHUN from purported employees of Kolion while CHUN was in the United States, as well as efforts by CHUN to collect, among other things, information regarding solid-state hard drives.

CHUN’s Relationship with Chinese Official-1

In approximately 2011, during a trip to Italy and France, Chinese nationals introduced CHUN to Chinese Official-1.  Chinese Official-1 indicated that he worked for the Chinese government, and that he knew CHUN worked for the FBI.  During subsequent private meetings conducted abroad between CHUN and Chinese Official-1, Chinese Official-1 asked questions about sensitive, nonpublic FBI information.  During those meetings, CHUN disclosed, among other things, the identity and potential travel patterns of an FBI Special Agent.

In approximately 2012, the FBI conducted a routine investigation relating to CHUN’s top secret security clearance.  In an effort to conceal his relationships with Chinese Official-1 and the other Chinese nationals purporting to be affiliated with Kolion, CHUN repeatedly lied on a standardized form related to the security-clearance investigation.  During the period between 2000 and CHUN’s termination, CHUN also reported to the FBI that he had traveled to the areas of Hong Kong and China approximately nine times, as well as additional trips to Canada, Thailand, Europe, Australia, and New Zealand.  CHUN was required by FBI policy to disclose anticipated and actual contact with foreign nationals during his international travel, but he lied on numerous pre- and post-trip FBI debriefing forms by omitting his contacts with Chinese Official-1, other Chinese nationals, and Kolion.

Examples of CHUN’s Actions in the United States in Response to Requests from Chinese Official-1

Chinese Official-1 asked CHUN on multiple occasions for information regarding the internal structure of the FBI.  In response to those requests, in approximately March 2013, CHUN downloaded an FBI organizational chart from his FBI computer in Manhattan.  CHUN later admitted to the FBI that, after editing the chart to remove the names of FBI personnel, he saved the document on a piece of digital media and caused it to be transported to Chinese Official-1 in China. 

Chinese Official-1 also asked CHUN for information regarding technology used by the FBI.  In approximately January 2015, CHUN took photographs of documents displayed in a restricted area of the FBI’s New York Field Office, which summarized sensitive details regarding multiple surveillance technologies used by the FBI.  CHUN sent the photographs to his personal cell phone, and later admitted to the FBI that he caused the photographs to be transported to Chinese Official-1 in China.

CHUN’s Admissions to an FBI Undercover Employee

In about February 2015, the FBI caused an undercover employee (the “UCE”) to be introduced to CHUN.  The UCE purported to be employed by an independent contractor.

During a March 2015 recorded meeting, CHUN told the UCE about his relationship with Kolion and Chinese nationals.  In a subsequent recorded meeting in March 2015, CHUN explained to the UCE that Kolion had “government backing,” and that approximately five years earlier a relative met a “section chief” whom CHUN believed was associated with the Chinese government. 

In June 2015, during a recorded meeting, CHUN told the UCE that he had informed his Chinese associates that the UCE may be in a position to assist them.  CHUN said that he wished to act as a “sub-consultant” to the UCE and wanted the UCE to “pay” him “a little bit.”  In July 2015, after coordinating travel in an effort to introduce the UCE to CHUN’s Chinese associates, CHUN met with the UCE twice.  During one of the meetings, CHUN stated that he knew “firsthand” that the Chinese government was actively recruiting individuals who could provide assistance, and that the Chinese government was willing to provide immigration benefits and other compensation in exchange for such assistance.  The UCE told CHUN that he had access to sensitive information from the United States government.  CHUN responded that his Chinese associates would be interested in that type of information, but that CHUN expected a “cut” of any payment that the UCE received for providing information to the Chinese government.

CHUN’s Arrest by the FBI and Confession

CHUN was arrested by the FBI on March 16, 2016.  He subsequently confessed to most of the foregoing activities, including to having taken steps to collect sensitive FBI information in the United States in response to taskings from Chinese Official-1.  CHUN explained that he was motivated in part by the financial benefits that he and others derived from these relationships, but also admitted that he understood that he had provided assistance to the Chinese government.

*     *     *

CHUN, 46, pled guilty to one count of acting in the United States as an agent of China without providing notice to the Attorney General, which carries a maximum sentence of 10 years in prison.  CHUN will be sentenced on December 2, 2016, at 1:00 p.m., by United States District Judge Victor Marrero.  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 investigative work of the FBI’s Counterintelligence Division.

The prosecution is being handled by Assistant U.S. Attorneys Emil J. Bove III and Andrea L. Surratt of the Terrorism and International Narcotics Unit of the U.S. Attorney’s Office for the Southern District of New York, with assistance provided by Trial Attorneys Thea D.R. Kendler and David Recker of the Counterintelligence and Export Control Section of the Department of Justice’s National Security Division. 

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Preet Bharara, the United States Attorney for the Southern District of New York, announced that LAKUAN RHYNE was sentenced yesterday to 186 months in prison for conspiring to distribute more than a kilogram of heroin in and around Westchester County during 2014, and distributing the heroin and fentanyl that resulted in the overdose death of an individual.  RHYNE pled guilty to a felony Information in White Plains federal court on April 21, 2016, before U.S. District Judge Nelson S. Román, who imposed sentence.

U.S. Attorney Bharara stated:  “Overdose deaths from opioid use have taken their toll in cities, small towns, and rural America.  The fentanyl-laced heroin sold by Lakuan Rhyne resulted in one of those tragic deaths, but Rhyne continued peddling this poison even after that.  For his callous crime, he has received an appropriately heavy sentence.”

According to the Information, statements made in open court, and other documents in the public record:

LAKUAN RHYNE, a/k/a “Rico,” was the central participant in a drug trafficking ring based in Westchester County, New York.  From early 2014 through the fall of 2014, RHYNE and his associates conspired to distribute significant quantities of heroin, as well as crack and powder cocaine, throughout Westchester County.  RHYNE and his associates sold their drugs out of cars, residences, and on the streets.  Some of the heroin distributed by RHYNE was laced with fentanyl, a synthetic opioid that is significantly stronger than both ordinary heroin and morphine.  Between February and July 2014, confidential informants acting at the direction of the FBI purchased over 100 grams of heroin from RHYNE during the course of approximately 20 controlled transactions.  In total, during the course of the conspiracy, RHYNE was responsible for distributing over a kilogram of heroin.

On the evening of January 26, 2014, in the parking lot of a restaurant in Peekskill, New York, RHYNE supplied a mixture containing heroin and fentanyl to an associate for the purpose of selling that mixture to a customer.  That customer was Thomas Coogan, a 23-year-old from Buchanan, New York.  Later that night, Coogan used the fentanyl-laced heroin supplied by RHYNE, and died as a result.  Following Coogan’s death, of which RHYNE was aware, RHYNE continued to sell heroin.

*                *                *

In addition to the prison sentence, Judge Román ordered RHYNE to forfeit $15,000, to pay $17,676.88 in restitution to the family of Thomas Coogan, and to pay a $100 special assessment fee.  RHYNE also was sentenced to five years of supervised release.

Mr. Bharara praised the outstanding work of the FBI, the Westchester County Northern Narcotics Initiative, which includes the Westchester County Department of Public Safety and the police departments of Peekskill, Croton-on-Hudson, Buchanan, Bedford, Yorktown, Mount Kisco, and Ossining, as well as the FBI Violent Crimes Task Force.

The prosecution is being handled by the Office’s White Plains Division.  Assistant U.S. Attorneys George Turner and Michael Gerber are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that SHIWEI YAN, a/k/a “Sheri Yan,” the co-founder and former chief executive officer of the Global Sustainability Foundation, was sentenced in Manhattan federal court today to 20 months in prison for paying more than $800,000 in bribes to John W. Ashe (“Ashe”), the late former Permanent Representative of Antigua and Barbuda (“Antigua”) to the United Nations (“UN”) and 68th President of the UN General Assembly.  Yan pled guilty in January 2016, and was sentenced today by U.S. District Judge Vernon S. Broderick.

U.S. Attorney Bharara stated: “As she admitted in court at her guilty plea, Shiwei Yan bribed the President of the UN General Assembly with hundreds of thousands of dollars to further private business interests.  For her role in corrupting the United Nations, Yan will serve time in a federal prison.”

According to the Complaint, Superseding Information, information presented in connection with sentencing, and other publicly available materials:

Starting in approximately April 2012, YAN, along with co-defendant Heidi Hong Piao, a/k/a “Heidi Park” (“Piao”), agreed to and did arrange for more than $800,000 in bribe payments to Ashe in exchange for official actions by Ashe and one or more other Antiguan officials to benefit several Chinese businessmen.  Piao also pled guilty for her participation in the scheme, but has not yet been sentenced.

The initial bribe payment arranged by YAN and Piao was a $300,000 payment on behalf of a Chinese media executive referred to as “CC-1” in the Complaint.  In exchange for this payment, Ashe agreed to “start the conversations” with Antiguan officials, including the then-Prime Minister, concerning CC-1’s interests.  With YAN’s knowledge, Ashe shared a portion of the bribe payment with one or more Antiguan officials.  YAN also requested and received an official appointment from Ashe as an adviser.

In August 2013, YAN and Piao began paying Ashe approximately $20,000 per month, purportedly for his forthcoming service as the “Honorary Chairman” of a non-governmental organization, the Global Sustainable Development Foundation, later known as the Global Sustainability Foundation (“GSF”).  GSF was founded by YAN and Piao and purported to promote the UN’s sustainable development goals.  YAN sent these monthly payments from a Chinese company she operated to personal accounts of Ashe.

In September 2013, Ashe formally began his one-year term as President of the UN General Assembly.  YAN and Piao thereafter arranged for another Chinese businessman, referred to as “CC-2” in the Complaint, to send Ashe $100,000.  Approximately one month after this payment, YAN arranged for Piao to travel with Ashe and CC-2 to meet with Antiguan officials about a business deal for a Chinese security company (the “Chinese Security Company”) affiliated with CC-2.  After YAN sent Ashe another $100,000, the government of Antigua signed a “memorandum of understanding” with the Chinese Security Company. 

YAN and Piao also arranged for ASHE to be paid $200,000 in exchange for attending a private conference in China in Ashe’s official capacity, hosted by a Chinese real estate developer identified as “CC-3” in the Complaint. 

During the scheme, YAN and Piao also arranged for Ashe to receive tens of thousands of dollars in custom suits and clothes.

In imposing sentence, Judge Broderick said, “To those bent on perverting decision-making” through bribery, “this simply will not be tolerated…there are consequences to these actions.”

*                      *                      *

YAN, 60, a naturalized United States citizen who resided principally in China prior to her arrest, was charged in October 2015 along with Piao, Francis Lorenzo (then-Deputy Permanent Representative of the Dominican Republic to the UN), Ashe, Ng Lap Seng, and Jeff C. Yin.  Piao and Lorenzo subsequently pled guilty to bribery, money laundering, and other charges.  Charges against Ng Lap Seng and Jeff C. Yin, who are scheduled to proceed to trial on January 23, 2017, remain pending, and they are presumed innocent unless and until proven guilty.[1]

In addition to her prison term, YAN was sentenced to two years of supervised release, was fined $12,500, and was ordered to forfeit $300,000.

U.S. Attorney Bharara praised the work of the Federal Bureau of Investigation and the Internal Revenue Service-Criminal Investigation, which jointly conducted this investigation, and noted that the investigation is ongoing. 

This case is being prosecuted by the Office’s Public Corruption Unit.  Assistant U.S. Attorneys Daniel C. Richenthal, Janis M. Echenberg, and Douglas S. Zolkind are in charge of the prosecution.

[1]             Charges against Ashe were dismissed following his death in June 2016.

Preet Bharara, United States Attorney for the Southern District of New York, announced that HARRY FLETCHER was sentenced yesterday in Manhattan federal court to 36 months in prison for taking more than $20,000 in bribes in exchange for awarding more than $240,000 in food stamp benefits.  FLETCHER, a former official of the New York City Human Resources Administration (“HRA”), was sentenced by U.S. District Judge Kevin T. Duffy.  FLETCHER pled guilty in April 2016 to one count of soliciting and accepting bribes from various persons in exchange for enabling those persons to receive Supplemental Nutrition Assistant Program (“SNAP,” formerly known as Food Stamps) benefits for which they were not eligible.

Manhattan U.S. Attorney Bharara said:  “As he admitted in court, Harry Fletcher set up a scheme to receive bribes for providing illegitimate benefits.  By doing so, he didn’t just take advantage of New York City’s social services system, he abused some of the neediest and least fortunate in the City.”

According to the allegations in the Complaint and other documents, and statements made in Manhattan federal court:

The HRA provides temporary help to individuals and families with social service and economic needs to assist them in reaching self-sufficiency.  Its services include, among other things, providing food stamps to low-income families and individuals.  Although the food stamp program is administered locally through HRA, SNAP benefits are funded entirely by the federal government.  To apply for SNAP benefits, an applicant must complete and sign an application form listing, among other things, the applicant’s income and financial assets.  HRA Eligibility Specialists such as FLETCHER are supposed to interview SNAP program applicants and review applicant documentation in order to determine if the applicant is eligible to receive SNAP benefits.   

Beginning in 2009, FLETCHER approached two landlords, who are referred to in the Complaint as CW-1 and CW-2, and who have pled guilty and are cooperating with the Government, and offered to provide CW-1 and CW-2 with monthly SNAP benefits in return for recurring bribe payments.  CW-1 and CW-2 agreed to pay the bribes and, as a result, received tens of thousands of dollars of SNAP benefits for which they were not eligible from 2009 through 2015.  CW-1 and CW-2 then recruited other individuals to the scheme, each of whom obtained monthly SNAP benefits arranged by FLETCHER, without regard to whether the applicant qualified for such benefits, in return for continued bribes.  In total, FLETCHER accepted over $20,000 in bribes for improperly approving over $240,000 in SNAP benefits to CW-1, CW-2, and the remaining defendants.  The applicants bribing FLETCHER were ineligible for SNAP benefits due to their income or to the fact that they did not reside in New York City and thus were not eligible for New York City social service programs.

*                *                *

Mr. Bharara praised the investigative work of the New York City Department of Investigation (“DOI”) and the Federal Bureau of Investigation (“FBI”) in the investigation.

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

Preet Bharara, the United States Attorney for the Southern District of New York, and James J. Hunt, Special Agent-in-Charge of the New York Field Division of the U.S. Drug Enforcement Administration (“DEA”), announced the sentencing yesterday of JAMES SMITH, a/k/a “Heavy D,” to 34 years in prison in connection with the 2011 murder of Danny Ulerio Lora (“Lora”) during an attempted drug robbery.   

SMITH was arrested for the Lora murder on November 22, 2013, via a federal writ from FCI Fairton, where he was serving a sentence on an unrelated federal Hobbs Act robbery charge.  On December 14, 2015, SMITH waived indictment and pled guilty before the Honorable Richard M. Berman to a three-count Superseding Information charging him with: (1) conspiracy to commit Hobbs Act robbery, (2) conspiracy to distribute and possess with the intent to distribute 5 kilograms and more of cocaine, and (3) the February 16, 2011, murder of Lora in Newark, New Jersey, by the discharge of a firearm. 

SMITH and his co-conspirators carried out the brutal murder of Lora during the course of a botched attempt to steal kilogram-quantities of cocaine from Lora.

On July 27, 2016, SMITH appeared before Judge Berman, and was sentenced principally to 34 years in prison in connection with the aforementioned charges.            

*                   *                  *    

Mr. Bharara praised the outstanding investigative work of the DEA’s REDRUM group. 

The Office’s Violent and Organized Crime Unit is overseeing the case.  Assistant U.S. Attorney Justina L. Geraci is in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and Shantelle P. Kitchen, Special Agent in Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today the unsealing of an indictment against LACY DOYLE for obstructing the administration of the internal revenue laws and subscribing to a false tax return in connection with DOYLE’s establishment and maintenance of at least six secret, undeclared bank accounts in Switzerland and France.  DOYLE was arrested in lower Manhattan this morning and appeared before U.S. Magistrate Judge Ronald L. Ellis earlier today. 

U.S. Attorney Preet Bharara said: “As alleged in the indictment, Lacy Doyle went to extraordinary lengths to hide millions of dollars in assets and income from the IRS in overseas bank accounts.  As today’s charges make clear, my Office, and our partners at the IRS, will follow our investigations of U.S. tax law violations wherever they lead.”

IRS-CI Special Agent in Charge Shantelle P. Kitchen said: “The use of offshore bank accounts to conceal income and assets remains a very high priority for the Internal Revenue Service.  IRS-Criminal Investigation has made great progress in getting access to offshore account information.  We will continue to utilize the resources at our disposal to uncover U.S. taxpayers who willfully evade taxes by hiding their money out of the country.”

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

DOYLE, assisted by others – including Beda Singenberger, a Swiss citizen who ran a financial advisory firm – established and maintained undeclared bank accounts in Switzerland to hide those accounts from the IRS.  DOYLE used a sham entity to conceal from the IRS her ownership of some of the undeclared accounts and deliberately failed to report the accounts and the income generated in the accounts to the IRS.

In 2003, DOYLE’s father died and secretly left an inheritance of over $4 million to DOYLE.  DOYLE, who was appointed the executor of her father’s estate, made court filings falsely stating under penalty of perjury that the total value of her father’s estate was under $1 million when, in truth and fact, it was more than four times that amount.

Thereafter, in 2006, DOYLE, with Singenberger’s assistance, opened an undeclared Swiss bank account for the purpose of depositing the secret inheritance from her father.  The account was opened in the name of a sham foundation formed under the laws of Lichtenstein to conceal DOYLE’s ownership.  As of December 31, 2008, the account held assets valued at approximately $3,548,380.

In 2010, the sham foundation controlled by DOYLE was re-domiciled from Lichtenstein to Panama.  As of May 31, 2010, the sham foundation maintained assets of at least approximately $3,151,961.37.

For each of the calendar years from 2004 through 2009, DOYLE willfully failed to report on her tax returns her interest in the undeclared accounts and the income generated in those accounts.  For each of these years, Doyle also failed to file a Report of Foreign Bank and Financial Accounts (FBAR) with the IRS, as the law required her to do.

Singenberger was charged on July 21, 2011, with conspiring with U.S. taxpayers and others to defraud the United States, evade U.S. income taxes, and file false U.S. tax returns.  He remains at large.

*                *                *

DOYLE, 59, of New York, New York, is charged with one count of obstructing and impeding the due administration of the IRS laws, which carries a maximum sentence of three years in prison, and one count of subscribing to a false and fraudulent U.S. individual income tax return, which also carries maximum sentence of three 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.

U.S. Attorney Bharara praised the outstanding investigative work of IRS-CI and also thanked the U.S. Department of Justice’s Tax Division for their assistance.

The case is being prosecuted by the U.S. Attorney’s Office for the Southern District of New York’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorney Jared Lenow is in charge of the prosecution.

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

[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, Diego Rodriquez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and William J. Bratton, Commissioner of the New York City Police Department (“NYPD”), announced that MICHAEL MAZZARA, CHARLES KERRIGAN, and ANTHONY MASCUZZIO were arrested this morning for their roles in bank burglaries in Brooklyn and Queens, New York, earlier this year.  MAZZARA, KERRIGAN, and MASCUZZIO will be presented later today in Manhattan federal court before United States Magistrate Judge Ronald L. Ellis.

            Manhattan U.S. Attorney Preet Bharara said:  “In the dark of the night, these defendants allegedly blowtorched their way through the roofs and into the vaults of two different banks, stealing over $5 million in cash and customer valuables kept in safe deposit boxes.  Through their brazen bank heists, the defendants allegedly stole not just people’s money, but their memories too, leaving in their destructive wake gaping holes and looted vaults.  But these bank jobs also left enough of a trace for the FBI and NYPD, whose good old-fashioned police work led to the charges and arrests announced today.”     

            FBI Assistant Director-in-Charge Diego Rodriquez said:  “The Mazzara bank robbery crew did more than just allegedly steal money from banks, they took irreplaceable mementos from people who believed those items were far too valuable to be kept at home.  These men were allegedly after the money, but they also took heirlooms, jewelry, documents and family photos and tossed them aside.  Those items held little value to the men accused in this case, but we hope the community finds some solace in the fact that they will no longer be able to commit these thefts.”

            NYPD Commissioner William J. Bratton said:  “These heists resembled scenes from the movie Heat – the work of a crew that was well organized, meticulous, and elusive to law enforcement.  This investigation was conducted with painstaking persistence.  Left with few clues after the heists, our crime scene teams hunted for every shred of evidence.  From the plywood purchased at a nearby Home Depot, to the torches from a Brooklyn welder used to muscle into the vault, the picture slowly came into focus, resulting in today’s arrests and charges.”

            According to the Complaint[1]:

            Between April 2016 and the present, MAZZARA, KERRIGAN, and MASCUZZIO were part of a crew that burglarized banks in Brooklyn and Queens, New York, by cutting into the banks’ vaults, and stealing a total of approximately $5 million in cash, jewelry, diamonds, stock certificates, and other valuables.  Specifically, from about April 8 to April 10, 2016, MAZZARA, KERRIGAN, and others burglarized an HSBC Bank branch in Brooklyn, and from about May 19 to May 22, 2016, MAZZARA, KERRIGAN, MASCUZZIO, and others burglarized a Maspeth Federal Savings Bank branch in Queens.  On both occasions, the burglars used acetylene blowtorches to cut into the top of the banks’ vaults from the roof of the building.  At the Maspeth Federal Savings Bank branch, they shielded their activities from view by constructing a plywood shed on the roof of the bank.  The burglars then entered the vaults from above, broke open safe deposit boxes, and took both cash belonging to the bank and customers’ valuables from the safe deposit boxes.  The crew obtained approximately $330,000 in cash and an unknown amount in valuables from the HSBC branch, and approximately $296,000 in cash and $4.3 million in valuables from the Maspeth bank.  Surveillance footage captured some of MAZZARA, KERRIGAN, and MASCUZZIO’s activities as they prepared for and executed the burglaries.  Financial records and video surveillance also showed MAZZARA and MASCUZZIO purchasing some of the supplies that appear to have been used in the Maspeth burglary.

*                *                *

            MAZZARA, 44, KERRIGAN, 40, and MASCUZZIO, 36, all of Brooklyn, New York, are each charged with one count of conspiracy to commit bank burglary, which carries a maximum sentence of five years in prison; and one count of bank burglary, which carries a maximum sentence of 20 years in prison.  MAZZARA and KERRIGAN have also been charged with a second count of bank burglary, 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 efforts of the FBI, the NYPD, and the Drug Enforcement Administration in this investigation.  He also thanked the U.S. Probation Office, the New York State Police, and the New York National Guard Counter Drug Task Force for their assistance.  He added that the investigation is continuing.

            This case is being handled by the Office’s General Crimes Unit.  Assistant United States Attorneys Benet J. Kearney and David W. Denton, Jr., 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 forth herein constitute only allegations, and every fact described should be treated as an allegation.

There will be a press conference today at 1:00 p.m. to announce federal charges against three men in connection with recent bank burglaries in New York, that resulted in the theft of over $5 million in cash and valuables.  

WHO: 

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

Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation

William J. Bratton, Commissioner of the New York City Police Department

WHAT:

Press Conference

WHEN: 

Tuesday, July 26th, 2016 at 1:00 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 arrive early to permit clearance through security.  Please silence all cell phones, PDAs, and pagers before start of press conference.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that tax preparer SAMUEL GENTLE, the owner of a tax preparation business named GenGen, Inc., in Mount Vernon, New York, was found guilty on charges of obstructing the IRS and aiding and assisting the preparation of false and fraudulent individual income tax returns for his clients.  GENTLE was convicted yesterday after a five-day jury trial before U.S. District Judge Cathy Seibel. 

Manhattan U.S. Attorney Preet Bharara said:  “As a jury found after trial, Samuel Gentle abused his position of trust as a tax preparer by systematically violating the nation’s income tax laws.  The investigation that led to this conviction underscores our commitment, as well as that of our partners at the IRS, in pursuing and prosecuting people who circumvent our tax laws.”    

As established by the evidence at trial:

From 2010 through 2014, GENTLE’s tax preparation business prepared and submitted to the IRS, on average, 3,200 tax returns each year.  Some of these tax returns were false and fraudulent in that they contained various inflated deductions for unreimbursed employee business expenses, gifts to charity, and Schedule C business expenses.

As part of the investigation of this matter, an undercover IRS agent posed as a client of GENTLE’s.  During the operation, the agent provided GENTLE with a Form W-2 showing income from wages.  Despite being provided no records to support any other deductions, GENTLE included false and fraudulent deductions for unreimbursed employee business expenses and gifts to charity on the tax return he prepared for the undercover agent.  GENTLE’s inclusion of these false and fraudulent deductions caused the return to fraudulently claim a refund.

GENTLE also failed to report on his own tax returns nearly half of the $1 million in receipts that he received for his tax preparation services from 2010 through 2014.  He spread the receipts across eight bank accounts at five banks.  In addition, he failed to issue W-2’s or Forms 1099 to himself or his employees, further concealing from the IRS the amount of receipts he and his business received.

*              *             *

GENTLE, 59, of Mount Vernon, New York, was found guilty on all 39 counts submitted to the jury, including one count of interfering with the administration of the internal revenue laws and 38 counts of aiding and assisting the preparation of false and fraudulent U.S. tax returns, each of which carries a maximum sentence of three years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.

GENTLE’s sentencing is scheduled for October 25, 2016.

Mr. Bharara praised the IRS for their outstanding work in the investigation. 

This matter is being handled by the Office’s White Plains Division.  Assistant U.S. Attorneys Jennifer Beidel, Margery Feinzig, and James McMahon are in charge of the case.

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 James J. Hunt, Special Agent in Charge of the New York Field Division of the Drug Enforcement Administration (“DEA”), announced the unsealing of an indictment charging nine defendants with conspiring to distribute kilogram quantities of cocaine, and in particular, shipping the cocaine from Puerto Rico to New York City through the United States Postal Service (“USPS”) mail system.  Seven of the defendants were taken into federal custody this morning and will be presented this afternoon in Manhattan federal court before U.S. Magistrate Judge Ronald L. Ellis.  Two defendants remain at large. 

Manhattan U.S. Attorney Preet Bharara stated: “As alleged, the defendants engaged in a brazen scheme to turn the U.S. Postal Service into their own drug delivery service.  The defendants, which includes an employee of the U.S. Postal Service, allegedly schemed to ship multiple kilograms of cocaine through the mail, going so far as to claim, in one instance, that a lost package contained the ashes of a cremated relative, when in fact, it contained cocaine.”

USPIS Inspector in Charge Philip R. Bartlett stated:  “Drug Trafficking Organizations have been moving large quantities of cocaine through Puerto Rico to the New York metropolitan area for many years, destroying the lives of many through addiction and despair. Today’s arrests should send a strong message to drug traffickers that the United States Postal Inspection Service will spare no resource or expense to protect the sanctity of the mail.”

DEA Special Agent in Charge James J. Hunt said:  “Drug dealers’ desperation for product is just as desperate as an addict’s; however the dealer’s ‘fix’ is the profit made off the sale of poison.  This investigation underscores the extent drug traffickers will go to in order to smuggle illegal drugs into the United States.  The DEA Strike Force, USPIS, and U.S. Attorney’s Office Southern District of New York collaborated resources that uncovered a cocaine trafficking organization responsible for pumping millions of dollars-worth of  drugs onto New York City streets.”    

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

Between May 2015 and July 2016, the defendants JUSTIN ACOSTA, ELEELIN DIAZ, JOSE DIAZ, a/k/a “Gordo,” CRISTIAN GARCIA, KELVING HERNANDEZ, FELIX JIMENEZ, a/k/a “Daddy,” ROBERT RODRIGUEZ, a/k/a “Smiley,” MIGUEL TORRES, a/k/a “Ant,” and BRITNEY WORTHY conspired to distribute and possess with intent to distribute five kilograms and more of cocaine. 

The defendants operated the drug-trafficking scheme by arranging for the shipment of cocaine from Puerto Rico to various locations in New York City through the USPS, retrieving cocaine from various delivery locations, transporting cocaine to residences and a storage facility, and repackaging and selling the cocaine to individual customers.  Since February 2016, law enforcement officers have seized more than 25 kilograms of cocaine from shipments associated with the defendants.

Defendant HERNANDEZ is an employee of the USPS, and assisted co-conspirators by agreeing to track parcels and identifying locations to which narcotics could be sent.

Defendant RODRIGUEZ was involved in facilitating, receiving, and distributing the shipment of cocaine through USPS parcels, and contacted the USPS multiple times for information on the status and location of certain parcels that contained cocaine.  In communications with the USPS, including in an email RODRIGUEZ sent directly to the U.S. Postmaster General, RODRIGUEZ falsely asserted that one of the parcels, which he believed had been lost, contained the cremated ashes of his purportedly deceased father.  In fact, that parcel had been seized and found to contain approximately two kilograms of cocaine.

*                      *                     *

ACOSTA, 26, JOSE DIAZ, 36, GARCIA, 31, JIMENEZ, 28, RODRIGUEZ, 36, TORRES, 34, and WORTHY, 24, were arrested this morning.  ELEELIN DIAZ, 27, and HERNANDEZ, 42, remain at large.  Each is charged with one count of conspiring to distribute and possess with the intent to distribute narcotics, which carries a maximum sentence of life in prison and mandatory minimum sentence of 10 years in prison.  The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants will be determined by the Court.

Mr. Bharara praised the outstanding investigative work of the USPIS and of the DEA’s New York Organized Crime Drug Enforcement Strike Force, which comprises agents and officers of the DEA, the New York City Police Department, Immigration and Customs Enforcement – Homeland Security Investigations (HSI), the New York State Police, the U. S. Internal Revenue Service, Criminal Investigation Division, the Federal Bureau of Investigation, U.S. Secret Service, the U.S. Marshal Service, New York National Guard, the New York Department of Taxation and Finance, the Rockland County Sheriff’s Office, the Clarkstown Police Department, the Port Washington Police Department, and the New York State Department of Corrections and Community Supervision.  The Strike Force is partially funded by the New York/New Jersey High Intensity Drug Trafficking Area (HIDTA), which is a federally funded crime fighting initiative.

The prosecution is being handled by the Office’s Narcotics Unit.  Assistant U.S. Attorneys Alex Rossmiller and David Abramowicz 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, announced today that THOMAS HOEY, JR., the owner and president of a Long Island-based produce distributor (the “Company”), and trustee for the Company’s profit sharing plan (the “Plan”), was sentenced to seven years in prison for embezzling nearly all of the assets of the Plan and defrauding the Plan participants.  HOEY, over the course of several years, transferred over $750,000 from the Plan to the Company’s corporate accounts and then unlawfully used the money to, among other things: (1) purchase hundreds of thousands of dollars of produce for the Company; and (2) pay for hundreds of thousands of dollars of HOEY’s personal expenses.  On March 18, 2016, HOEY was convicted after a four-day jury trial before Judge Paul A. Engelmayer.

U.S. Attorney Preet Bharara said:  “Thomas Hoey, Jr., convicted by a unanimous jury of siphoning off his employees’ pension money, was sentenced for that theft.  Hoey stole money meant to secure the futures of his employees and instead spent it on indulgences like travel, limousine service, and luxury Manhattan hotels.  For that crime of fraud, Hoey will serve time in a federal prison.”

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

The Plan was set up as an employee pension benefit plan under the Employee Retirement Income Security Act of 1974 (“ERISA”), for the benefit of certain employees of the Company.  As an ERISA qualified pension plan, there were strict statutory and regulatory limitations on the use of money contributed to the Plan.  In particular, Plan proceeds could be used only to pay for employee disbursement and employee loans, which in no circumstances could be greater than $50,000.  Moreover, the Company, which was the sponsor for the loan, was not allowed to receive any money from the Plan.   

Between June 2009 and July 2012, however, the defendant transferred almost all of the assets in the Company’s Plan to corporate accounts that HOEY controlled.  Specifically, in three transactions on one day in June 2009, the defendant transferred $350,000 from the Plan to the Company’s corporate bank account.  In May 2010, the defendant transferred $415,000 from the Plan to the Company’s corporate bank account.  And finally, in July 2012, the defendant transferred $73,000 from the Plan to the Company’s corporate bank account.  As a result of these withdrawals from the Plan as well as fees on the account, the Plan, which at one point was worth over $900,000 in employee benefits, was almost entirely depleted. 

The Plan money was transferred to corporate accounts to cover significant negative balances as well as for additional corporate expenses and HOEY’s personal expenses.  For example, hundreds of thousands of dollars of Plan money was used to pay invoices from the Company’s produce suppliers.  Plan money was also used to pay for automobile insurance on a policy that covered, among other vehicles, numerous luxury cars that HOEY used for his personal use.  During the period of time that HOEY was using Plan money to fund the Company’s corporate accounts, the corporate accounts were also being used to pay for HOEY’s personal expenses, including international travel for HOEY and his family, limousine service, and hotels in Manhattan.

In order to cover up HOEY’s embezzlement of Plan assets, HOEY caused plan statements to be created that reflected the employees’ full account balances as if no money had been taken out of the Plan.  A 2012 account statement for one employee, for example, reflected an individual benefit total of approximately $140,000.  At that time, however, the total amount of money left in the Plan was only approximately $15,000.

*                      *                      *

In addition to the prison term, HOEY, 48, of Garden City, New York, was ordered to pay $650,936.20 in restitution, $763,000 in forfeiture, and a $400 special assessment. 

In imposing sentence, Judge Engelmayer told HOEY, “Your track record here reflects a self-centered history where Thomas Hoey, Jr., came first,” and said HOEY’s conduct was “appalling and utterly without excuse or justification.”

Mr. Bharara praised the outstanding work of the Department of Labor Employee Benefits Security Administration and the Internal Revenue Service’s Criminal Investigation Division.

This case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys Kristy J. Greenberg and Daniel B. Tehrani are in charge of the prosecution.  

Preet Bharara, the United States Attorney for the Southern District of New York,  Robert L. Capers, the United States Attorney for the Eastern District of New York, and Wifredo A. Ferrer, the United States Attorney for the Southern District of Florida, announced that DANIEL BARRERA BARRERA, also known as “Loco Barrera,” a citizen of Colombia, was sentenced today in Manhattan federal court to 35 years in prison and ordered to forfeit $10,000,000 by U.S. District Judge Gregory H. Woods for his role in conspiring to distribute and manufacture cocaine knowing that it would be imported into the United States.  BARRERA was also sentenced by Judge Woods on one count of conspiring to launder money, as charged in a Superseding Indictment filed in the Eastern District of New York, and on one count of conspiring to import cocaine into the United States and one count of conspiring to manufacture and distribute cocaine knowing that it would be unlawfully imported into the United States, as charged in a Superseding Indictment filed in the Southern District of Florida.

For decades, BARRERA manufactured hundreds of tons of cocaine annually in Colombia and trafficked it to various parts of the world, including the United States, and laundered tens of millions of dollars in proceeds from that narcotics trafficking activity.  In March 2010, the U.S. Department of the Treasury’s Office of Foreign Assets Control designated BARRERA as a “Special Designated Narcotics Trafficker,” pursuant to the Foreign Narcotics Kingpin Designation Act.  BARRERA was arrested in Venezuela on September 18, 2012.  Thereafter, he was sent to Colombia, from where the United States sought and obtained BARRERA’s extradition.  BARRERA was extradited from Colombia to the Southern District of New York on July 9, 2013.

U.S. Attorney Preet Bharara said:  “The man Colombian authorities have called ‘the last of the great kingpins,’ now stands convicted and sentenced in an American court of law.  For his decades-long trafficking of more than 720 tons of cocaine, creating a narcotics pipeline from Colombia to four different continents, Daniel Barrera Barrera will spend the next 35 years in federal custody.  Thanks to the outstanding agents of the DEA and HSI, this international drug kingpin’s reign is over.” 

U.S. Attorney Robert L. Capers said:  “The sentencing of Daniel ‘Loco’ Barrera Barrera ends his reign as the leader of a violent and ruthless organization who partnered with powerful cartels and terrorist organizations.  The dedicated efforts of our law enforcement partners have destroyed Barrera’s empire and today’s sentence sends a powerful message to narcotics traffickers around the world and domestically that we are committed to prosecuting to the fullest extent of the law.”                       

U.S. Attorney Wifredo A. Ferrer said: “Today’s sentencing closes the chapter on Barrerra’s reign as of one of the largest cocaine traffickers in history.  Barrera’s violent drug trafficking organization infected the international community.  By joining forces, law enforcement authorities successfully removed Barrera from power and gave communities back to their law abiding citizens.”

As alleged in the indictments filed in the Southern District of New York, the Eastern District of New York, and the Southern District of Florida, statements made at court proceedings including today’s sentencing, and other information in the public record:

From 1998 until 2010, BARRERA ran a cocaine manufacturing and trafficking syndicate out of Colombia.  BARRERA purchased the raw cocaine base or paste from the designated terrorist group Fuerzas Armadas Revolucionarias de Colombia (the “FARC”).  The FARC, which has been dedicated to the violent overthrow of the democratically elected Government of Colombia, has been the world’s largest supplier of cocaine and has engaged in bombings, massacres, kidnappings, and other acts of violence within Colombia. 

After purchasing the raw cocaine base from the FARC, BARRERA converted the raw cocaine into powder at laboratories he owned and operated in an area of Colombia controlled by the since demobilized terrorist group, Autodefensas Unidas de Colombia (the “AUC”).  For years, the AUC’s main political objective was to defeat the FARC in armed conflict, and it financed its terrorist activities through the proceeds of cocaine trafficking in AUC-controlled regions of Colombia.  At the time of BARRERA’s criminal conduct, the FARC and the AUC were both designated by the U.S. Department of State as Foreign Terrorist Organizations.

After processing the cocaine powder in his laboratories, BARRERA arranged for the shipment and transportation of the cocaine powder to locations on four continents, including the United States.  Although BARRERA purchased raw materials for cocaine production from the FARC, he was able to maintain his network of cocaine-processing laboratories in AUC-controlled territory, in part by paying monthly “taxes” to the AUC.  The fees BARRERA paid to the AUC also allowed him to move the processed cocaine safely through and out of Colombia.

BARRERA additionally protected his massive cocaine shipments by regularly directing acts of violence and intimidation, including ordering many murders.  In order to support this violent protection of his drug trafficking, BARRERA traded cocaine for hundreds of AK-47 rifles to arm his security forces and take control of the rural areas of Colombia where his drug laboratories were located.

Each month, BARRERA processed approximately 5,000 kilograms of raw cocaine base into about the same amount of cocaine powder, resulting in approximately 60,000 kilograms of cocaine annually and approximately 720,000 kilograms during the course of the conspiracy.  In total, BARRERA reaped tens of millions of dollars of profits from cocaine trafficking, which he laundered through illicit means.

*                *                *  

In addition to the prison sentence, BARRERA, 48, was sentenced to five years of supervised release.  The Court further ordered BARRERA to pay a $10,000,000 fine.

The sentencing of BARRERA is the result of an ongoing Organized Crime Drug Enforcement Task Force (“OCDETF”) investigation led by the Drug Enforcement Administration (“DEA”) and Homeland Security Investigations (“HSI”).  The principal mission of the OCDETF program is to identify, disrupt, and dismantle the most serious drug trafficking, weapons trafficking, and money laundering organizations, and those primarily responsible for the nation’s illegal drug supply.

Mr. Bharara, Mr. Capers, and Mr. Ferrer praised the outstanding work of the OCDETF, working in cooperation with HSI New York’s El Dorado Task Force, the DEA’s Bogota Country Office, the DEA’s Caracas Country Office, the DEA’s Miami Field Division, the DEA’s New York Drug Enforcement Task Force – which comprises agents and officers of the DEA, the New York City Police Department, and the New York State Police – and HSI Bogota.  Mr. Bharara, Mr. Capers, and Mr. Ferrer also thanked the Colombian National Police, the U.S. Marshals Service, and the U.S. Department of Justice’s Office of International Affairs for their assistance in this prosecution. 

The Southern District of New York case is being handled by that office’s Terrorism and International Narcotics Unit, with Assistant United States Attorney Andrea Surratt in charge of the prosecution.  The Eastern District of New York case is being handled by that office’s International Narcotics and Money Laundering Unit, with Assistant United States Attorney Soumya Dayananda in charge of the prosecution.  The Southern District of Florida case is being handled by that office’s Narcotics Unit, with Assistant United States Attorney Adam Fels in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today the unsealing of a superseding indictment (the “Indictment”) charging three additional defendants, FRASER THOMPSON, EUGENI TSVETNENKO, a/k/a “Zhenya,” and FRANCIS ASSIFUAH, a/k/a “Francis Assif,” for their participation in a scheme to charge mobile phone customers millions of dollars in monthly fees for unsolicited, recurring text messages without the customers’ knowledge or consent – a practice known as “auto-subscribing.”  THOMPSON, who was the Executive Vice President of Operations at a mobile aggregation company based in the United States (the “U.S. Mobile Aggregator”), was arrested this morning in California, and is expected to be presented today in federal court in Los Angeles before United States Magistrate Judge Jean P. Rosenbluth.  TSVETNENKO, who ran at least two different digital content providers based in Australia (collectively, the “Australia Content Providers”), resides in Australia and has not yet been arrested.  ASSIFUAH, who ran a digital content provider based in the United States (“U.S. Content Provider-2”), was previously charged in a criminal complaint and was arrested on April 28, 2016.  Also named in the Indictment were DARCY WEDD, CHRISTOPHER GOFF, MICHAEL PEARSE, YONGCHAO LIU, a/k/a “Kevin Liu,” and YONG JASON LEE, a/k/a “Jason Lee,” all of whom were previously charged for their respective roles in the scheme.

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

The Auto-Subscription Scheme

From 2011 through 2013, WEDD, THOMPSON, GOFF, PEARSE, LIU, LEE, TSVETNENKO, ASSIFUAH and other co-conspirators engaged in a multimillion-dollar scheme to defraud consumers by placing unauthorized charges for premium text messaging services on consumers’ cellular phone bills, without the consumers’ knowledge or consent, through a practice known as “auto-subscribing.”

During the relevant time period, LEE and two other co-conspirators (“CC-1” and “CC-2”) worked for a digital content provider based in the United States that offered premium text messaging services to mobile phone customers (“U.S. Content Provider-1”).  WEDD, THOMPSON, GOFF, and two other co-conspirators (“CC-3” and “CC-4”) worked for the U.S. Mobile Aggregator.  PEARSE and LIU worked for a mobile aggregator based in Australia (the “Australian Mobile Aggregator”).  TSVETNENKO ran the Australia Content Providers, and ASSIFUAH ran U.S. Content Provider-2.  Mobile aggregators compile, or “aggregate,” charges for premium text messaging services – such as monthly horoscopes, celebrity gossip, and trivia facts – on consumers’ mobile phone bills.

In 2011, CC-1 decided to begin auto-subscribing mobile phone users to U.S. Content Provider-1’s premium text messaging services in order to boost U.S. Content Provider-1’s sagging revenues.  CC-1 approached PEARSE and LIU and asked them to build a computer program that could spoof the required consumer authorizations for premium text messaging services – i.e., a program that could generate the text message correspondence that one would ordinarily see if a consumer was genuinely signing up to receive the services.  PEARSE and LIU agreed to build the program (the “Auto-Subscription Platform”), which was operational by in or about the middle of 2011.  In July 2011, CC-1 approached GOFF, who was the account manager for U.S. Content Provider-1 at the U.S. Mobile Aggregator, in order to obtain a large volume of mobile phone numbers to run through the Auto-Subscription Platform.  GOFF sent CC-1 hundreds of thousands of phone numbers, in exchange for payment, for the purpose of auto-subscribing consumers.

In October 2011, CC-1 met with WEDD and told him, in sum and substance, that CC-1 wanted to auto-subscribe consumers through the U.S. Mobile Aggregator’s billing platform and needed additional phone numbers to do so.  WEDD agreed to assist CC-1 in exchange for an up-front payment of approximately $100,000 and a percentage of the auto-subscription proceeds.  WEDD further told CC-1, in sum and substance, that CC-3, who was the Vice President of Compliance and Consumer Protection for the U.S. Mobile Aggregator, would provide phone numbers to CC-1 and that all payments needed to go through CC-3.  WEDD later received his portion of the payments from CC-1 via CC-3.

After CC-1 received phone numbers from WEDD and CC-3, CC-1 passed them on to LEE, the Chief Technology Officer of U.S. Content Provider-1, who was responsible for verifying that the numbers were still valid and active, and for sorting and filtering the numbers to make it easier to run them through the Auto-Subscription Platform.  After LEE performed these functions, CC-1 sent the numbers to PEARSE and LIU to be run through the Auto-Subscription Platform.

In early 2012, CC-4 approached CC-3 and asked to participate in the auto-subscription scheme.  CC-4 told CC-3, in sum and substance, that CC-4 was friends with ASSIFUAH, and proposed that CC-4 and CC-3 begin auto-subscribing customers with ASSIFUAH and U.S. Content Provider-2.  Shortly thereafter, ASSIFUAH began auto-subscribing consumers to phone numbers he had been given by CC-3 and CC-4 through the U.S. Mobile Aggregator.  In total, ASSIFUAH received over $600,000 in gross payments from the U.S. Mobile Aggregator, a significant portion of which came from auto-subscription proceeds.

Also in early 2012, WEDD, THOMPSON, CC-3, and CC-4 had discussions about how to increase revenues at the U.S. Mobile Aggregator, which were flagging because premium text-messaging services had become less profitable.  Among other things, WEDD, THOMPSON, CC-3, and CC-4 agreed to allow TSVETNENKO to begin auto-subscribing consumers through the U.S. Mobile Aggregator.  By no later than April 2012, TSVETNENKO had started auto-subscribing consumers.  Over the course of the next several months through mid-2013, TSVETNENKO and the Australian Content Providers auto-subscribed hundreds of thousands of phone numbers through the U.S. Mobile Aggregator, and generated millions of dollars of revenue, which the defendants apportioned among themselves and were used to fund a lavish lifestyle of expensive vacations and gambling.

*                *                *                    

WEDD, THOMPSON, GOFF, PEARSE, LIU, LEE, TSVETNENKO, and ASSIFUAH are each charged with one count of conspiracy to commit wire fraud and mail fraud, and one count of wire fraud, each of which carries a maximum sentence of 20 years in prison.  WEDD, THOMPSON, GOFF, PEARSE, TSVETNENKO, and ASSIFUAH are also each charged with one count of conspiracy to commit 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 investigative work of the Internal Revenue Service, Criminal Investigation Division and the Federal Bureau of Investigation, and expressed his sincere gratitude to the Federal Trade Commission for their support and assistance with the investigation.  He also thanked the U.S. Attorney’s Office for the Central District of California and U.S. Attorney’s Office for the District of Nevada for their help in coordinating the arrests of the defendants.

The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit.Assistant U.S. Attorneys Christian R. Everdell and Sarah E. Paul 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, announced that JUAN PABLO ARREOLA was found guilty yesterday of conspiring to distribute kilogram quantities of heroin.  ARREOLA was convicted after a four-day jury trial before U.S. District Judge Richard M. Berman. 

Manhattan U.S. Attorney Preet Bharara said:  “As a jury unanimously found in convicting him, Juan Pablo Arreola flooded the streets of New York with more than 40 kilograms of heroin in the span of just three years.  Arreola now stands convicted of profiting from the destructive heroin and opioid epidemic that has afflicted too many of our communities.” 

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

Between 2013 and August 2015, ARREOLA conspired with others to traffic in excess of 40 kilograms of heroin from California to New York.  ARREOLA and other members of the drug trafficking organization shipped heroin via the mail, with the heroin hidden in protein powder containers, and via a long-haul trucking company, with the heroin hidden in copy machines and stereo boxes. 

*               *               *

ARREOLA, 37, of Compton, California, faces a mandatory minimum sentence of 10 years in prison, and a maximum sentence of life 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. 

Sentencing is scheduled for October 27, 2016, before Judge Berman. 

Mr. Bharara praised the outstanding investigative work of the DEA’s New York Organized Crime Drug Enforcement Strike Force, which comprises officers of the DEA, the New York City Police Department, Immigration and Customs Enforcement – Homeland Security Investigations (HSI), the New York State Police, the U. S. Internal Revenue Service Criminal Investigation Division, the Federal Bureau of Investigation, U.S. Secret Service, the U.S. Marshal Service, New York National Guard, the New York Department of Taxation and Finance, the Rockland County Sheriff’s Office, the Clarkstown Police Department, Port Washington Police Department, and New York State Department of Corrections and Community Supervision.  The Strike Force is partially funded by the New York/New Jersey High Intensity Drug Trafficking Area (HIDTA), which is a federally funded crime fighting initiative. 

This case is being prosecuted by the Office’s Narcotics Unit.  Assistant United States Attorneys Robert W. Allen and Rebekah Donaleski are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced the appointment of Jeffrey Oestericher as the Chief of the Civil Division of the United States Attorney's Office for the Southern District of New York.  Mr. Oestericher follows Sara Shudofsky, who served as the Office’s Civil Division Chief since June 2012.  He will supervise all litigation for the Civil Division’s Units and further expand on the affirmative litigation work of the Civil Frauds Unit. 

Mr. Oestericher has been with the Office for 22 years, and has been a Deputy Chief in the Civil Division since March 2003.   

Mr. Oestericher began his career as an Assistant United States Attorney for the Southern District of New York in the Civil Division in June 1994.  Five years later, he became the Deputy Chief of Appeals.  During his tenure, Mr. Oestericher played an important role in many significant civil cases, including as lead attorney in U.S. v. Wells Fargo et al., a mortgage fraud case that resulted in a $1.2 billion judgment and admissions.  He received the Henry L. Stimson Medal from the New York City Bar Association in 2003.

Mr. Oestericher is a 1987 graduate of the University of Rochester and a 1990 graduate of Yale Law School.

U.S. Attorney Preet Bharara said of the appointment:  “Jeff has contributed so much to the mission of this office during his 22-year tenure here, and I am thrilled to have him now lead one of the most influential U.S. Attorney’s Office Civil Divisions in the country.  I have no doubt that Jeff will continue the tradition of excellence in his new role.”

Preet Bharara, the United States Attorney for the Southern District of New York, announced that TRENDON T. SHAVERS, a/k/a “pirateat40,” was sentenced today to 18 months in prison for one count of securities fraud stemming from his involvement in a Bitcoin-related Ponzi scheme.  SHAVERS was the founder and operator of Bitcoin Savings and Trust (“BCS&T”), which offered and sold Bitcoin-based investments through the Internet.  In total, SHAVERS fraudulently obtained approximately 146,000 Bitcoin in BCS&T investments, which amounted to approximately $807,380 based on the average price of Bitcoin over the duration of the scheme.  SHAVERS pled guilty on September 21, 2015, to one count of securities fraud before U.S. Magistrate Judge Sarah Netburn.  Today’s sentence was imposed by U.S. District Judge Lewis A. Kaplan.

U.S. Attorney Preet Bharara said:  “Applying a modern spin to an age-old fraud, Trendon Shavers used a Bitcoin business to run a classic Ponzi scheme.  Shavers raised money in the form of Bitcoins by promising spectacular returns and personal guarantees, when all he was really doing was paying back old investors with new investors’ Bitcoins. Thanks to the FBI and prosecutors in this Office, the first federal securities case involving Bitcoins has ended in Trendon Shavers being sentenced to prison.”

According to the Indictment, other public records, and statements made today in open court:

From at least in or about September 2011 up through and including in or about September 2012, SHAVERS operated a Ponzi scheme.  Specifically, SHAVERS solicited investments in BCS&T on the “Bitcoin Forum” – a public, Internet-based forum where, among other things, Bitcoin[1] investment opportunities were posted.  SHAVERS’s offer to investors was straightforward:  investors who lent Bitcoin to BCS&T would be paid up to seven percent interest weekly – an annualized interest rate of 3,641% per year – and investors could withdraw their investments in BCS&T at any time.  SHAVERS claimed that the Bitcoin invested by BCS&T investors would be used to support a Bitcoin market-arbitrage strategy, which included (i) lending Bitcoin to others for a fixed period of time; (ii) trading Bitcoin via online exchanges; and (iii) selling Bitcoin locally via private, off-market transactions – i.e., “over-the-counter transactions.”  SHAVERS also personally guaranteed to cover any losses in the event of a market change.  In truth, SHAVERS largely failed to execute the claimed market arbitrage strategy, failed to honor all of his investors’ redemption requests as well as his personal guarantee, and failed to deliver the agreed-upon rates of interest.

In the end, BCS&T was simply a Ponzi scheme through which SHAVERS used Bitcoin from new investors to make purported interest payments and cover investor withdrawals on outstanding BCS&T investments.  In addition, SHAVERS diverted investors’ Bitcoin for day trading in his own account on a Bitcoin currency exchange, and exchanged investors’ Bitcoin for U.S. dollars to pay his personal expenses.  At the peak of the scheme, SHAVERS raised, and had in his possession, about seven percent of all the Bitcoin that was in public circulation at the time.  In the end, at least 48 of approximately 100 investors lost all or part of their investment in BCS&T.

*                      *                      *

SHAVERS, 33, was sentenced to 18 months in prison, 3 years of supervised release, and a $100 special assessment. In addition to the prison sentence, Judge Kaplan ordered SHAVERS to pay $1,228,660.93 in forfeiture, and $1,228,660.93 in restitution.

On September 18, 2014, in a separate civil action, the United States District Court for the Eastern District of Texas entered final judgment against both SHAVERS and BCS&T, and ordered SHAVERS to pay more than $40 million in disgorgement and prejudgment interest, and a civil penalty of $150,000 related to BCS&T.

Mr. Bharara praised the work of the Federal Bureau of Investigation, and thanked the SEC for its invaluable 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 Daniel S. Goldman and Michael Ferrara are in charge of the prosecution.   

[1] Bitcoin are a decentralized form of electronic currency, existing entirely on the Internet and not in any physical form.  The currency is not issued by any government, bank, or company, but rather is generated and controlled automatically through computer software operating on a “peer-to-peer” network.  Bitcoin transactions are processed collectively by the software-enabled computers composing the network.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that JASON GALANIS pled guilty today to manipulating the market for Gerova Financial Group, Ltd. (“Gerova”), a publicly traded company listed on the New York Stock Exchange, and to defrauding the shareholders of that company.  GALANIS pled guilty to conspiracy to commit securities fraud, securities fraud, and investment adviser fraud before U.S. Magistrate Judge Sarah Netburn. 

U.S. Attorney Preet Bharara said:  “As the ringleader of this multimillion-dollar fraud scheme, Jason Galanis put together a team of co-conspirators that carried out a strategy to secretly acquire shares of a publicly traded company and then cash out through a scheme of market manipulation.  If that wasn’t enough, Jason Galanis also ran a separate scheme to defraud investors whose money was used by Galanis to pay obligations he owed to another set of investors.”

According to the allegations contained in the Indictment filed against JASON GALANIS and his co-conspirators, and statements made in related court filings and proceedings[1]:

The Gerova Scheme

From 2009 to 2011, JASON GALANIS, along with his co-conspirators John Galanis, Jared Galanis, Gary Hirst, Derek Galanis, Ymer Shahini, and Gavin Hamels, engaged in a scheme to defraud the shareholders of a publicly traded company called Gerova Financial Group, Ltd. (“Gerova”), and the investing public, by effecting securities transactions in Gerova stock for the purpose of conferring millions of dollars of undisclosed remuneration to JASON GALANIS and his co-conspirators, without adequate disclosure of JASON GALANIS’s role in directing the transactions or the benefits received by JASON GALANIS and his co-conspirators.

As a part of the scheme to defraud, JASON GALANIS obtained sufficient control over Gerova so as to be able to cause Gerova to enter into transactions of his design, and for his benefit, including the issuance of Gerova stock.  JASON GALANIS obtained this control without causing himself to be identified as an officer or director of Gerova so as to purport to abide by an SEC-imposed bar that forbade him from holding such positions at publicly traded companies.  Among other means and methods, JASON GALANIS, with the assistance of Hirst, caused over 5 million shares of Gerova stock, which represented nearly half the company’s public float and which were intended for JASON GALANIS’s ultimate benefit, to be issued to and held in the name of Ymer Shahini, who knowingly served as a foreign nominee for JASON GALANIS.  JASON GALANIS, John Galanis, Jared Galanis, Derek Galanis, Hirst, and Shahini understood that the purpose of the stock grant to Shahini was to disguise JASON GALANIS’s ownership interest in the stock, and to evade the SEC’s regulations for issuing unregistered shares of stock. 

At the same time, and as a further part of the scheme to defraud, JASON GALANIS’s co-conspirators, with his knowledge and approval, opened and managed brokerage accounts in the name of Shahini (the “Shahini Accounts”), effected the sale of Gerova stock from the Shahini Accounts, and received and concealed the proceeds, knowing that this activity was designed to conceal from the investing public JASON GALANIS’s ownership of and control over the Gerova stock.

JASON GALANIS, among others, also fraudulently induced investment advisers, including Gavin Hamels, to purchase shares of Gerova stock in the investment advisers’ client accounts by offering compensation and/or other benefits to the respective investment adviser.  By causing the purchase of Gerova stock at the time, quantity, and/or price of their choosing, JASON GALANIS and others were able to, among other things, effectuate the sale of large quantities of Gerova stock from the Shahini Accounts that JASON GALANIS controlled while artificially maintaining the price of Gerova stock through coordinated match trading.  Such coordinated trading served to manipulate the market for Gerova stock and deceive the investing public.  As a result, JASON GALANIS and his co-conspirators reaped nearly $20 million in profits.

The Scheme to Defraud Clients of Investment Firm-2

From 2007 to 2010, JASON GALANIS along with an investment adviser identified in the Indictment as “CC-2,” participated in a scheme to defraud the clients of CC-2’s investment advisery firm, identified in the Indictment as “Investment Firm-2.”  Oftentimes in exchange for compensation from JASON GALANIS, CC-2 caused Investment Firm-2 clients to invest in notes issued by entities associated with JASON GALANIS. 

When obligations owed by entities associated with JASON GALANIS became due, CC-2 used client funds to either purchase notes issued by other entities associated with JASON GALANIS, or publicly-traded shares held by such entities.  The funds generated were then used to pay the original obligations owed to other Investment Firm-2 clients.  Through these securities trades, funds in client accounts of one set of Investment Firm-2 investors were used to pay obligations owed to a different set of Investment Firm-2 investors by entities associated with JASON GALANIS. 

*                *                *

 JASON GALANIS, 46, pled guilty to two counts of conspiracy to commit securities fraud, each carrying a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense; one count of securities fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $5,000,000 or twice the gross gain or loss from the offense; and one count of investment adviser fraud, which carries a maximum sentence of five years in prison and a maximum fine of $10,000 or twice the gross gain or loss from the offense. 

John Galanis, 73, pled guilty on July 20, 2016, to one count of conspiracy to commit securities fraud, which carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense; and one count of securities fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $5,000,000 or twice the gross gain or loss from the offense. 

Gavin Hamels, 40, pled guilty on March 22, 2016, to one count of conspiracy to commit securities fraud, which carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense; one count of securities fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $5,000,000 or twice the gross gain or loss from the offense; and one count of investment adviser fraud, which carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense. 

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

Trial against defendants Gary Hirst, Derek Galanis, and Jared Galanis is scheduled for September 12, 2016, on charges of conspiracy to commit securities fraud, securities fraud, conspiracy to commit wire fraud, and wire fraud, and with regard to Jared Galanis, on charges of investment adviser fraud.  Defendant Ymer Shahini remains a fugitive. The allegations contained in the Indictment as to those defendants are merely accusations, and they are presumed innocent unless and until proven guilty.

Mr. Bharara praised the work of the U.S. Postal Inspection Service and the Federal Bureau of Investigation, and thanked the SEC.

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 Brian Blais, Aimee Hector, and Rebecca Mermelstein are in charge of the prosecution.  

[1]  As for the defendants who have not pled guilty (Gary Hirst, Derek Galanis, Jared Galanis, and Ymer Shahini), the description of the charges set forth herein constitute only allegations.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that JOHN GALANIS, a/k/a “Yanni,” pled guilty today to manipulating the market for Gerova Financial Group, Ltd. (“Gerova”), a publicly traded company listed on the New York Stock Exchange, and to defrauding the shareholders of that company.  GALANIS pled guilty to conspiracy to commit securities fraud and securities fraud before U.S. Magistrate Judge Sarah Netburn.  

U.S. Attorney Preet Bharara said:  “John Galanis helped develop and execute an elaborate plan to secretly obtain undisclosed control of millions of shares of Gerova Financial Group stock, falsely pump up the demand, and then cash out, making millions in ill-gotten profits.  For John Galanis, this is just the latest chapter in a lifetime of fraud that has included three prior convictions, including one that resulted in a prison sentence of 27 years.”

According to the allegations contained in the Indictment filed against JOHN GALANIS and his co-conspirators and statements made in related court filings and proceedings[1]:

From 2009 to 2011, JOHN GALANIS, along with his co-conspirators Jason Galanis, Jared Galanis, Gary Hirst, Derek Galanis, Ymer Shahini, and Gavin Hamels, engaged in a scheme to defraud the shareholders of a publicly traded company called Gerova Financial Group, Ltd. (“Gerova”), and the investing public, by obtaining secret control over millions of shares of Gerova stock and then manipulating the market for the stock as the defendants caused their secretly held shares to be sold.  As part of the scheme, the defendants fraudulently generated demand for Gerova stock by bribing investment advisers to purchase for client accounts the Gerova stock that was sold by the defendants, thereby enabling the defendants to cash out from the scheme and make millions in illegal profits.   

As a part of the scheme to defraud, Jason Galanis obtained control over Gerova so as to be able to cause Gerova to enter into transactions of his design, and for his benefit, including the issuance of Gerova stock.  Jason Galanis obtained this control without identifying himself as an officer or director of Gerova to avoid the SEC-imposed bar that prohibited him from holding such positions at publicly traded companies.  Among other means and methods, Jason Galanis, with the assistance of Hirst, caused more than 5 million shares of Gerova stock, which represented nearly half the company’s public float and which were intended for Jason Galanis’s ultimate benefit, to be issued to and held in the name of Shahini, who knowingly served as a foreign nominee for Jason Galanis.  Jason Galanis, JOHN GALANIS, Jared Galanis, Derek Galanis, Hirst, and Shahini understood that the purpose of the stock grant to Shahini was to disguise Jason Galanis’s ownership interest in the stock, and to evade the SEC’s regulations for issuing unregistered shares of stock. 

At the same time, and as a further part of the scheme to defraud, JOHN GALANIS, among others, with the knowledge and approval of Jason Galanis, opened and managed brokerage accounts in the name of Shahini (the “Shahini Accounts”), effected the sale of Gerova stock from the Shahini Accounts, and received and concealed the proceeds, knowing that this activity was designed to conceal from the investing public Jason Galanis’s ownership of and control over the Gerova stock.

Jason Galanis, among others, also fraudulently induced investment advisers, including Gavin Hamels and others, to purchase shares of Gerova stock in the investment advisers’ client accounts by offering compensation and/or other benefits to the respective investment adviser.  By causing the purchase of Gerova stock at the time, quantity, and/or price of their choosing, Jason Galanis and others were able to, among other things, effectuate the sale of large quantities of Gerova stock from the Shahini Accounts that Jason Galanis controlled while artificially maintaining the price of Gerova stock through coordinated match trading.  Such coordinated trading served to manipulate the market for Gerova stock and deceive the investing public.  As a result, Jason Galanis and his co-conspirators reaped nearly $20 million in profits.

The present case represents JOHN GALANIS’s fourth conviction.  In 1973, JOHN GALANIS was convicted in this District on charges of securities fraud and bribery and was sentenced to six months in prison.  In 1988, JOHN GALANIS was convicted in this District of multiple counts of racketeering, tax fraud, securities fraud, bank fraud, and bribery and was sentenced to 27 years in prison.  That same year, JOHN GALANIS was convicted in New York County Supreme Court of Grand Larceny and was sentenced to seven to 17 years in prison.

*                *                *

JOHN GALANIS, 73, pled guilty to one count of conspiracy to commit securities fraud, which carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense; and one count of securities fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $5,000,000 or twice the gross gain or loss from the offense.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentence for the defendant will be determined by the judge.

Gavin Hamels, 40, pled guilty on March 22, 2016, to one count of conspiracy to commit securities fraud, which carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense; one count of securities fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $5,000,000 or twice the gross gain or loss from the offense; and one count of investment adviser fraud, which carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentence for the defendant will be determined by the judge.

Trial against defendants Jason Galanis, Gary Hirst, Derek Galanis, and Jared Galanis is scheduled to commence on September 12, 2016 on charges of conspiracy to commit securities fraud, securities fraud, conspiracy to commit wire fraud, and wire fraud, and with regard to Jason Galanis and Jared Galanis, on charges of investment advisor fraud.  Defendant Ymer Shahini remains a fugitive. The allegations contained in the Indictment as to those defendants are merely accusations, and they are presumed innocent unless and until proven guilty.

Mr. Bharara praised the work of the U.S. Postal Inspection Service and the Federal Bureau of Investigation, and thanked the SEC.

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 Brian Blais, Aimee Hector, and Rebecca Mermelstein are in charge of the prosecution.  

[1]  As for the defendants who have not pled guilty (Jason Galanis, Gary Hirst, Derek Galanis, and Jared Galanis) the description of the charges set forth herein constitute only allegations.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that WILLIAM DAVIS, the former president of the Federation of Government Employees (“AFGE”) Local 1119 (the “Union”), was sentenced today to 15 months in prison in connection with embezzling approximately $150,000 of the Union’s funds.  DAVIS pled guilty on April 6, 2016, and was sentenced today in White Plains federal court by U.S. District Judge Kenneth M. Karas.

According to the allegations in the Indictment:

The AFGE is a national labor union that represents approximately 670,000 workers employed by the federal government across all agencies and departments.  The Union is a local union chapter of AFGE that represents approximately 300 employees of the Veterans Affairs Medical Center-Montrose (the “Hospital”), and maintains offices on the Hospital’s campus in Montrose, New York.  At all times relevant to the Indictment, the Union maintained a checking account (the “Union Bank Account”) for Union funds, including members’ dues payments.

From at least January 2008 through in or about October 2012, DAVIS served as the elected president of the Union.  As the president, it was DAVIS’s duty to preside over the Union’s meetings and conduct the day-to-day affairs of the Union.  During that time period, DAVIS used a debit card for the Union Bank Account (the “Union Debit Card”) issued to a deceased former Union officer to make hundreds of charges and cash withdrawals for non-Union expenses and without the authorization of the Union.  For example, DAVIS used the Union Debit Card at stores and online retailers including Apple, Best Buy, Wal-Mart, and Radio Shack, purchasing items for his personal benefit including electronics, music downloads, video games, cellphones, men’s clothing, gasoline, and cigarettes.  DAVIS purchased money orders using the Union Debit Card that totaled at least $30,000 from the United States Post Office in Montrose, New York.  On several occasions, DAVIS paid for rent for his residence using the money orders he purchased with the Union Debit Card.  DAVIS also used the Union Debit Card to make over 900 cash withdrawals from ATM machines in the Southern District of New York and elsewhere, in the process incurring thousands of dollars of ATM fees and fees for insufficient funds.  Between January 2008 and June 2012, the unauthorized purchases and cash withdrawals that DAVIS made with the Union Debit Card totaled in excess of $120,000.

In order to conceal his misuse and theft of Union funds, DAVIS also made false statements and omissions in annual Department of Labor Office of Labor-Management Standards reports for the fiscal years 2008, 2009, 2010, and 2011, reporting a total of only $7,000 in allowances and disbursements to himself as president.

In addition to the prison sentence, DAVIS, 56, of Wappingers Falls, New York, was sentenced to two years of supervised release.  The Court further ordered that Davis pay $150,000 in restitution.

Mr. Bharara thanked and praised the U.S. Department of Labor Office of Labor-Management Standards and the U.S. Department of Veterans Affairs, Office of the Inspector General for their work in this investigation.

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced that MICHAEL DANILOVICH was sentenced today to 25 years in prison in connection with his conviction for 16 counts of racketeering conspiracy, securities fraud, health care fraud, mail fraud, wire fraud, and money laundering charges following a five-week jury trial.  The jury convicted DANILOVICH of racketeering arising out of his operation, from 2007 through 2012, of the largest single no-fault automobile insurance fraud scheme ever charged; his operation, from 2007 to 2009, of two investment fraud schemes, Lyons Ward & Associates and the Rockford Group; and his attempted operation, from 2011 to 2012, of a third investment fraud scheme, Baron & Caplan Association, including after he was arrested and released on bail in this case.  DANILOVICH was sentenced today by United States District Judge Deborah A. Batts, who presided over the trial.

U.S. Attorney Preet Bharara said:  “Michael Danilovich made a career out of defrauding people.  From running the largest no-fault insurance fraud scheme in the country to operating multi-million dollar investment frauds, Danilovich’s deception was wide-ranging.  Thanks to the outstanding work of the FBI and the NYPD, Danilovich’s career of crime has been put to an end.”   

According to the Superseding Indictment, evidence admitted at trial, court filings, and statements made in open court:

From 2007 through 2012, DANILOVICH was a leader of an enterprise engaged in a pattern of racketeering that included a massive scheme to defraud automobile insurance companies under New York’s no-fault insurance law, multiple securities fraud schemes, money laundering, and the operation of illegal gambling businesses.  

Under New York State law, every vehicle registered in the state is required to have no-fault automobile insurance, which enables the driver and passengers of a registered and insured vehicle to obtain benefits of up to $50,000 per person for injuries sustained in an automobile accident, regardless of fault (the “No-Fault Law”).  The No-Fault Law requires prompt payment for medical treatment, thereby obviating the need for claimants to file personal injury lawsuits in order to be reimbursed.  Under the No-Fault Law, patients can assign their right to reimbursement from an insurance company to others, including medical clinics that provide treatment for their injuries.  New York State law also requires that all medical clinics in the state be incorporated, owned, operated, and controlled by a licensed medical practitioner in order to be eligible for reimbursement under the No-Fault Law.  Insurance companies will not honor claims for medical treatments from a medical clinic that is not actually owned, operated, and controlled by a licensed medical professional.  

From 2007 through 2012, DANILOVICH’s organization defrauded automobile insurance companies of more than $100 million by, among other things, creating and operating medical clinics that provided unnecessary and excessive medical treatments in order to take advantage of the No-Fault Law.  In addition, Danilovich’s organization fraudulently owned and controlled more than a dozen medical professional corporations (“PCs”) – including no fault clinics, MRI offices, and acupuncture and chiropractic PCs – by paying licensed medical professionals to use their licenses to incorporate the professional corporations.  DANILOVICH and his co-conspirators paid kickbacks of thousands of dollars to runners to recruit patients to receive the same battery of tests and treatments, and received kickbacks from other co-conspirators for referring patients for additional unnecessary treatments.  All told, Danilovich’s organization billed insurance companies for tens of millions of dollars in fraudulent medical treatments.  Furthermore, DANILOVICH and his co-conspirators laundered the proceeds of the fraud through check-cashing entities and shell companies, and used the money to pay for luxury cars, watches, and vacations. 

In addition to the no-fault insurance fraud scheme, DANILOVICH was convicted for operating two investment fraud schemes that swindled innocent victims out of nearly $18 million.  Both schemes – Lyons Ward & Associates and the Rockford Group – purported to be settlement claims funding companies that invested in lawsuits in return for a portion of future settlements.  DANILOVICH also attempted to operate a third scheme, Baron & Caplan Association, including after he was arrested and released on bail in this case.  As part of these schemes, DANILOVICH and his co-conspirators created bogus documents and account statements used by cold-callers to solicit victims through false representations.  In reality, there was no investment fund at all; instead, DANILOVICH and his co-conspirators simply stole the money invested by victims and laundered the proceeds by wiring them overseas to shell companies in Eastern Europe, which were then turned into cash in the United States.     

DANILOVICH’s organization also operated high-stakes illegal poker games and illegal sports books. 

*          *          *

At DANILOVICH’s first trial in the fall of 2013, a mistrial was declared after the jury failed to reach a unanimous verdict on all counts. 

On March 19, 2015, co-defendant Mikhail Zemlyansky was convicted following a four-week trial before U.S. District Judge J. Paul Oetken of six counts of racketeering conspiracy, securities fraud, mail fraud, and wire fraud charges, related to the crimes committed by the Zemlyansky/Danilovich Organization.  On January 28, 2016, Judge Oekten sentenced Zemlyansky to 15 years in prison.

Mr. Bharara thanked the Federal Bureau of Investigation and the New York City Police Department for their continued outstanding work in this investigation.  Mr. Bharara also thanked the National Insurance Crime Bureau, the investigative units of the insurance companies, the Manhattan District Attorney’s Office, and the Alabama Securities Commission for their valuable assistance with the investigation.

The case is being prosecuted by the Office’s Violent & Organized Crime Unit.  Assistant U.S. Attorneys Daniel S. Noble, Joshua A. Naftalis, and Jaimie L. Nawaday are in charge of the prosecution. 

Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the arrest and filing of charges against Marcus Stroud, a 19-year-old volunteer wrestling coach in Rockland County, New York.  The Complaint charges that STROUD persuaded a minor under the age of 14 (“Victim-1”) to engage in oral sex while STROUD recorded the activity with his iPhone.  STROUD was presented today before U.S. Magistrate Judge Judith McCarthy in White Plains federal court and detained without bail.

U.S. Attorney Preet Bharara said: “Marcus Stroud is charged with coercing a minor into sexual conduct by posing as a Good Samaritan, while actually preying upon the terrified victim through intimidation and the threat of public embarrassment.  This Office and our law enforcement partners remain committed to investigating and prosecuting those who commit these predatory crimes against children."

FBI Assistant Director Diego Rodriguez said: “There is no level of depravity that can’t find an outlet online or on digital devices in our society these days.  This case illustrates just how easy it is allegedly to manipulate and control children who are simply too naïve of the world around them.  We as law enforcement do all we can, and we are successful at stopping many of these alleged criminal deviants.  But we won’t ever be able to stop all of them.  Parents have to control their children’s access to the outside world through their phones and internet connections.” 

According to the Complaint[1]:

In late December 2015, STROUD met Victim-1 at a youth wrestling tournament in Rockland County, New York.  STROUD and Victim-1 connected online on SnapChat and Instagram.  Thereafter, Victim-1 connected with a SnapChat user using the account name “thechsenpug” (“Pug”).  Pug sent Victim-1 nude photos of a female and requested nude photos in return.  After Victim-1 provided several nude photos, Pug told Victim-1 that Pug would release the photos on social media unless Victim-1 videotaped himself performing “oral sex on a black guy.”

In early January 2016, STROUD contacted Victim-1 via SnapChat and told Victim-1 that STROUD had come across naked pictures of Victim-1 on Instagram but the pictures had been deleted.  STROUD told Victim-1 that he was good at computers and could help Victim-1.  Victim-1 told STROUD about the photos and STROUD told Victim-1, among other things, that he would put an “alert” on the pictures, so that STROUD would be notified when the pictures were uploaded to the Internet.  STROUD also told Victim-1 that he would be willing to perform the sexual act with Victim-1 to prevent the photos from being released.  Victim-1 told STROUD he did not want to perform the sexual act. 

In mid-February, STROUD asked Victim-1 when and where they would engage in the sexual act.  STROUD told Victim-1 that if he wouldn’t do the sexual act, STROUD didn’t care if Victim-1 was exposed.  On or about February 20, 2016, STROUD told Victim-1 that he had been notified that nude photos of Victim-1 had been posted on an online web page.  STROUD told Victim-1 that he had been able to delete the photos.  STROUD also told Victim-1 that he was notified that the photos had been sent to two different phone numbers.  STROUD told Victim-1 that they should just do the sexual act and get it over with.  Later that day, STROUD met with Victim-1 in Rockland County, New York, engaged in sexual activity with Victim-1, and recorded it.  STROUD told Victim-1 that he would send the video to the female who had requested it and would put a virus on the video so that, when she opened it, STROUD would be able to take control of her phone and delete Victim-1’s photos. 

On or about February 21, 2016, Victim-1 received a SnapChat message from a SnapChat user with the user name “sweedprincess” stating that “sweedprincess” liked the video a lot and wanted to know if Victim-1 would make another.   As set forth in the Complaint, SnapChat records revealed two Internet Protocol (“IP”) addresses from which “sweedprincess” logged onto SnapChat between February 9 and February 22, 2016.  Cablevision records revealed that a “Chris Stroud” in Rockland County, New York, was the subscriber of one of those IP addresses on February 10, 2016, and the other IP address on February 22, 2016.

As set forth in the Complaint, STROUD was interviewed by the Clarkstown Police Department on February 22, 2016.   STROUD stated, among other things, that Victim-1 asked him for help, that he had engaged in “computer hacking” on Victim-1’s behalf, and that the help required “sending a file.”  STROUD said that he met Victim-1 in Rockland County, New York, where they “created the file,” and then STROUD uploaded a virus into the file and sent the file.  STROUD admitted that he engaged in oral sex with Victim-1 and recorded the activity on STROUD’s phone.  STROUD stated that he told Victim-1 they would make the video and then STROUD would put a virus on the video. 

            *                *                *

STROUD, 19, of Nyack, New York, is charged with one count of sexual exploitation of a child.  If convicted, STROUD faces a minimum sentence of 15 years in prison and a maximum sentence of 30 years in prison.  The mandatory minimum and potential maximum sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by a judge.

Mr. Bharara praised the efforts of the FBI, the Clarkstown Police Department, and the Rockland County District Attorney’s Office in connection with this investigation.

Mr. Bharara stated that the investigation is ongoing.  Anyone who has relevant information concerning STROUD or who may have encountered someone using the user names “thechsenpug” or “sweedprincess” should contact the Federal Bureau of Investigation at (914) 989-6000. 

U.S. v. Marcus Stroud ComplaintThe prosecution is being handled by the Office’s White Plains Division.  Assistant United States Attorney Marcia S. Cohen is in charge of the prosecution.  

16- 195                                                            ###

[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 Philip R. Bartlett, the Inspector-in-Charge of the New York Office of the United States Postal Inspection Service (“USPIS”), announced today the arrest of BRANDON JONES, a/k/a “Brandon McGeer,” a/k/a “Brandon Jones-McGeer,” for impersonating an officer or employee of the United States, wire fraud, conspiring to commit wire fraud, and passing fictitious government obligations.  JONES, 34, was arrested by USPIS agents this morning in Manhattan and will be presented this afternoon before U.S. Magistrate Judge Frank Maas in Manhattan federal court.

Manhattan U.S. Attorney Preet Bharara stated: “As alleged, Brandon Jones purported to be the head of a fake organization tied to the U.N. and the U.S. government that promoted ‘international peace and security.’  But, as alleged, all that Jones was really promoting was a fraud scheme to obtain goods and services for himself through fake government purchase orders and travel requests.  Thanks to the work of the U.S. Postal Inspection Service, Jones’s alleged fraud has now been exposed.”  

USPIS Inspector-in-Charge Philip R. Bartlett stated: “Mr. Jones attempted to outwit everyone by using bogus contractual documents to further his alleged scheme to steal and manipulate businesses to provide goods and services to him as a ‘government official;’ but he couldn’t outwit Postal Inspectors when he was arrested for his criminal activities.”

According to the criminal Complaint[1] unsealed today:                       

Beginning in at least November 2015, JONES held himself out as a Commissioner of “The Office of the Commissioner, an IGO,” an organization falsely purporting to be part of the United Nations and the United States government.  In his role as Commissioner, JONES gave fraudulent purchase orders and government travel requests to businesses in exchange for tens of thousands of dollars’ worth of products and services, including airline tickets and electronics, to which he was not entitled and for which the businesses were never paid.     

*                *             *

JONES is charged with one count of impersonating an official or employee of the United States government, which carries a maximum sentence of three years in prison; one count of wire fraud, which carries a maximum sentence of 20 years in prison; one count of conspiracy to commit wire fraud, which carries a maximum sentence of 20 years in prison; and one count of passing fictitious obligations, which carries a maximum sentence of 25 years in prison.  The four charges each also carry a maximum fine of $250,000, or twice the gross gain or loss from the offense. 

In March 2015, an investigation undertaken with the United States Secret Service into one of JONES’s employees, an alleged “Deputy Commissioner” of the “Office of the Commissioner, an IGO,” Sandra Zongo, led to Zongo being charged with one count of impersonating an official or employee of the United States government; one count of wire fraud; and one count of passing fictitious obligations.  Zongo was arrested on those charges in May 2015, and her case (15 Cr. 319) is presently scheduled to proceed to trial before U.S. District Judge Kimba M. Wood in October 2016.           

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

The prosecution is being handled by the Office’s General Crimes Unit.  Assistant United States Attorneys Kiersten A. Fletcher and Jessica K. Fender 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.

The USPIS encourages the public to report any information it has regarding JONES or the “Office of the Commissioner” by phone at (212) 330-3518 or by email at alborofsky@uspis.gov.

[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 Brian Hickey, Special Agent in Charge of the U.S. Department of Education (“USDOE”), Office of Inspector General’s Northeast Region (“OIG”), announced today that the United States has settled civil claims under the False Claims Act against the Allen School of Health Sciences (“Allen School”), a for-profit educational institution based in Brooklyn and Queens, New York, that offers certificate and degree programs in medical services fields, and Christopher Wargo (“Wargo”), the former chief operating officer of the Allen School.  The settlements resolve claims that the Allen School and Wargo violated the USDOE rule prohibiting the payment of incentive compensation to enrollment personnel at for-profit schools based on their success in securing student enrollments (“incentive compensation rule”).  This rule is meant to curb the risk that recruiters will seek to enroll poorly qualified students who will derive little or no benefit from the schooling and may be unable or unwilling to repay the debt they incur in connection with their enrollment.  The settlement with the ALLEN SCHOOL also resolves claims that the Allen School violated a separate USDOE rule prohibiting schools from providing inaccurate job placement rates to prospective students (“job placement rates rule”).  

In the settlements, approved today by United States District Judge Paul A. Engelmayer, the ALLEN SCHOOL agreed to pay $4.25 million, and WARGO agreed to pay $40,000 to resolve the claims.  The Allen School and Wargo also made admissions regarding their respective conduct.

Manhattan U.S. Attorney Preet Bharara said:  “The incentive compensation and job placement rates rules are designed to protect prospective students and to ensure that federal education grant and loan funds are spent appropriately.  With today’s settlements, the Allen School and Wargo have taken responsibility for their conduct and agreed to pay significant financial penalties.” 

USDOE OIG Special Agent in Charge Brian Hickey said:  “I am proud of the work of OIG Special Agents and our law enforcement partners for their work in this case and their dedication to protecting the integrity of federal student aid funds and students that rely on those funds to make their dreams of higher education a reality.  We will continue to pursue those who misappropriate federal student aid or game the system for their own self interests.  America’s students and taxpayers deserve nothing less.”

As alleged in the Complaint-in-Intervention filed in Manhattan federal court:

To receive federal funds, a for-profit school like the Allen School must enter into a Program Participation Agreement (“PPA”) with the USDOE.  The PPA conditions the eligibility of a school to receive federal funds on compliance with various rules and requirements, including the incentive compensation and job placement rates rules.  A school that enters into a PPA certifies that, for the duration of the PPA, it will comply with those rules and requirements.  Throughout the 2011-2012, 2012-2013, and 2013-2014 academic years (“Covered Period”), the incentive compensation rule precluded schools from providing any incentive payments, including salary increases, based directly or indirectly on success in securing student enrollments.  The job placement rates rule prohibited schools from advertising placement rates that were false or misleading. 

The Allen School entered into PPAs with the USDOE in 2007 and 2013, and based on the certifications it made in those PPAs, received federal funding from the USDOE throughout the Covered Period.  Yet during that time, the Allen School systematically violated the incentive compensation and job placement rates rules.

With respect to the incentive compensation rule, the Allen School provided enrollment personnel with daily, weekly, and monthly expectations for various enrollment metrics – including the number of students enrolled – and it linked enrollment personnel’s obtaining promotions and corresponding salary increases with their success in meeting those metrics.  The ALLEN SCHOOL carefully tracked the performance of enrollment personnel as to the enrollment metrics, and counseled employees for missing even one day’s goals.  Moreover, during conversations with Allen School personnel, WARGO and others made it clear that a primary factor in determining whether enrollment personnel would be eligible for promotions and corresponding pay increases would be whether they had met or exceeded their numeric expectations.  For example, Wargo instructed a campus director at the Allen School to tell his subordinate enrollment personnel that the only way they could increase their pay was to meet or exceed their numeric enrollment quotas.  Consistent with such statements, a primary factor in the Allen School’s and WARGO’s decisions regarding promotions and salary increases for enrollment personnel was success in securing enrollments.

As to the job placement rates rule, throughout the Covered Period, enrollment personnel at the Allen School consistently represented to prospective students that the Allen School had a job placement rate of 86 percent, even though it did not.  The 86 percent figure was used to describe the ALLEN SCHOOL’s job placement rate at all times during the Covered Period, for all of the ALLEN SCHOOL’s programs, and for all of its campuses.  In fact, however, the ALLEN SCHOOL’s job placement rate varied from year to year, program to program, and campus to campus.

As part of the settlements, both the Allen School and Wargo admitted, acknowledged, and accepted responsibility for the following conduct, all of which occurred throughout the Covered Period: 

• The ALLEN SCHOOL gave its enrollment advisers and other enrollment personnel daily, weekly, and monthly expectations for various enrollment metrics, such as number of phone calls to prospective students, number of interviews with prospective students, and number of students enrolled.
• WARGO, and other individuals employed by the Allen School with managerial responsibility over enrollment personnel, told enrollment personnel that a primary factor in determining whether they would be eligible for promotions to higher level positions with increased salaries would be whether they had met or exceeded their numeric expectations.
• As a result of the above-referenced statements by and others, many enrollment personnel believed that the only way they could receive promotions with corresponding salary increases was to meet or exceed their numeric expectations.Certain Allen School enrollment personnel who received promotions with corresponding salary increases believed that they had received the promotions and salary increases because they had met or exceeded their numeric expectations, and they further believed that they would not have received the promotions and salary increases if they had not.
• Certain enrollment personnel represented to prospective students that the had a job placement rate of 86 percent.The job placement rates that the reported to its institutional accrediting body in fact varied from campus to campus, program to program, and year to year.

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

*                *                *

Mr. Bharara thanked USDOE’s Office of the Inspector General for its investigative efforts and assistance with the case.

This case is being handled by the Office’s Civil Frauds Unit.  Assistant United States Attorneys Christopher B. Harwood and Andrew E. Krause are in charge of the case.

Preet Bharara, the United States Attorney for the Southern District of New York, today announced that KALEIL ISAZA TUZMAN, the former Chairman and CEO of KIT digital (“KITD”), was extradited from Colombia, where he had been arrested in September 2015 for market manipulation and accounting fraud charges.  TUZMAN, a dual citizen of the United States and Colombia, arrived in the Southern District of New York today, and will be presented tomorrow in Manhattan federal court.  The case is assigned to U.S. District Judge Paul G. Gardephe.              

Manhattan U.S. Attorney Preet Bharara said: “Nearly a year ago, we charged the former Chairman and CEO of KIT digital, Kaleil Isaza Tuzman, with engaging in an elaborate scheme to mislead investors and regulators about the financial health of the publicly traded company he ran.  Now, having been extradited from Colombia, Tuzman will face federal charges of market manipulation and accounting fraud in Manhattan federal court.”

According to the allegations contained in the Indictments filed in this case,[1] TUZMAN and others engaged in the following fraudulent schemes during his tenure as KITD’s Chairman and CEO:

The Market Manipulation Scheme

Between in or about December 2008 and in or about September 2011, TUZMAN, Stephen E. Maiden, who operated an investment advisory firm called Maiden Capital, and Omar Amanat engaged in efforts to artificially inflate the share price and trading volume of KITD shares.  During this time period, during which KITD shares traded on the OTC Bulletin Board and on the NASDAQ, Maiden, at TUZMAN’s and Amanat’s behest, purchased and sold shares of KITD through Maiden Capital, at times for the purpose of manipulating the stock price and at times for the purpose of creating the illusion of greater volume in the trading for KITD shares. 

For instance, Maiden, with TUZMAN’s knowledge and approval, frequently engaged in match trading in which Maiden caused an account under Maiden’s control to buy or sell KITD stock, and on the same day caused an account under Maiden’s control to take the opposite position.  TUZMAN also directed Maiden to make timely purchases of KITD stock in an effort to manipulate the price of KITD shares at certain critical moments, including, for example, when KITD was seeking to raise additional capital and in the weeks before KITD’s stock began trading on the NASDAQ.  At times, Maiden was responsible for nearly all of the day’s trading activity in KITD stock.

Over the course of the scheme, TUZMAN caused KITD to invest approximately $1,150,000 in company cash in Maiden Capital but failed to disclose to KITD shareholders that these investments with Maiden Capital were not part of an arms-length relationship.  Instead, TUZMAN portrayed these investments as efforts to safely invest assets of KITD.  In reality, TUZMAN caused KITD to make these investments in order to help fund Maiden’s purchases of KITD shares, as part of the effort to manipulate the market described above.  And, on one occasion, TUZMAN caused KITD to invest $250,000 in Maiden Capital so that Maiden could reimburse TUZMAN for a prior, personal investment that TUZMAN made with Maiden Capital, thereby using KITD as his personal bank. 

The Accounting Fraud Scheme

From at least in or about 2010 through in or about 2012, TUZMAN and Robin Smyth, KITD’s former CFO, with others, engaged in an illegal scheme to deceive KITD shareholders, members of the investing public, KITD’s independent auditors, and others concerning KITD’s true operating performance and financial results. 

TUZMAN, working with others, including Smyth, devised and executed a scheme to inflate KITD’s revenue falsely.  This scheme involved two principal methods: (a) the improper recognition of revenue from so-called “perpetual license” contracts for KITD software (contracts that gave the purchasing customer the right to use the licensed software indefinitely), and (b) the execution of fraudulent “round-trip” transactions which had the effect of using KITD’s own cash, rather than payments received from customers, to pay off bills, known as accounts receivable, that were due and owed to KITD, including those resulting from KITD’s improper revenue recognition practices, rather than disclose to KITD’s auditors and the investing public the fact that the bills were uncollectible or, in some cases, had resulted from fabricated contracts.  These fraudulent practices caused KITD to materially overstate its reported revenue, which had the effect of materially overstating KITD’s net income and earnings on its annual and quarterly financial reports issued from the fiscal quarter ending June 30, 2010 through the fiscal quarter ending March 31, 2012.

TUZMAN, 44, was extradited on three counts in the Indictment.  For the market manipulation scheme, TUZMAN faces trial on one count of conspiracy to commit securities fraud and one count of conspiracy to commit wire fraud.  For the accounting fraud scheme, TUZMAN faces trial on one count of conspiracy to commit securities fraud, make false statements in annual and quarterly reports filed with the Securities and Exchange Commission (“SEC”), and make false statements to auditors. 

The conspiracy to commit securities fraud carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense.  The conspiracy to commit securities fraud, make false statements in annual and quarterly SEC reports, and make false statements to auditors carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense.  The conspiracy to commit wire fraud carries a maximum sentence of 20 years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense.   

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

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.  He also thanked the Colombian government for its help in apprehending TUZMAN.  He also thanked U.S. consular officials at the U.S. Embassy in Colombia and the U.S. Department of Justice, Office of International Affairs 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, Andrea M. Griswold, and Edward Y. Kim are in charge of the prosecution.

The allegations contained in the Indictments 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 Indictments and the description of the Indictments 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 Scott J. Lampert, Special Agent in Charge of the New York Region of the Office of Inspector General for the U.S. Department of Health and Human Services (“HHS-OIG”), announced today a settlement of a civil fraud lawsuit against THE TRUSTEES OF COLUMBIA UNIVERSITY IN THE CITY OF NEW YORK (“COLUMBIA”) for improperly seeking and receiving excessive cost recoveries in connection with research grants funded by the National Institutes of Health (“NIH”).  The United States’ Complaint-In-Intervention (the “Complaint”) alleges that from July 1, 2003, through June 30, 2015, COLUMBIA impermissibly applied its “on-campus” indirect cost rate – instead of the much lower “off-campus” indirect cost rate – when seeking federal reimbursement for 423 NIH grants where the research was primarily performed at off-campus facilities owned and operated by the State of New York and New York City.  The Complaint further alleges that COLUMBIA failed to disclose to NIH that it did not own or operate these facilities and that COLUMBIA did not pay for use of the space for most of the relevant period. 

Yesterday, U.S. District Court Judge Paul A. Engelmayer approved a settlement stipulation to resolve the Government’s claims against COLUMBIA.  Under the settlement, COLUMBIA is required to pay $9.5 million to the United States.  In addition, COLUMBIA has admitted that it applied the on-campus indirect cost rate to the 423 NIH grants even though the research was primarily performed in space not owned or operated by Columbia, and that it submitted to NIH certified reports that used the on-campus indirect cost rate to calculate the indirect cost amounts claimed by the university.

Manhattan U.S. Attorney Preet Bharara said:  “All institutions that receive federal grant money must abide by applicable rules and regulations governing the use of the funds and the extent to which costs incurred by the institution are reimbursable.  For years and for over 400 research grants, Columbia improperly sought and recovered inflated cost recoveries.  For seeking and receiving improperly inflated cost recoveries from limited federal research funds, Columbia has made admissions and will pay $9.5 million.”

HHS-OIG Special Agent in Charge Scott J. Lampert said: “It is disturbing that Columbia University, a prestigious institution, would improperly seek excessive cost reimbursements from NIH, as alleged in the settlement.  Money gained by such behavior deprives other research programs of funds that could yield life-altering new treatments.  We will continue to work with our law enforcement partners to ensure institutions who engage in wrongful activity are held accountable.”

As alleged in the Complaint filed in Manhattan federal court:

Educational institutions are generally entitled to seek and receive federal reimbursement only for actual costs incurred by the institution in support of federally sponsored grants.  This is true regardless of whether the costs are direct costs (i.e., costs that can be identified specifically with a particular research project, such as the cost of the materials for the project) or indirect costs (i.e., costs that are incurred for common or joint objectives and, therefore, cannot be identified with work performed on a particular research project, such as operation and maintenance expenses).    

A university recovers its indirect costs for a particular research project by applying the relevant facilities and administrative rate (the “F&A Rate”) for the project to a subset of the direct costs it incurred in connection with the project.  HHS and educational institutions negotiate one F&A Rate for research primarily performed on-campus (“On-Campus F&A Rate”), and a separate F&A Rate for research primarily performed off-campus (“Off-Campus F&A Rate”).  The On-Campus F&A Rate is typically more than double the Off-Campus F&A Rate to account for the fact that when conducting research off-campus educational institutions do not incur the indirect facilities-related costs that they would otherwise incur if the activities were performed on-campus. 

From July 1, 2003, through June 30, 2015, COLUMBIA’s On-Campus F&A Rate was approximately 61 percent, its Off-Campus F&A Rate was 26 percent, and its Modified Off-Campus F&A Rate was 29.4 percent.  The Modified Off-Campus F&A Rate was to be applied to research conducted off-campus but within a certain proximity of the COLUMBIA campus.

COLUMBIA has a collaborative relationship with the New York State Psychiatric Institute (“NYSPI”), a clinical research facility administered by the New York State Office of Mental Health.  COLUMBIA faculty perform research in two off-campus buildings owned by the State of New York and operated by NYSPI (the “NYSPI Buildings”).  COLUMBIA faculty also perform research in another off-campus building owned and operated by the City of New York (the “City Building”).

For most of the relevant period, COLUMBIA did not pay the State of New York for use of the NYSPI Buildings, and therefore did not incur indirect “facilities-related” costs with respect to the medical research performed in these buildings.  Similarly, COLUMBIA did not pay the City of New York for use of the City Building.

During the relevant period, COLUMBIA received NIH funding for 423 grants where the research primarily took place in the off-campus NYSPI Buildings or the off-campus City Building (“NIH Grants”).  COLUMBIA improperly applied the On-Campus F&A Rate when seeking indirect cost reimbursements from NIH for these grants.  To obtain the indirect cost reimbursements, Columbia periodically submitted to NIH certified Federal Financial Reports (“FFRs”).  At the time that COLUMBIA submitted the FFRs for the NIH Grants, the university knew that it did not own or operate the NYSPI Buildings or the City Building where the research was primarily being performed and that it did not incur any costs relating to those spaces for most of the relevant period, but nevertheless sought reimbursement based on the On-Campus F&A Rate.

COLUMBIA did not state on the applications for the NIH Grants that the research would be primarily performed off-campus, as required.  Instead, Columbia frequently included the main address for the College of Physicians & Surgeons in the section of the application that was supposed to list the primary performance location.  Even where the NYSPI Buildings or the City Building were listed in that section of the grant application, or mentioned elsewhere in the application, COLUMBIA failed to disclose that these buildings were not owned and operated by the university. 

Starting in fiscal year 2009, in lieu of paying rent for use of one of the NYSPI Buildings, the Department of Neuroscience paid NYSPI a portion of the inflated indirect cost recoveries it received from NIH for research projects performed in that building.

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 thanked HHS-OIG for its investigative efforts and extensive assistance with the case. 

The case is being handled by the Office’s Civil Frauds Unit.  Assistant U.S. Attorney Jeffrey K. Powell is in charge of the case.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that JOSEPH DEL VALLE, an owner and partner of various investment companies, was sentenced yesterday in Manhattan federal court to 98 months in prison for wire fraud and aggravated identity theft charges for operating two fraudulent schemes that resulted in more than $5 million in investor losses.  DEL VALLE pled guilty on February 8, 2016, and was sentenced yesterday by United States District Judge Richard M. Berman. 

Manhattan U.S. Attorney Preet Bharara stated: “Joseph Del Valle defrauded investors out of millions of dollars, taking money meant for investments and instead spending it on himself on luxury vacations, fine dining, and personal expenses.  To fool investors who thought they were investing in wine, restaurant and hotel businesses, Del Valle fabricated emails purported to be from well-known chefs and business people.”

According to the allegations contained in the Superseding Indictment, the underlying criminal Complaint, and other statements made during court proceedings:

The Project Miami Scheme

Beginning in 2005, JOSEPH DEL VALLE, a co-conspirator (“CC-1”), and an employee of Vanquish Acquisition Partners LLC, began soliciting investors for a real estate development project in the Little Havana neighborhood of Miami (referred to herein as “Project Miami”).  Project Miami involved two high-rise buildings in which the bottom floors would house retail shops and the top floors would be residential condominiums.  Project Miami was designed to provide affordable housing to middle-income individuals and included an arrangement for financing so that purchasers of the condominiums would receive government-subsidized mortgages.  From 2005 through 2007, DEL VALLE, CC-1, and the employee obtained approximately $6.4 million from investors for Project Miami.

Prior to making any investments, investors were told that the investment was solely for Project Miami.  Investors were provided with various materials that specified the investments were for Project Miami, and provided that DEL VALLE and his company would take only a five percent management fee.  However, almost immediately after investors transferred funds for Project Miami, almost all of which were sent to banks in Manhattan, New York, DEL VALLE and CC-1 transferred amounts far greater than five percent to other bank accounts and began using the funds for other purposes, including investments in a wine magazine and for DEL VALLE’s personal use.  For example, in October 2007, DEL VALLE used $30,000 of investor money in Europe for, among other things, hotels, restaurants, a cruise, and cash withdrawals.  In total, DEL VALLE and CC-1 used over $3 million for other investments or personal expenses.

When investors became suspicious and requested financial statements for their investments and a return of their money, DEL VALLE represented to investors in phone calls and email communications that the investment funds were secure when, in fact, a large portion of the investors’ money had already been misappropriated and/or diverted to other uses.  DEL VALLE also falsely told investors that financial statements were in the process of being prepared and would be mailed to them shortly, but in fact, DEL VALLE and CC-1 had not provided any financial information to the accountant responsible for the preparation of financial statements of the relevant entities.    

The Project WT/Bistro, Project Chateau, & Project Rioja Scheme

From in or about 2009 through in or about 2014, DEL VALLE conducted a second scheme in which he solicited investors to wire investments to various bank accounts for the purpose of investing in three purported investment projects, Project WT (later named Project Bistro), Project Rioja, and Project Chateau, all of which DEL VALLE controlled.  According to DEL VALLE, Project WT/Bistro was created for the purpose of raising money to expand two restaurants, Project Chateau was created for the purpose of raising money to invest in the high-end segment of the hospitality industry, and Project Rioja was created for the purpose of raising money to invest in the high-end segment of the wine industry.  DEL VALLE raised more than $2 million from investors for these projects.

Among other things, DEL VALLE falsely represented to investors that their money would be used solely to fund the specific projects in which the investors had decided to invest.  However, almost immediately after investors transferred funds to bank accounts controlled by DEL VALLE, DEL VALLE withdrew money from the bank accounts (often through debit card purchases, ATM withdrawals, and wire transfers) and spent approximately all of the funds on restaurants, hotels, clothing, mortgage payments and payments to DEL VALLE’s family members and his fiancée, among other things.  In addition, to induce investors to invest money in the specific projects, DEL VALLE frequently sent investors multiple fabricated emails that purported to come from well-known chefs and businesspeople.

*                       *                      *

In addition to the prison sentence, DEL VALLE, 61, of Aventura, Florida, was sentenced to five years of supervised release.  The Court further ordered that DEL VALLE forfeit $5,333,722 and pay $5,333,722 in restitution. 

Mr. Bharara praised the work of the FBI.

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 Aimee Hector and Damian Williams are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, 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 OMAR AMANAT, STEPHEN E. MAIDEN, and RIMA JAMEEL, a/k/a “Rima Jameel Al Fahl,” for their involvement in fraudulent schemes related to Kit digital (“KITD”), a publicly traded technology start-up company based in New York, and Prague, Czech Republic.

U.S. Attorney Preet Bharara said:  “As alleged, these three defendants defrauded investors of millions of dollars through years of lies and deceit.  Their fraudulent tactics allegedly included manipulating stock prices, hiding investment losses, and peddling falsehoods to investors.  This type of alleged manipulation and deception undermines the fairness and integrity of our markets, and it is something that this Office and our law enforcement partners will fight to root out.”

FBI Assistant Director-in-Charge Diego Rodriguez said:  “There are multiple charges announced today against Omar Amanat for his alleged roles in schemes to hide losses from investors, and to falsely inflate the share price and volume of a publicly traded company.  Ensuring that all investors have factual information and fair markets are exactly why the FBI continues to investigate and bring to justice those who perpetrate fraudulent investment schemes.”

USPIS Inspector-in-Charge Philip R. Bartlett said: “What a tangled web Mr. Amanat tried to weave, when he allegedly conspired with others to devise a scheme to hide the significant losses and insolvency of the fund he controlled.  His web of deception was broken when law enforcement put an end to his criminal activity.”

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

AMANAT – an associate of Kaleil Isaza Tuzman (“Tuzman”), the former Chairman and CEO of KITD – was charged with conspiring to manipulate the market in KITD shares with Tuzman, MAIDEN, and others, and with conspiracy, wire fraud, and aiding and abetting investment adviser fraud for participating in a scheme, along with MAIDEN, to defraud investors in MAIDEN’s hedge fund regarding investments in Enable Invest Ltd., an investment fund affiliated with AMANAT.  AMANAT was arrested in New Jersey this morning and was presented today in Manhattan federal court before United States Magistrate Judge Frank Maas. 

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’s hedge fund, and defrauding MAIDEN’s investors concerning the Enable investment.   MAIDEN is cooperating with the Government in this investigation.

JAMEEL, former outside counsel to KITD, was charged with conspiracy, securities fraud, and money laundering charges relating to an illegal scheme engaged in by JAMEEL, with others, including Tuzman and Robin Smyth (“Smyth”), KITD’s former CFO, to deceive KITD shareholders, members of the investing public, KITD’s independent auditors, and others concerning KITD’s true operating performance and financial results. 

JAMEEL was convicted in 2002 of various federal offenses in connection with her work as an attorney.  She subsequently fled the United States prior to sentencing and has remained a fugitive.            

Tuzman, who was arrested in Colombia in September 2015 on market manipulation and accounting fraud charges, is being held in Colombia pending extradition proceedings.            

Charges Against Amanat and Maiden

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. 

Nonetheless, between in or about February 2009 and in or about June 2012, AMANAT, along with MAIDEN and others, devised and carried out a scheme to hide the fact that investments by Maiden Capital clients in Enable, an investment vehicle for which AMANAT raised money (based, in part, on false and misleading representations), had been lost.  To facilitate the scheme, MAIDEN, with the knowledge and approval of AMANAT, generated fictitious client account statements that failed to disclose the Enable losses.  In addition, AMANAT wired hundreds of thousands of dollars to a Maiden Capital bank account to support Maiden Capital, including to allow MAIDEN to repay investors whose redemption requests could not be forestalled and thus to continue to keep secret from Maiden Capital investors the Enable losses.

AMANAT aided and abetted MAIDEN’s fraud on Maiden Capital’s investment advisory clients.  Rather than disclose the Enable losses to investors in the Maiden Fund, as he was legally obligated to do, MAIDEN concealed the Enable losses, thereby acting in his own self-interest and the interests of AMANAT, his close associate, who did not want the Enable losses to be exposed.  By providing MAIDEN with capital contributions to meet redemption requests, among other things, knowing that MAIDEN’s investors had been lied to by MAIDEN about the Enable losses and the status of their investments, AMANAT assisted MAIDEN in carrying out his fraudulent scheme and helped MAIDEN to succeed in covering up the losses for over three years.

The Market Manipulation Scheme

Between in or about December 2008 and in or about September 2011, AMANAT, Tuzman, MAIDEN, and others, engaged in efforts to artificially inflate the share price and trading volume of KITD shares.  During this time period, during which KITD shares traded on the OTC Bulletin Board and on the NASDAQ, MAIDEN, at the behest of AMANAT and Tuzman, purchased and sold shares of KITD through the Maiden Fund, at times for the purpose of manipulating the stock price and at times for the purpose of creating the illusion of greater volume in the trading for KITD shares.  To facilitate the manipulation of KITD shares, AMANAT and Tuzman agreed to compensate MAIDEN in several ways, including by making investments in, and loaning money to, Maiden Capital, which agreement AMANAT and Tuzman partially fulfilled.

AMANAT, 43, is charged with one count of conspiracy to commit wire fraud, one count of wire fraud, one count of aiding and abetting investment adviser fraud, and one count of conspiracy to commit securities fraud.  Counts One and Two each carry a maximum sentence of 20 years in prison.  Count Three carries a maximum sentence of five years in prison.  Count Four carries a maximum sentence of five years in prison.  Counts One, Two, and Four carry a maximum fine of $250,000 or twice the gross gain or loss from the offense.  Count Three carries a maximum fine of $10,000 or twice the gross gain or loss from the offense.   

On July 1, 2016, MAIDEN, 43, pled guilty before Judge James L. Cott to one count of conspiracy to commit securities fraud and one count of conspiracy to commit wire fraud.  Count One carries a maximum sentence of five years in prison.  Count Two carries a maximum sentence of 20 years in prison.  The charges also carry a maximum fine of $250,000 or twice the gross gain or loss from the offense.

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

Charges Against Rima Jameel

From at least in or about 2010 through in or about 2012, JAMEEL, with others, including Tuzman and Smyth, engaged in an illegal scheme to deceive KITD shareholders, members of the investing public, KITD’s independent auditors, and others concerning KITD’s true operating performance and financial results. 

JAMEEL, working with Tuzman and Smyth, among others, devised and executed a scheme to inflate KITD’s revenue falsely.  This scheme involved two principal methods: (a) the improper recognition of revenue from so-called “perpetual license” contracts for KITD software (contracts that gave the purchasing customer the right to use the licensed software indefinitely), and (b) the execution of fraudulent “round-trip” transactions which had the effect of using KITD’s own cash, rather than payments received from customers, to pay off bills, known as accounts receivable, that were due and owed to KITD, including those resulting from KITD’s improper revenue recognition practices, rather than disclose to KITD’s auditors and the investing public the fact that the bills were uncollectible or, in some cases, had resulted from fabricated contracts.  These fraudulent practices caused KITD to materially overstate its reported revenue, which had the effect of materially overstating KITD’s net income and earnings on its annual and quarterly financial reports issued from the fiscal quarter ending June 30, 2010, through the fiscal quarter ending March 31, 2012.  

JAMEEL was instrumental in furthering and concealing the illegal scheme.  For instance, JAMEEL, with others, created Jourdian Invest Ltd. (“Jourdian Invest”), a British Virgin Islands entity, for the purpose of using KITD’s money to make purported “loans” to KITD’s customers who were either unwilling or unable to pay the bills they purportedly owed to KITD.  Using Jourdian Invest in this manner allowed Tuzman, Smyth, and JAMEEL to fraudulently obscure their use of KITD’s own money to pay down these customers’ aging receivables on KITD’s books. 

Furthermore, JAMEEL, at Tuzman and Smyth’s request, maintained a U.A.E.-based escrow account (the “U.A.E. Escrow Account”) that, at various times, contained millions of dollars of KITD funds.  Instead of using the escrowed funds for legitimate corporate purposes, JAMEEL, at Tuzman and Smyth’s request, caused the escrowed funds to be used to pay down fictitious or uncollectible KITD receivables.  JAMEEL, working with Tuzman and Smyth, among others, sought to conceal the improper usage of the escrowed funds.  For instance, on or about March 13, 2012, in connection with KITD’s 2011 audit, JAMEEL emailed a balance confirmation to KITD’s independent auditors in which she falsely claimed that the U.A.E. Escrow Account contained approximately $6.1 million when, in truth and in fact, and as JAMEEL well knew, the U.A.E. Escrow Account was empty. 

JAMEEL, 49, is charged in four counts.  JAMEEL 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 money laundering, and one count of money laundering. 

The conspiracy to commit securities fraud, make false statements in annual and quarterly SEC reports, and make false statements to auditors carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense.  The securities fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $5 million or twice the gross gain or loss from the offense.  The money laundering counts each carry a maximum sentence of 20 years in prison and a maximum fine of $500,000 or twice the gross gain or loss from the offense. 

*                      *                      *           

Mr. Bharara praised the work of the FBI and the 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, Andrea M. Griswold, and Edward Y. Kim 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] The charges contained in the Indictments 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, 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 Robert E. Perez, Director of the New York Field Operations for U.S. Customs and Border Protection (“CBP”), announced a $13.375 million settlement of a civil fraud lawsuit against MOTIVES, INCORPORATED, an importer of clothing, and MOTIVES FAR EAST and MOTIVES CHINA LIMITED, foreign manufacturers of clothing (collectively “MOTIVES”), for engaging in a double invoicing scheme to defraud the United States out of millions of dollars in customs duties.  In the settlement, approved yesterday in Manhattan federal court by U.S. District Judge George B. Daniels, MOTIVES admitted to and accepted responsibility for under-reporting the value of its imported merchandise and agreed to pay $13.375 million to the United States under the False Claims Act.

Manhattan U.S. Attorney Preet Bharara said: “Motives evaded millions in customs duties by presenting false invoices to U.S. Customs and Border Protection.  With this lawsuit and the accompanying resolution, which involves admissions and the payment of over $13 million, Motives is being held to account for its unlawful evasion of customs duties.”

ICE HSI Special Agent-in-Charge Angel M. Melendez said: “Motives disguised the true value of goods imported into the United States to cheat the government out of millions of dollars in customs duties.  This scheme backfired, now Motives will pay millions for trying to skirt America’s customs laws.  Trade fraud threatens the U.S. economy and restricts competitiveness of U.S. industry in the world markets.  HSI and CBP maintain a zero-tolerance policy when it comes to these types of predatory and unfair trade practices.”   

CBP Director of New York Field Operations Robert E. Perez said:  “CBP takes trade fraud, such as undervaluation, very seriously.  We are proud to partner with HSI and the Southern District to level the playing field for legitimate traders by steadfastly enforcing US trade laws.”

The Government’s complaint, filed in Manhattan federal court, alleges that from approximately 2009 through 2013, MOTIVES, which regularly manufactured and/or imported apparel into the United States, conspired with clothing wholesalers fraudulently to underpay customs duties owed to the Government by making false representations in entry documents filed with CBP about the value of the imported merchandise.  Pursuant to the scheme, MOTIVES created and/or used two sets of invoices: one that undervalued the garments and was presented to the Government for calculation of the appropriate duty, and the second that reflected the actual value of the garments.  MOTIVES presented to the Government invoices with the lower value on the entry forms, thereby defrauding the Government of millions of dollars in customs duties.   

As part of the settlement, MOTIVES admitted, acknowledged, and accepted responsibility for engaging in the following conduct from 2009-2013:

• repeatedly preparing and presenting to the Government commercial invoices for apparel being imported into the United States that reported less than the total value of the goods imported;

• repeatedly representing to the Government that its documentation contained, to the best of MOTIVES’ knowledge, correct and true information such as prices, values, and quantities;

• repeatedly receiving from apparel wholesalers an amount in excess of that recorded on the commercial invoices; and

• repeatedly failing to disclose to the Government the separate invoices reflecting the true value of the apparel, and instead reporting only the lesser amounts listed in the commercial invoices, which the Government then used to assess customs duties.

The allegations of fraud stated in the Complaint were first brought to the attention of federal law enforcement by a whistle-blower who filed a lawsuit under the False Claims Act. 

Mr. Bharara praised the investigative work of the ICE HSI on this case.  He also thanked U.S. Customs and Border Protection for their assistance.

This case is being handled by the Office’s Civil Frauds Unit.  Assistant United States Attorneys Jamie L. Nawaday and Kirti Vaidya Reddy are in charge of the case.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that JOHN TODD WILLIAMS, a/k/a “JT,” a/k/a “Joe Steele,” was convicted for conspiring to commit wire fraud in connection with a nationwide debt collection scheme that defrauded more than 6,000 victims throughout the United States out of millions of dollars.  WILLIAMS was convicted following a five-day jury trial before the Honorable Richard J. Sullivan.  WILLIAMS owned and operated a debt collection company based in Norcross, Georgia, called WILLIAMS, SCOTT & ASSOCIATES, a/k/a “WSA,” a/k/a “Warrant Services Association,” (“WSA”).  WILLIAMS and his co-conspirators, whom he employed as debt collectors at WSA, tricked and coerced victims into making payments to WSA by making false threats and telling a host of lies.  These threats included falsely stating that warrants had been issued for the victims’ arrest or that criminal charges were pending against them.

Manhattan U.S. Attorney Preet Bharara said:  “For owning and operating a debt collection company that tricked, threatened, and coerced vulnerable victims into making payments, a unanimous jury convicted John Williams of conspiracy to commit wire fraud.  The conviction today brings an end to Williams’s massive scam that used scare tactics and threats to coerce millions of dollars out of thousands around the country.”

According to the evidence presented at trial:

Between approximately 2009 and May 2014, employees working for WSA, led by WILLIAMS, routinely attempted to trick and coerce thousands of victims throughout the United States into paying millions of dollars in consumer debts through a variety of false statements and false threats.  Employees of WSA typically used aliases, sometimes referring to themselves as “Detective” or “Investigator,” falsely advised consumers they had committed purported crimes such as “check fraud” or “depository check fraud,” and told consumers that if they failed to make immediate payments to WSA to resolve the matters, warrants would be issued for their arrest.  WSA employees also falsely claimed that WSA had contracts with, or was otherwise affiliated with, certain federal or local law enforcement agencies, including the Department of Justice and the Federal Bureau of Investigation. 

Among other false statements, WSA employees also claimed that WSA was a law firm or otherwise worked with lawyers, and that they would have the victims’ driver’s licenses suspended if those victims did not make payment to WSA.  To falsely create an appearance of legitimacy, and further trick their victims into making payments, WSA employees routinely used legal terminology to invent legitimate-sounding, but completely bogus, explanations for the supposed imminent arrest of the victims, including for example, that the “statute of limitations” on the victims’ “civil legal rights” had expired and therefore the matter was now a criminal matter that could be resolved only by voluntary payment to WSA, or arrest.  WILLIAMS and WSA employees also attempted to collect debts from victims who had already paid off their loans.  When victims told WSA employees that they had already paid their debts, they were told, at WILLIAMS’s instruction, that “you can’t pay a debt with a debt instrument,” i.e., a credit card.

In total, from approximately 2009 through approximately May 2014, WSA obtained more than $4.1 million dollars from more than 6,000 victims in all 50 states.

*                *                *

WILLIAMS was convicted of one count of conspiracy to commit wire fraud, 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.

WILLIAMS is scheduled to be sentenced on October 28, 2016, at 2:30 p.m., by the Honorable Richard J. Sullivan.

Mr. Bharara praised the outstanding investigative work of the FBI.  He also thanked the Consumer Financial Protection Bureau (“CFPB”) for referring this case to this Office, and the Federal Trade Commission (“FTC”) for its assistance in this investigation.  Mr. Bharara also acknowledged with appreciation the extraordinary partnership between this Office and both the FTC and CFPB in the Office’s ongoing effort to combat consumer fraud.

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

If you wish to report a crime by another debt collector, you may contact the FTC at 1-877-FTC-HELP.  For guidance on coping with debt, and information about dealing with debt collection companies in particular, consider the following link to publications issued by the Federal Trade Commission:

http://www.consumer.fgc.gov/articles/0149-debt-collection

The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant United States Attorneys Sarah E. Paul and Benet J. Kearney represented the Government at trial.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that five members of the Pólicia National de Honduras, i.e., the Honduran National Police, charged in a Superseding Indictment returned on June 29, 2016, have surrendered to face charges involving an alleged conspiracy to import cocaine into the United States and a related firearms offense.  The five defendants, who arrived in the United States yesterday evening and will be presented and arraigned before U.S. Magistrate Judge Frank Maas later today in Manhattan federal court, are:  Mario Guillermo Mejia Vargas, Juan Manuel Avila Meza, Carlos Jose Zavala Velasquez, Victor Oswaldo Lopez Flores, and Jorge Alfredo Cruz Chavez.  Co-defendant LUDWIG CRISS ZELAYA ROMERO remains at large.

U.S. Attorney Preet Bharara said: “Less than two weeks after we announced charges against six Honduran National Police Officers for engaging in a massive drug conspiracy, five of those officers are now in custody in Manhattan.  For allegedly conspiring to move tons of cocaine from the Honduran jungles to American cities, these Honduran police officers will now face these charges in an American court of law.”

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

Between approximately 2004 and approximately 2014, multiple drug-trafficking organizations in Honduras and elsewhere worked together, and with support from the defendants and others, to receive multihundred-kilogram loads of cocaine sent to Honduras from Venezuela and Colombia via air and maritime routes, and to transport the drugs westward in Honduras toward the border with Guatemala and eventually to the United States.  For protection from official interference, and in order to facilitate the safe passage through Honduras of multihundred-kilogram loads of cocaine, drug traffickers paid bribes to public officials – including certain members of the Pólicia National de Honduras – for access to information about ongoing investigations, military and law enforcement checkpoints, and planned narcotics interdictions.  The Honduran government recently declared an “emergency situation” with respect to the Pólicia National de Honduras, and established a Special Commission with authority to investigate corruption and dismiss or suspend members of the National Police, among other sanctions.  As of the filing of this Superseding Indictment, the Special Commission has sanctioned several members of the Pólicia National de Honduras.

The defendants were members of the Pólicia National de Honduras who participated in and supported the drug-trafficking activities of, among others, Fabio Porfirio Lobo, the son of former Honduran president Porfirio Lobo Sosa, who pled guilty to a related drug-trafficking crime on May 16, 2016.  In approximately early 2014, Lobo agreed to provide security and logistical support for the transportation through Honduras of a purported multi-ton load of cocaine that Lobo believed belonged to Mexico’s Sinaloa Cartel and would be imported into the United States.  Lobo agreed to provide this assistance on the understanding that he would receive a financial stake in the cocaine worth over $1 million in profits.  In or about June 2014, Lobo introduced two individuals he understood to be Mexican drug traffickers to the six defendants.  During a meeting, the defendants displayed a map of Honduras and illustrated law enforcement checkpoints and a planned route for the cocaine.  During the same meeting, the defendants each also agreed to accept a bribe in the amount of approximately $100,000, and to pay their subordinates a total of approximately $200,000 in additional bribes, in order to provide armed security for the cocaine as it transited Honduras before being imported into the United States.

*                *                *

Mejia Vargas, 46, Avila Meza, 45, Zavala Velasquez, 44, Lopez Flores, 43, and Cruz Chavez, 39, have each been charged with:  (1) conspiring to import cocaine into the United States, and (2) conspiring to use and carry firearms during and in relation to, and to possess firearms in furtherance of, the cocaine-importation conspiracy.  If convicted, these defendants face a mandatory minimum sentence of 10 years in prison and a maximum term of life in prison. 

Lobo, who was arrested in the Republic of Haiti on May 20, 2015, and arrived in the United States on May 21, 2015, pled guilty before Judge Schofield on May 16, 2016, to conspiring to import cocaine into the United States.  Lobo is scheduled to be sentenced on September 15, 2016, and faces a mandatory minimum sentence of 10 years in prison and a maximum term of life in prison. 

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

Mr. Bharara praised the outstanding investigative work of the Special Operations Division of the Drug Enforcement Administration (“DEA”), the DEA’s New York Division Strike Force, and the U.S. Department of Justice’s Office of International Affairs for their ongoing assistance. 

This case is being handled by the Office’s Terrorism and International Narcotics Unit.  Assistant U.S. Attorneys Emil J. Bove III, Matthew J. Laroche, and Michael D. Lockard are in charge of the prosecution.

The charges in the Superseding 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 Superseding Indictment, and the description of the Superseding Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that STEVEN MCCLATCHEY, a director at an investment bank in Manhattan (the “Investment Bank”), pled guilty to committing insider trading in connection with potential mergers and acquisitions (“M&A”) in which the Investment Bank was involved.  MCCLATCHEY pled guilty to one count of conspiracy to commit securities and wire fraud and one count of securities fraud before U.S. District Judge Katherine Polk Failla. 

U.S. Attorney Preet Bharara said:  “As he has now admitted through his guilty plea, Steven McClatchey abused his position at a major investment bank, tipping his close friend Gary Pusey with material, nonpublic information about mergers and acquisitions.  Pusey traded on that market-moving information and rewarded McClatchey with cash kickbacks and home renovations in return.”  

According to the allegations contained in the Information filed against MCCLATCHEY and statements made in related court filings and proceedings:

MCCLATCHEY, who had served as a director at the Investment Bank since at least 2008, routinely possessed material, nonpublic information (“Inside Information”) concerning pending mergers and acquisitions in which the Investment Bank was involved.  Indeed, among MCCLATCHEY’s responsibilities at the Investment Bank was the tracking of the status of all such pending transactions and the likely date on which such transactions would be publicly announced.  MCCLATCHEY breached his duty of confidentiality to the Investment Bank and to its clients by providing Inside Information about pending M&A transactions to his close friend, Gary Pusey. 

Specifically, from February 2014 through September 2015, MCCLATCHEY and Pusey participated in a scheme to commit insider trading in advance of and in connection with more than 10 separate mergers and acquisitions.  MCCLATCHEY and Pusey were close friends who owned boats docked in a Long Island marina and who spent most Saturdays on their boats, at the marina, or playing pool and watching sports.

MCCLATCHEY learned about the deals as part of his employment with the Investment Bank, which generally advised either (i) the company to be acquired in the transaction; (ii) the acquiring company; or (iii) a company that ultimately lost a bid to acquire the company involved in the transaction. 

Having learned the Inside Information about these impending transactions, MCCLATCHEY, in breach of fiduciary duties and other duties of trust and confidence owed to the Investment Bank and its clients, tipped Pusey so that Pusey could use the information to trade and with the expectation that Pusey would confer a benefit upon MCCLATCHEY.  Among the benefits that MCCLATCHEY received as part of the insider trading scheme were thousands of dollars of cash payments by Pusey and the provision of home renovation services.

Pusey used the Inside Information that he received from MCCLATCHEY to make profitable trades in, among other securities: Forest Oil Corporation, Questcor Pharmaceuticals, Inc., Zygo Corporation, Pepco Holdings, Inc., Measurement Specialties, Inc., Entropic Communications, Inc., PetSmart, Inc., Emulex Corporation, Omnicare, Inc., and TECO Energy, Inc.  Pusey reaped approximately $76,000 in ill-gotten gains from this scheme.

*                *                *

MCCLATCHEY, 58, of Long Island, New York, pled guilty to one count of conspiracy to commit securities and wire fraud and one count of securities fraud.  Each count carries a maximum sentence of 25 years in prison.  The charges also carry a maximum fine of $250,000, or twice the gross gain or loss from the offense.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentences for the defendants will be determined by the judge.

Mr. Bharara praised the work of the FBI, and thanked the SEC.

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 Rebecca Mermelstein is in charge of the prosecution.  

###

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 Shantelle P. Kitchen, Special Agent in Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today the arrest of ROCKWELL GAJWANI on charges of wire fraud, money laundering, and tax evasion.  GAJWANI was arrested this morning by USPIS and IRS agents in Connecticut, and was presented this afternoon in Manhattan federal court before U.S. Magistrate Judge Frank Maas. 

U.S. Attorney Preet Bharara said:  “As the chief executive officer of a Manhattan real estate company, Rockwell Gajwani was supposed to put the best interests of his company first.  Instead, as alleged, he abused his position of authority to embezzle over a million dollars of company money.  I thank the U.S. Postal Inspection Service and the IRS-CI for their work in this investigation.”

USPIS Inspector-in-Charge Philip R. Bartlett said: “Mr. Gajwani exploited the trust of his employer and preyed on unsuspecting employees to allegedly steal company funds for his own personal benefit, while evading payment of income tax on those funds.  Postal Inspectors and their law enforcement partners will never tolerate this egregious behavior and will vigorously pursue and bring to justice anyone who participates in this criminal activity.”

IRS-CI Special Agent in Charge Shantelle P. Kitchen said: “Everyone is responsible for paying their fair share of taxes, whether their income is legal or illegal.  IRS-Criminal Investigation is responsible for investigating allegations concerning individuals who are willfully not reporting their income and are evading the taxes they owe, and we take our roles as protectors of the tax system very seriously.”

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

From October 2011 through March 2013, GAJWANI was the chief executive officer and president of a real estate investment company based in Manhattan (the “Manhattan Real Estate Company”).  During this period, GAJWANI took over $1 million in company funds to which he was not entitled by, among other means, making wire transfers from the company’s bank account to his personal bank account, writing company checks to himself, and making cash withdrawals from the company’s bank account. 

To accomplish this scheme, among other means, GAJWANI took steps to conceal his true salary and to conceal from the Manhattan Real Estate Company’s parent company (the “Parent Company”) the amount of money he had taken from the Manhattan Real Estate Company’s bank account.

In or about February 2012, GAJWANI asked an employee of the Manhattan Real Estate Company (“Employee-1”) to reduce GAJWANI’s salary to zero in the company’s payroll system, which Employee-1 did not do.  Soon thereafter, GAJWANI asked Employee-1 to reduce his salary to $2,000 biweekly and did not provide an explanation to Employee-1 for this request.  Ultimately, Employee-1 complied with this request and caused GAJWANI’s salary to be reduced in the payroll system from $26,923.07 on a biweekly basis – which reflects approximately GAJWANI’s agreed salary of $700,000 – to $2,000 on a biweekly basis.           

Beginning in late 2012, the director of accounting for the Manhattan Real Estate Company (the “Director of Accounting”) asked GAJWANI for details regarding GAJWANI’s compensation on more than one occasion, and GAJWANI repeatedly said he would get such details to her, but failed to do so.  On another occasion, in connection with a request from the Parent Company for financial information, GAJWANI told the Director of Accounting not to provide that information to the Parent Company.  To further conceal the funds he had taken from the Manhattan Real Estate Company, GAJWANI directed employees of the Manhattan Real Estate Company to lump the compensation of all employees together in accounting materials provided to the Parent Company, so that GAJWANI’s compensation would not be listed separately from the aggregate figure.  GAJWANI also directed certain employees of the Manhattan Real Estate Company not to communicate with employees of the Parent Company.            

Over the course of his employment, GAJWANI wrote himself over $940,000 in checks from the Manhattan Real Estate Company’s bank account, and wired over $1,700,000 to his personal bank account.  Although some of these funds were purportedly for expenses, by the end of his employment GAJWANI had taken over $1,300,000 more from the Manhattan Real Estate Company’s bank account than he was entitled to under his employment agreement. 

GAJWANI also concealed his fraud on the Manhattan Real Estate Company by laundering the proceeds of his fraud.  Specifically, on two occasions in May 2012, GAJWANI wrote checks to an employee of the Manhattan Real Estate Company (“Employee-2”) from the company’s bank account.  GAJWANI wrote “expenses” in the memo line of each check, although neither check was meant to pay company expenses, and instructed Employee-2 to write a check in return directly to GAJWANI himself.  Employee-2 did so on both occasions.  In this manner, GAJWANI was able to secure over $30,000 in payments that GAJWANI appeared to receive from Employee-2 but in reality were funds GAJWANI had taken from the Manhattan Real Estate Company.   

In addition to defrauding the Manhattan Real Estate Company and engaging in money laundering, GAJWANI did not file tax returns or pay taxes for his legitimate salary or for the money he had secured through fraud.  Ultimately, in or about July 2015, after he learned of a criminal investigation, GAJWANI filed tax returns for calendar years 2011, 2012, and 2013.  Each of those returns included false representations.  For tax year 2011, the Federal Income Tax Return that GAJWANI filed understated GAJWANI’s actual income by more than $480,000, and included over $85,000 in false impermissible tax deductions.  For tax year 2012, the Federal Income Tax Return that GAJWANI filed included over $260,000 in false impermissible tax deductions.  For tax year 2013, the Federal Income Tax Return that GAJWANI filed underreported GAJWANI’s actual income by $270,000. 

*                *                *

GAJWANI, 52, of Darien, Connecticut, is charged with one count of wire fraud, which carries a maximum sentence of 20 years in prison; one count of money laundering, which carries a maximum sentence of 20 years in prison; and three counts of tax evasion, each of which 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 defendant would be determined by a judge.

Mr. Bharara praised the outstanding investigative efforts of law enforcement personnel at USPIS and IRS-CI. 

The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys Jonathan Cohen and Andrew D. Beaty 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 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 today that ANTHONY BOVE, the former Commissioner of the Board of Water Supply of the City of Mount Vernon (the “Water Department”), was sentenced today to 15 months in prison for soliciting a $10,000 bribe from an employee of the Water Department, and lying to federal law enforcement officers when BOVE was interviewed during the investigation.  BOVE pled guilty in White Plains federal court on March 22, 2016, before U.S. District Judge Vincent L. Briccetti, who imposed today’s sentence.

U.S. Attorney Preet Bharara said: “While entrusted to provide clean and safe water for the people of Mount Vernon, Anthony Bove looked out only for himself, demanding a bribe from one of his own employees for a promotion to which the employee was already entitled.  For this shameful corruption, Bove has been sentenced to 15 months in prison.”

According to the Information, statements made in open court, and other documents in the public record:

BOVE was the Commissioner of the Water Department.  The City of Mount Vernon (the “City”) annually receives in excess of $10,000 in federal funds from the United States government.  The Water Department is responsible for serving City residents by, among other things, monitoring and treating the City’s water supply, repairing water main leaks, and reading water meters and generating water bills.  In accordance with the City Charter, the Commissioner of the Water Department is appointed by the City’s Mayor, serves at the Mayor’s pleasure, and reports directly to the Mayor as the head of one of the City’s departments.

In the spring of 2015, while serving as the Water Commissioner, BOVE solicited a $10,000 bribe from a Water Department employee (“the Employee”) in exchange for approving the Employee’s promotion within the Water Department.  The Employee, who was serving in a provisional capacity as the bookkeeper of the Water Department, had passed a civil service bookkeeping examination in order to become eligible for a permanent bookkeeping position at the Water Department.  After receiving the test results, the Employee completed the necessary form to apply for the permanent bookkeeping position, and submitted it to BOVE for his approval and signature, which was required for the promotion to occur.

BOVE did not approve the application; instead, on April 14, 2015, BOVE told the Employee to meet him at Memorial Field in Mount Vernon.  At Memorial Field, BOVE conveyed to the Employee that he would not approve the Employee’s promotion unless the Employee gave BOVE $10,000, and that the Employee could give BOVE half ($5,000) up front and pay the balance later.  BOVE said that he would accept the remaining payments on installment:  “So give me like, fucking like 20 dollars every fucking paycheck or whatever, you know.”

Following the April 14 meeting, BOVE called the Employee on multiple occasions to ask whether and when the Employee would pay him.  The Employee did not make any payments to BOVE and the Employee’s application form seeking the permanent bookkeeping position remained unapproved for months.  Ultimately, in the fall of 2015, after Mount Vernon’s incumbent mayor was defeated in the primary for the mayoral election and prior to the change in administrations (which resulted in BOVE being replaced as Water Commissioner), BOVE signed the form approving the Employee’s promotion, without having obtained any payment from the Employee. 

On December 7, 2015, a Special Agent from the U.S. Department of Housing and Urban Development, Office of Inspector General (“HUD OIG”), and a Criminal Investigator from the U.S. Attorney’s Office for the Southern District of New York interviewed BOVE in connection with a federal investigation into whether BOVE had attempted to extort the Employee.  During the interview, BOVE lied to the investigating agents, stating, in sum and substance, that he had never asked for money to approve a job promotion for anyone in his department.

*                      *                      *

In sentencing BOVE, Judge Briccetti described BOVE’s conduct as “a disgrace.” 

In addition to the prison sentence, Judge Briccetti ordered BOVE to pay a $10,000 fine and a $200 special assessment fee.  BOVE also was sentenced to two years of supervised release. 

Mr. Bharara praised HUD OIG and the Criminal Investigators of the U.S. Attorney’s Office for their outstanding work during this investigation.    

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

Preet Bharara, the United States Attorney for the Southern District of New York, Shantelle P. Kitchen, Special Agent in Charge of the Internal Revenue Service-Criminal Investigation (“IRS-CI”), and Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced today the unsealing in White Plains federal court of a six-count Indictment of former Orange County Attorney JOSEPH G. SCALI for mail fraud, structuring cash transactions, obstructing the IRS, tax evasion, obstruction of justice, and perjury.  SCALI was arrested this morning and is expected to be arraigned in federal court in White Plains this afternoon. 

Manhattan U.S. Attorney Preet Bharara said:  “As alleged, Joseph Scali abused his position of trust as a lawyer and officer of the court, by stealing funds entrusted to him, obstructing the work of the IRS, and evading his tax obligations.  We thank the IRS and Postal Inspection Service for their work in this investigation.”

IRS-CI Special Agent in Charge Shantelle P. Kitchen said:  “In the interest of ensuring that everyone pays their fair share of taxes, IRS-Criminal Investigation investigates individuals who allegedly unlawfully exploit the tax system for their own advantage.  We especially take allegations of obstructing IRS officers from performing their lawful duties very seriously.  Law abiding taxpayers will expect no less.”

USPIS Inspector-in-Charge Philip R. Bartlett said:  “Joseph Scali allegedly violated his ethical responsibilities and lied to the government to avoid taxes and disbarment.  In all of his alleged lies, he underestimated the resolve of law enforcement to protect consumers from scammers whose only intention is to defraud for their personal gain.”

According to the Indictment[1] and other court filings related to this matter:

From January of 2011 through August 28, 2012, SCALI, who represented the seller of two tracts of land in Pennsylvania, schemed to defraud the prospective purchaser of that real estate of the $850,000 the latter had given to him to hold in escrow by misappropriating those funds from his attorney trust/escrow account.  Additionally, the Indictment charges SCALI with structuring approximately $32,000 of cash deposits to that account.

The Indictment also charges that SCALI corruptly endeavored to obstruct the IRS by  (a) providing materially false, incomplete, and misleading information to a Revenue Officer of the Internal Revenue Service, namely, false, misleading, and incomplete information as to the years for which he had filed tax returns in the past, the reasons why SCALI had not filed tax returns for certain years, and the amount of income received by SCALI during tax year 2012; (b) commingling client funds and personal funds in his Attorney Trust Account; (c) paying for personal items directly out of his Attorney Trust Account; (d) structuring cash deposits to his Attorney Trust Account; (e) failing to file U.S. Individual Income Tax Returns, Forms 1040, notwithstanding that he was required by law to file a return for each year (2006 through 2012); (f) failing to file U.S. Corporate Income Tax Returns, Forms 1120, for his law firm, Joseph G. Scali, P.C., notwithstanding that the law firm was required by law to file a return for each year (2006 through 2012); and (g) failing to maintain required records concerning his Attorney Trust Account.  Additionally, the Indictment charges SCALI with income tax evasion for the 2012 year.

Finally, the Indictment charges that SCALI committed obstruction of justice and perjury when, in seeking to set aside his disbarment by the United States District Court for the Southern District of New York, he lied to that court about why, in 2013, he had been suspended from practicing law in New York by the Second Department of the Appellate Division of the New York State Supreme Court (“the Appellate Division”).  SCALI was disbarred by the Appellate Division on July 6, 2016.

 *                *                *

SCALI, 67, of West Hartford, Connecticut, is charged with one count of mail fraud, which carries a maximum sentence of 20 years in prison; on count of structuring cash transactions, which carries a maximum sentence of five years in prison; one count of obstructing the IRS, which carries a maximum sentence of three years in prison; one count of tax evasion, which carries a maximum sentence of five years in prison; one count of obstruction of justice, which carries a maximum sentence of 10 years in prison; and one count of perjury, which carries a maximum sentence of five years in prison. 

Mr. Bharara praised the work of the IRS and the Postal Inspection Service in this investigation.

This case is being handled out of the White Plains Division.  Assistant United States Attorney Elliott B. Jacobson is in charge of the prosecution.

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

[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 today that ANDREW CASPERSEN pled guilty to defrauding investors of over $38 million and misappropriating over $8 million from his former employer.  CASPERSEN pled guilty to one count of securities fraud and one count of wire fraud before U.S. District Judge Jed S. Rakoff. 

Manhattan U.S. Attorney Preet Bharara stated:  “Andrew Caspersen’s guilty plea today closes a sad chapter in a tale of deception and betrayal.  Parlaying his privileged background, Caspersen concocted a wild fraud scheme that involved made-up private equity ventures, fake email addresses, and fictional financiers.  Through a litany of lies, Caspersen took millions from unwitting investors, including some of his own family and friends.”

According to allegations contained in the Information filed against CASPERSEN and statements made in related court filings and proceedings:

The Scheme to Defraud Investors

Beginning in November 2014 and continuing until his arrest in March 2016, CASPERSEN engaged in a Ponzi-like scheme to defraud investors, including his close friends, family members, and college classmates, by falsely claiming that their funds would be used to make secured loans to private equity firms and would thereby earn an annual rate of return of 15 to 20 percent.  In total, CASPERSEN attempted to defraud more than a dozen investors of nearly $150 million.  As a result of the false and fraudulent representations made by CASPERSEN, investors wired a total of approximately $38.5 million to shell company bank accounts controlled by CASPERSEN.  In truth and in fact, CASPERSEN never used investor funds to make the secured loans that had been promised.  Instead, CASPESEN used investor funds for purposes that investors had not authorized, including to make securities trades in his own brokerage account and to make periodic interest payments to earlier investors.

In order to carry out his scheme to defraud investors, CASPERSEN incorporated entities with names closely resembling those of legitimate private equity funds (the “Legitimate Funds”).  However, the entities incorporated by CASPERSEN (the “Fake Funds”) were merely shell companies created by CASPERSEN solely for the purpose of perpetrating his fraud scheme, and were in no way affiliated with or authorized by the Legitimate Funds.  CASPERSEN opened and controlled bank accounts for each of the Fake Funds (the “Fake Fund Accounts”).

In soliciting investments in the Fake Funds, CASPERSEN made the following false representations to investors, among others: in recognition for his prior work with Park Hill Group, CASPERSEN had been offered a “friends and family” investment allocation in a security that was allegedly offered by a private equity firm; CASPERSEN was personally investing in the security, and offering it to his family and a limited number of friends; the investment was a credit facility secured by a portfolio of assets owned by one of the Legitimate Funds; the investor would receive quarterly interest payments, ranging from 15 to 20 percent; the investment was practically risk-free, as the loaned funds would remain in a bank account; the investor could withdraw the principal at any time with 90 days’ notice; and investor funds should be wired to one of the Fake Fund Accounts.  The purported involvement of the Legitimate Funds was an attractive selling point for investors.   

As the scheme evolved, CASPERSEN also made additional misrepresentations in soliciting investors in connection with a purported investment opportunity in one of the Fake Funds CASPERSEN had created (“Fake Firm-5 Fund”) to resemble one of the Legitimate Funds (“Firm-5 Fund”).  CASPERSEN had been employed at a multinational firm as an investment principal from 2003 through 2012 (“Firm-1”).  According to CASPERSEN’s false statements to investors, Firm-1 wanted to purchase secondary ownership interests in Firm-5 Fund.  Due to uncertainty that Firm-1 could buy out all the original investors, Park Hill Group offered to make a loan to Firm-1, and Firm-1 agreed to take a loan from Park Hill Group.  CASPERSEN and Park Hill Group were working on behalf of Firm-1 to solicit investors for the loan, but, at some point after Firm-1 agreed to take the loan, it transpired that Firm-1 did not need the loan in order to purchase the secondary private equity interests.  However, because Firm-1 had already agreed to the loan, Firm-1 was obligated to pay interest on the loan.  CASPERSEN told potential investors that the loan was risk-free, as it was collateralized by the assets of Firm-1.  As with the earlier solicitations in the Fake Funds, investors were similarly misled by the purported involvement of the legitimate Firm-5 Fund in this investment.

To carry out the scheme, CASPERSEN registered a domain name and created a fake email address to make it appear that a “John Nelson” from Firm-1 was communicating with investors. CASPERSEN obtained recent quarterly and annual reports for the Legitimate Funds, and sent such reports to prospective investors to induce them into believing that their investments would be secured by the assets of the Legitimate Funds, when in fact they were not.  CASPERSEN also drafted promissory notes between investors and the Fake Funds, in which CASPERSEN made one or more of the following misrepresentations, among others: the Fake Fund would pay the investor his or her principal “in immediately available funds” together with interest on the unpaid principal; the interest on the outstanding unpaid balance would accrue at an annual rate of 15 to 20 percent; interest would be paid quarterly; upon 90 days’ notice to the Fake Fund, the investor may redeem his or her principal; and the Fake Fund “shall maintain cash or cash equivalents in an amount equal to or greater than” the total of the outstanding principal and accrued but unpaid interest.

In connection with the scheme, CASPERSEN received approximately 18 payments, in a total amount of approximately $38.5 million, from more than 10 individuals and entities for investments in the Fake Funds.  Notwithstanding CASPERSEN’s statements to the contrary, CASPERSEN never used any investor funds to make any loan to any entity, or otherwise invest in any fund or investment vehicle associated with any private equity fund.  Rather, CASPERSEN operated a Ponzi-like scheme in which he misappropriated investor funds from the Fake Fund Accounts and converted them to his own use and use by others, including by using investor funds to meet CASPERSEN’s periodic interest payment commitments to earlier investors. CASPERSEN transferred the funds he received from investors into his personal brokerage accounts, and used the funds to execute securities trades for his own benefit.  Specifically, CASPERSEN traded heavily in options, including options based on the Standard & Poor’s Depository Receipts S&P 500, an exchange-traded fund based on the S&P 500 with ticker symbol “SPY,” and options based on PowerShares QQQ, an exchange-traded fund based on the Nasdaq 100 Index.  For example, CASPERSEN’s trades of SPY options with November 2015 expiration dates caused approximately $14.5 million in losses.  By mid-February 2016, as a result of CASPERSEN’s trading activity, his brokerage account contained approximately $112.8 million in cash, an amount which would have been more than sufficient for CASPSERSEN to repay all of his investors.  Rather than repay his investors, however, CASPERSEN continued trading in options based on the performance of the S&P 500 Index.  From February 11, 2016, through March 9, 2016, CASPERSEN lost approximately $108.2 million in options trading.

The Scheme to Divert Funds from the Park Hill Group

From January 2013 through March 2016, CASPERSEN was employed in the secondary advisory group at Park Hill Group.  In July 2015, CASPERSEN opened a bank account under the name “PHG Operating LLC,” which was controlled by CASPERSEN for his own benefit and was unknown to Park Hill Group (the “Fake PHG Account”).

In September 2015, following instructions provided by CASPERSEN, Firm-5 sent a wire transfer in the amount of $8,137,453, representing payment for legitimate work that Park Hill Group had done, to the Fake PHG Account, believing it to be a legitimate account used by Park Hill Group.  On or about the same day, CASPERSEN transferred $8 million from the Fake PHG Account to his brokerage account, in order to execute trades in securities for his own benefit, largely in SPY options.  In November 2015, CASPERSEN transferred approximately $8.1 million to an account belonging to Park Hill Group, thereby replacing the payment from Firm-5 that he had misappropriated.  The $8.1 million transfer was traceable to funds that CASPERSEN had obtained by defrauding investors as described above.  Also in the fall of 2015, CASPERSEN engaged in a similar fraud with respect to a $762,267 payment that he misappropriated from Park Hill Group, and later repaid using the proceeds of his securities fraud scheme.

*              *              *

CASPERSEN, 39, pled guilty to one count of securities fraud and one count of wire fraud.  Each count carries a maximum term of 20 years in prison.  The maximum fine on these counts is $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 defendant will be determined by the judge.

CASPERSEN’s sentencing is scheduled for November 2, 2016.

Mr. Bharara praised the work of the Office’s criminal investigators, and thanked the Securities and Exchange Commission 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. Attorney Christine I. Magdo is in charge of the prosecution.  

Preet Bharara, the United States Attorney for the Southern District of New York, and Shantelle P. Kitchen, Special Agent in Charge of the Internal Revenue Service-Criminal Investigation (“IRS-CI”), announced that CHRISTOPHER AHERN pled guilty today to a 13-count Information, charging him with preparing false and fraudulent income tax returns for his clients.  According to the Information, AHERN filed tax returns that fraudulently claimed more than $4.7 million in credits and expenses.  AHERN pled guilty today before United States District Judge Deborah A. Batts.   

Manhattan U.S. Attorney Preet Bharara said: “By repeatedly filing fraudulent tax returns for his clients, Christopher Ahern committed federal crimes and deprived the government of close to $5 million in taxes.  We remain committed to charging and convicting those who commit and facilitate tax fraud.”

IRS-CI Special Agent in Charge Shantelle P. Kitchen said: “Unscrupulous income tax return preparers hurt not only their clients, who are ultimately responsible for what is reported on their tax returns, but all law-abiding taxpayers, who have to shoulder an additional burden.  Accordingly, the investigation of unscrupulous preparers remains one of the top priorities for IRS-Criminal Investigation.  Today, Mr. Ahern is held accountable for his egregious practices.”

According to the allegations in the Information to which AHERN pled guilty, and statements made during his plea 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 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.  AHERN received more than $1.5 million in fees from his clients for preparing and filing the fraudulent returns. 

*                *                *

AHERN, 40, of Little Neck, New York, pled guilty to 13 counts of making and presenting false, fictitious, and fraudulent claims to the United States, each of which 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 defendant will be determined by a judge.

AHERN is scheduled to be sentenced on November 1, 2016, at 11:00 a.m., before Judge Batts. 

Mr. Bharara praised the investigative work of IRS-CI. 

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 Mark Hamlet, Special Agent in Charge of the Special Operations Division of the United States Drug Enforcement Administration (“DEA”), announced that six members of the Pólicia National de Honduras, i.e., the Honduran National Police, were charged today in Manhattan federal court in a Superseding Indictment with conspiring to import cocaine into the United States and related firearms offenses.  The six defendants are Ludwig Criss Zelaya Romero, Mario Guillermo Mejia Vargas, Juan Manuel Avila Meza, Carlos Jose Zavala Velasquez, Victor Oswaldo Lopez Flores, and Jorge Alfredo Cruz Chavez.  The case is pending before U.S. District Judge Lorna G. Schofield, before whom co-defendant Fabio Porfirio Lobo, the son of former Honduran president Porfirio Lobo Sosa, pled guilty to a related drug-trafficking crime on May 16, 2016.

Manhattan U.S. Attorney Preet Bharara said: “Today, we charge six officers of the Honduran National Police with participating in a massive drug trafficking conspiracy that allegedly flooded the United States with cocaine.  As alleged, through bribes to public officials and leaked information about ongoing investigations and law enforcement checkpoints, these defendants agreed to ensure the safe passage of tons of cocaine through the jungles of Honduras on their way to American cities.  We thank the DEA for their work in this important drug enforcement investigation.”  

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

Between approximately 2004 and approximately 2014, multiple drug-trafficking organizations in Honduras and elsewhere worked together, and with support from the defendants and others, to receive multi-hundred-kilogram loads of cocaine sent to Honduras from Venezuela and Colombia via air and maritime routes, and to transport the drugs westward in Honduras toward the border with Guatemala and eventually to the United States.  For protection from official interference, and in order to facilitate the safe passage through Honduras of multi-hundred-kilogram loads of cocaine, drug traffickers paid bribes to public officials – including certain members of the Pólicia National de Honduras – for access to information about ongoing investigations, military and law enforcement checkpoints, and planned narcotics interdictions.  The Honduran government recently declared an “emergency situation” with respect to the Pólicia National de Honduras, and established a Special Commission with authority to investigate corruption and dismiss or suspend members of the National Police, among other sanctions.  As of the filing of this Superseding Indictment, the Special Commission has sanctioned several members of the Pólicia National de Honduras.

The defendants were members of the Pólicia National de Honduras who participated in and supported the drug-trafficking activities of, among others, Lobo.  In approximately early 2014, Lobo agreed to provide security and logistical support for the transportation through Honduras of a purported multi-ton load of cocaine that Lobo believed belonged to Mexico’s Sinaloa Cartel and would be imported into the United States.  Lobo agreed to provide this assistance on the understanding that he would receive a financial stake in the cocaine worth over $1 million in profits.  In or about June 2014, Lobo introduced two individuals that he understood to be Mexican drug traffickers to the six defendants.  During a meeting, the defendants displayed a map of Honduras and illustrated law enforcement checkpoints and a planned route for the cocaine.  During the same meeting, the defendants each also agreed to accept a bribe in the amount of approximately $100,000, and to pay their subordinates a total of approximately $200,000 in additional bribes, in order to provide armed security for the cocaine as it transited Honduras before being imported into the United States.

*                *                *

Zelaya Romero, 39, Mejia Vargas, 46, Avila Meza, 45, Zavala Velasquez, 44, Lopez Flores, 43, and Cruz Chavez, 39, have each been charged with:  (1) conspiring to import cocaine into the United States, and (2) conspiring to use and carry firearms during and in relation to, and to possess firearms in furtherance of, the cocaine-importation conspiracy.  Zelaya Romero is also charged with using and carrying machine guns and destructive devices during and in relation to, and possessing machine guns and destructive devices in furtherance of, the cocaine-importation conspiracy charged in the Superseding Indictment.  If convicted, Zelaya Romero faces a mandatory minimum sentence of 40 years in prison and a maximum term of life in prison, and the remaining defendants face a mandatory minimum sentence of 10 years in prison and a maximum term of life in prison.  The defendants remain at large.

Lobo, who was arrested in the Republic of Haiti on May 20, 2015, and arrived in the United States on May 21, 2015, pled guilty before Judge Schofield on May 16, 2016, to conspiring to import cocaine into the United States.  Lobo is scheduled to be sentenced on September 15, 2016, and faces a mandatory minimum sentence of 10 years in prison and a maximum term of life in prison. 

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

Mr. Bharara praised the outstanding investigative work of the Special Operations Division of the DEA, and the U.S. Department of Justice’s Office of International Affairs, for their ongoing assistance. 

This case is being handled by the Office’s Terrorism and International Narcotics Unit.  Assistant U.S. Attorneys Emil J. Bove III, Matthew J. Laroche, and Michael D. Lockard are in charge of the prosecution.

The charges in the Superseding 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 Superseding Indictment, and the description of the Superseding Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.

Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Division of the Federal Bureau of Investigation (“FBI”), announced today the arrest of MICHAEL BRYANT MARIN.  MARIN is charged with communicating with an underage victim online and convincing her to take and send sexually explicit photographs and videos to MARIN online.  MARIN was arrested this morning and presented today before U.S. Magistrate Judge Lisa Margaret Smith in White Plains federal court.

Manhattan U.S. Attorney Preet Bharara said:  “Michael Marin’s alleged crimes are the nightmare of every parent.  Using an easily accessible instant messaging application, Marin allegedly terrorized a middle-school student in her home and her school with threats to humiliate her if she refused his demands for sexually explicit photographs and videos.  We will continue to do everything we can, with our partners at the FBI, to investigate and prosecute those who sexually exploit children.”                                                                                                          

FBI Assistant Director Diego Rodriguez said: “Most teenagers are excited about summer and vacation, but as alleged, the victim in this case, and others we may not know about yet, are overcoming an atrocious ordeal no young child should ever have to experience.  Parents need to talk with their children about being safe online, and making sure they know the minute anyone approaches them in a deviant way, they should immediately contact a trusted adult.  We are also asking anyone who may have been contacted by the subject in this case to contact the FBI.” 

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

In or about March 2016, MARIN communicated online via Kik and through text messages with a 13-year-old minor female (“Victim-1”) in New Mexico, and convinced Victim-1 to take and send sexually explicit photographs and videos of herself to MARIN.

During his communications with Victim-1, MARIN utilized the screen name “mike___2016,” as well as another account associated with the phone number 914-920-1974.  Further, while communicating with Victim-1, MARIN posed as a minor and threatened Victim-1 that if she did not send additional photos and/or videos, he would publicly post the photos and/or videos she had already sent to MARIN on social media sites such as Facebook, Twitter, and Instagram.  MARIN also demanded that Victim-1 act as his “slave,” first attempting to pay Victim-1 and then threatening to post nude photos and videos of Victim-1 if she did not send him the specific photos and/or videos MARIN requested whenever he requested them.  As part of this demand, MARIN instructed Victim-1 to photograph and film herself engaging in a number of sexually explicit acts, including bestiality with a pet cat and taking nude photos of herself in her school bathroom.

According to statements made during MARIN’s presentment this afternoon, MARIN is currently employed as a camp counselor in Greenwich, Connecticut.

There may be more victims of this alleged conduct.  If you have information to report, contact the Federal Bureau of Investigation’s White Plains Resident Agency at 914-989-6000.

*          *          *

MARIN, 18, of Port Chester, New York, is charged with one count of sexual exploitation of a minor, which carries a minimum sentence of 15 years in prison and a maximum sentence of 30 years in prison.  The statutory maximum sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the efforts of the Federal Bureau of Investigation, the Santa Fe County Sherriff’s Office, and the Santa Fe City Police Department in connection with this investigation.  He added that the investigation is ongoing.

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

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

Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of charges against JAMES DAVID WILLIAMS, STEVEN BROWN, and GERALD SEPPALA for allegedly defrauding victims out of more than $12 million as part of an advance fee scheme in which victims were asked to invest in film projects based on false promises and misrepresentation.  The Indictment charges WILLIAMS, BROWN, and SEPPALA with wire fraud and wire fraud conspiracy, and WILLIAMS and BROWN are also charged with laundering the proceeds of this fraud. WILLIAMS was arrested this morning in Los Angeles, California, and is expected to be presented and arraigned later today in the Central District of California before United States Magistrate Judge Jacqueline Chooljian.  BROWN was arrested in this morning in New York City and is expected to be presented and arraigned in the Southern District of New York before United States Magistrate Judge James L. Cott.  SEPPALA was arrested this morning in Wayzata, Minnesota, and was presented and arraigned this afternoon in the District of Minnesota before United States Magistrate Judge Becky R. Thorson.

Manhattan U.S. Attorney Preet Bharara said: “With lies about making feature-length films and documentaries, the defendants allegedly defrauded victims into investing over $12 million with them.  Rather than making movies, the defendants perpetrated an advance fee scheme, allegedly using the investors’ money to pay themselves and pay other investors back.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “As alleged, Williams, Brown, and Seppala didn’t provide marketing expertise to feature films or invest their own millions into film projects as they promised investors.  Rather, they defrauded and deceived to acquire more than $12 million of investor funds to pay back previous duped investors or fund personal expenses. Any level of fraud to honest investors is wrong, whether it’s a fraud in the hundreds of dollars or millions dollars.”

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

From at least 2012 through June 2016, JAMES DAVID WILLIAMS, STEVEN BROWN, and GERALD SEPPALA participated in an advance fee scheme in which WILLIAMS and BROWN portrayed themselves as experts in the marketing of feature-length films and documentaries and, along with SEPPALA, solicited investments in these films from investors by typically promising guaranteed returns and participation in profits, which never materialized.

In order to solicit these investments, WILLIAMS, BROWN, and SEPPALA made material misrepresentations about, among other things, their own investments in the films for which they were soliciting money, as well as investments that they claimed to have received from other investors.  To support their claims, WILLIAMS, BROWN, and SEPPALA frequently sent the victims falsified financial records that reflected investments that had never actually been made.  For example, in an effort to secure a $2 million investment in one of the movies from one individual (“Victim-1”), WILLIAMS assured Victim-1 that WILLIAMS himself had also contributed $2 million of his own money to the project.  As proof of WILLIAMS’s purported investment, WILLIAMS sent Victim-1 what appeared to be a bank statement showing a balance of just over $1.9 million in the account maintained for the movie, which represented, according to WILLIAMS, what was left of his $2 million after some initial expenditures.  True and accurate records for that account, however, show that on the date WILLIAMS sent that statement to Victim-1, there was actually no money in the account and, indeed, there was never any money in that account until Victim-1 provided the solicited $2 million investment.

Similarly, in an effort to get another individual (“Victim-2”) to invest $500,000 in another movie, WILLIAMS represented that WILLIAMS had invested $3 million of his own money, while BROWN claimed to have invested an additional $500,000 of his own money as well.  BROWN and WILLIAMS also told Victim-2 that the entire investment would be guaranteed by a company called “Woodlawn Holdings” (“Woodlawn”).  In support of these claims, BROWN sent Victim-2’s attorney a letter from someone who claimed to be a “Managing Member” (“Individual-1”) at Woodlawn guaranteeing Vicitm-2’s investment, while WILLIAMS sent what appeared to be a bank statement for the company responsible for producing the movie, showing a balance of more than $3.5 million.  Subsequent investigation, however, revealed that no one with Individual-1’s name worked at Woodlawn, nor had representatives at Woodlawn heard of WILLIAMS, BROWN, SEPPLA, or the movie they claimed to be making.  In addition, true and accurate records from the relevant bank account revealed that there was only $500,200 in the account at the time that WILLIAMS sent Victim-2 the statement showing a balance of more than $3.5 million.  Furthermore, the other money in that bank account was from neither WILLIAMS nor BROWN.

In total, WILLIAMS, BROWN, and SEPPALA solicited more than $12 million from their victims that was allegedly to be used for either marketing or production costs associated with the various films.  In reality, however, the money that was received from these investors was used to fund other projects, pay back previously defrauded investors, or pay the personal expenses of WILLIAMS, BROWN, and SEPPALA, including, among other things, the purchase of a car and a house for WILLIAMS.

*          *          *

WILLIAMS, 54, of Calabasas, California, and BROWN, 46, of Santa Monica, California, are each charged with one count of conspiring to commit wire fraud, one count of wire fraud, and one count of conspiring to commit money laundering.  SEPPALA, 47, of Wayzata, Minnesota, is charged with one count of conspiring to commit wire fraud and one count of wire fraud.  Conspiring to commit wire fraud and wire fraud each carry a maximum term of 20 years in prison.  Conspiring to commit money laundering carries a maximum term 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 defendants will be determined by the judge.

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

If you believe you are a victim of the above-described fraud, please call the FBI at 212-384-1000 or email filmfinancefraud@ic.fbi.gov. This email account is taking tips only on these alleged crimes.

The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant United States Attorney Patrick Egan 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 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 MORRIS E. ZUKERMAN, a Manhattan businessman who owns companies involved in energy investments, pled guilty today to charges detailing ZUKERMAN’s involvement in multi-year tax fraud schemes pursuant to which he evaded over $45 million in income taxes and other taxes.  ZUKERMAN entered his plea before U.S. District Judge Analisa Torres.

U.S. Attorney Preet Bharara said:  “As his admissions today made clear, Morris Zukerman took numerous pages from the tax evader’s playbook:  he illegally evaded tens of millions of dollars of corporate income taxes from the $130 million sale of an oil company; he prepared personal tax returns for himself and family members that falsely claimed millions of dollars in deductions; he evaded employment taxes for household employees; and he schemed to defraud and obstruct the IRS auditors who were examining his false tax returns.  After years of finding every way to avoid his tax obligations, Zukerman has finally been forced to admit to his criminal tax evasion.  I thank the New York Field Office of the Internal Revenue Service, Criminal Investigation Division, and the New York Office of the U.S. Postal Inspection Service for bringing Zukerman’s breathtaking tax fraud schemes to a just conclusion.”

According to the Indictment, today’s plea proceedings in Manhattan federal court, and other court filings related to this matter:

ZUKERMAN, the principal of M.E. Zukerman & Co. (“MEZCO”), an investment firm located in Manhattan, schemed to evade taxes based on income received from the January 2008 sale of a petroleum products company (the “Oil Company”) he co-owned (through a MEZCO subsidiary) with a public company.  ZUKERMAN schemed to evade the reporting of the sale – which resulted in the receipt by the MEZCO subsidiary of $130 million in gross sales proceeds – by falsely telling his accountants in mid-2008 that he had transferred ownership of the MEZCO subsidiary to a family trust in early 2007.  In support of the story he gave to the accountants, ZUKERMAN created backdated documents such as promissory notes and a board resolution purporting to show the transfer of the subsidiary to his family trust in 2007.  The false documents allowed ZUKERMAN to remove the MEZCO subsidiary from the consolidated tax reporting being handled by the accountants for MEZCO and thereby evade the reporting to the IRS of the sale of the Oil Company, as well as the payment of over $35 million in corporate income taxes.

Following the sale of the Oil Company, ZUKERMAN transferred the proceeds of the sale from the MEZCO subsidiary to his family trust and various corporations he controlled, including a company called Zukerman Investments.  Between 2008 and 2013, ZUKERMAN directed that over $50 million of the funds transferred to Zukerman Investments be used to purchase paintings by European artists from the 15th through the 19th centuries (the “Old Master paintings”), which ZUKERMAN used to decorate his Upper East Side apartment and the apartments of two family members – Family Member-1 and Family Member-2. 

ZUKERMAN schemed to evade personal income taxes and to obstruct the IRS by (i) causing various tax return preparers to prepare U.S. Individual Income Tax Returns for ZUKERMAN and his wife, and for Family Member-1, Family Member-2, and Family Member-3, that claimed, in the aggregate, millions of dollars of false and fraudulent deductions and expenses, such as phony charitable contributions and investment interest expenses; (ii) diverting, for personal use, corporate assets from MEZCO and other corporate entities ZUKERMAN controlled by directing that hundreds of thousands of dollars of fees be paid between 2007 and 2013 to Family Member-1, Family Member-2, and Family Member-3, for which the family members performed little or no work; (iii) directing that corporate funds be used to pay compensation to, and health care insurance for, a household employee of ZUKERMAN, whom ZUKERMAN also caused to be falsely identified as a MEZCO employee to ZUKERMAN’s corporate health care provider when, in truth and in fact, the household employee worked exclusively out of ZUKERMAN’s homes in New York City and in Maine as a domestic employee; (iv) falsely under-reporting employment taxes through the payment of hundreds of thousands of dollars of cash and other wages to ZUKERMAN’s domestic employees; and (v) providing false information to the IRS during audits in an attempt to fraudulently convince IRS auditors and other IRS employees that the fraudulent claims made on his previously filed tax returns were accurate when, in truth, they were not.     

The False Charitable Contribution Deductions for the 2009 & 2011 Tax Years

ZUKERMAN’s fraudulent charitable contribution deductions – totaling $1 million – arose out of a real estate transaction in 2009 and 2010, pursuant to which ZUKERMAN purchased approximately 240 acres of property on Black Island, a small island located off the coast of Maine, close to ZUKERMAN’s home on a nearby island.  ZUKERMAN was enlisted to purchase the Black Island property by a Maine-based land conservation entity named the Maine Coast Heritage Trust (“MCHT”), which was seeking to orchestrate the purchase for conservation purposes.  After considering making a charitable contribution to the MCHT intended to be used to purchase the property, ZUKERMAN decided instead to purchase the land as the outright owner for the benefit of himself and his family for $1 million through a newly formed limited liability company he solely owned.  ZUKERMAN, however, falsely told his tax return preparer that the $1 million he paid for the property should be declared on his personal income tax returns as a charitable contribution to the MCHT during the 2008 and 2010 tax years.  ZUKERMAN subsequently signed the false 2008 and 2010 tax returns and caused them to be filed with the IRS.

The False Investment Interest Expense Deductions Relating to the Corporate Loans

ZUKERMAN orchestrated the creation of hundreds of thousands of dollars of fraudulent “investment interest expense” deductions on his own tax returns and those of three family members.  ZUKERMAN accomplished this by falsely telling his tax preparers that payments made from the personal bank accounts of ZUKERMAN and his family members to a California bank were made to legitimately satisfy loan interest payments owed by one of his California companies.  In fact, although the interest payments were initially made from the bank accounts of ZUKERMAN and those of his family members (whose accounts ZUKERMAN controlled), ZUKERMAN secretly took funds from the bank account of the California corporation that owed the interest payments and reimbursed himself and his family members.  In addition, because the corporation that owed the interest payments had claimed the interest indebtedness as an expense on its corporate tax returns, ZUKERMAN’s claiming of the same expenses on his own tax returns and those of his family members constituted fraudulent double deductions.   

The Audit Fraud

In seeking to obstruct and defraud the IRS during an audit of one of ZUKERMAN’s companies, ZUKERMAN used two attorneys from a law firm in Washington, D.C., to convey a false narrative to an IRS Appeals officer, who was undertaking a review of ZUKERMAN’s challenge to an adverse determination made by an IRS auditor during the corporate audit.  Pursuant to a “crime-fraud” ruling by the United States District Court for the Southern District of New York, and affirmed by the Second Circuit Court of Appeals, ZUKERMAN’s companies were required to disclose to the grand jury all of the communications between ZUKERMAN and the two attorneys that led to the submission to the IRS of the false factual narrative.  ZUKERMAN’s two attorneys were also required to provide grand jury testimony about the false information provided by Zukerman, which had been provided to the IRS as part of Zukerman’s efforts to deceive the IRS. 

*                      *                      *

ZUKERMAN, 72, of New York, New York, pled guilty to one count of tax evasion, which carries a maximum sentence of five years in prison, and one count of obstructing the IRS, which carries a maximum sentence of three years in prison.  Each of the charges also carries a maximum fine of $250,000, or twice the gross gain or loss from the offense. 

As part of Zukerman’s plea agreement with the Government, he agreed to pay a minimum of $37 million to the IRS as a result of his corporate and individual tax fraud activities.  Zukerman separately agreed to pay to New York State over $4.6 million based on a related tax fraud scheme he carried out, through his companies, that resulted in the evasion of New York State sales and use taxes owed in connection with Zukerman’s purchase of dozens of 17th and 18th century ‘Old Master’ paintings, as well as jewelry.

Judge Torres set December 5, 2016, as the date for sentencing.

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

Mr. Bharara praised the outstanding investigative work of the IRS and the U.S. Postal Inspection Service. 

The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant United States Attorneys Stanley J. Okula and Edward Imperatore are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that HASSAN KHAN, a Long Island medical doctor, was sentenced on Friday, June 24, 2016, to 17 years in prison for sexual exploitation and enticement of a minor.  In January 2016, KHAN pled guilty before United States District Judge Jed S. Rakoff to one count of coercion and enticement of a minor to engage in illegal sexual activity.  Judge Rakoff imposed Friday’s sentence.

U.S. Attorney Preet Bharara said:  “The 17-year sentence imposed on Hassan Khan is a measure of his appalling crime.  We will continue to use every resource available to investigate and prosecute those who sexually exploit children.”

According to documents filed in this case and statements made in related court proceedings:

Starting in 2007, KHAN began to communicate online with a then 11-year-old girl (the “Victim”). Between 2007 and 2013, KHAN, who was aware of the age of the Victim, coerced and enticed her to engage in illegal sexual activity.  KHAN engaged in sexual acts with the minor Victim and traveled abroad to do so.  KHAN further coerced and enticed the Victim to engage in sexually explicit conduct via live video chats. 

At the time of his arrest, on September 3, 2015, KHAN was working as a medical doctor.

*          *          *

In addition to the 17-year prison term, KHAN, 28, of Mineola, New York, was sentenced to 10 years of supervised release.

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

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

Preet Bharara, the United States Attorney for the Southern District of New York, and John C. Cruden, the Assistant Attorney General for the Environment and Natural Resources Division of the Department of Justice, announced that JOSEPH CHAIT, the senior auction administrator of I.M. Chait Gallery, located in Beverly Hills, California, was sentenced today to one year and one day in prison and a $10,000 fine for conspiring to smuggle wildlife products made from rhinoceros horn, elephant ivory, and coral with a market value of at least $1 million.  On March 9, 2016, CHAIT pled guilty to a two-count Information before U.S. District Judge J. Paul Oetken, who imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara stated: “By illegally trafficking in wildlife, including rhinoceros horns, Joseph Chait and his co-conspirators have fueled the illegal trade in endangered wildlife.  Chait’s conduct, a federal crime for which he will now spend time in prison, threatened the already precarious existence of certain endangered species of animals.”

Assistant Attorney General John C. Cruden stated: “Conspiring in the trafficking of endangered wildlife is a serious crime, and those involved in the auction industry should take note that facilitating this trade can result in prison.  The African Elephant, the rhinoceros, and coral are all deeply threatened species that have undergone dramatic losses in recent decades as the trade in them has become highly lucrative.  We must stop this trade, and we will vigorously investigate and prosecute those engaged in it.” 

According to allegations contained in the Information and statements made in court filings and proceedings:  

CHAIT and his co-conspirators engaged in illegal trafficking of wildlife with a market value of at least $1 million.  CHAIT personally falsified customs forms by stating that rhinoceros horn and elephant ivory items were made of bone, wood, or plastic.  For example, during Asia Week in New York City in or about March 2011, CHAIT was approached by an undercover special agent with the U.S. Fish & Wildlife Service about the potential sale of a carving of Guanyin, an East Asian spiritual figure, made from rhinoceros horn (the “Rhino Carving”).  Despite knowing that it was not a genuine antique, CHAIT and his co-conspirators accepted the Rhino Carving for consignment, advertised the sale to foreign clients in China, and put the Rhino Carving on the cover of I.M. Chait Gallery’s catalogue in connection with an auction of Asian art and antiques.  After the Rhino Carving sold at auction for $230,000 to another undercover agent, CHAIT offered to make a false document for the buyer to help the buyer smuggle the item out of the country. The fake invoice falsely stated that the item cost $108.75 and was made of plastic.

CHAIT also sold rhinoceros ivory carvings to another customer, and provided those carvings to that customer’s courier, even after learning that the customer had been arrested in China for smuggling ivory purchased from CHAIT’s auction house.

In addition to falsifying customs forms by stating that rhinoceros horn and elephant ivory items were made of bone, wood, or plastic, CHAIT and his co-conspirators conducted their wildlife smuggling using a variety of methods:

• Wildlife items were shipped to or picked up by third party shippers, who then re-shipped the items out of the country without the required declaration or permits.

   

• Members of the conspiracy provided packing materials to foreign wildlife buyers to assist them in hand carrying the wildlife out of the country.

   

• Foreign wildlife buyers were sold protected wildlife items without being assessed a state sales tax if they showed a foreign passport and itinerary for an international flight as proof the item would be leaving the country.

   

• Protected wildlife was smuggled into the United States without declaration or permits, and then sold at auction by members of the conspiracy.

As a result of a recent Presidential Executive Order, trade in protected wildlife such as rhinoceros horn and elephant ivory has been significantly restricted in the last two years, except for those instances where sellers can prove that the item is a genuine antique that is more than 100 years old.

Rhinoceros are an herbivore species of prehistoric origin and one of the largest remaining mega-fauna on earth.  They have no known predators other than humans.  All species of rhinoceros are protected under U.S. and international law.  Since 1976, trade in rhinoceros horn has been regulated under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (“CITES”), a treaty signed by over 170 countries around the world to protect fish, wildlife, and plants that are or may become imperiled due to the demands of international markets.

                                    *                      *                      *

In addition to the term of prison, CHAIT, 38, of Beverly Hills, California, was sentenced to three years of supervised release and was ordered to pay a $10,000 fine.

Mr. Bharara praised the efforts of the U.S. Fish and Wildlife Service for its outstanding work in this investigation. 

This case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit and the Environmental Crimes Section of the Department of Justice.  Assistant United States Attorneys Jennifer Gachiri and Elizabeth Hanft, and Senior Litigation Counsel Richard A. Udell with the Environmental Crimes Section of the Department of Justice, are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), and Scott J. Lampert, the Special Agent-in-Charge of the New York Office of the Department of Health and Human Services, announced today that SAJID JAVED was charged with participating in a health care fraud scheme that used nine pharmacies in Brooklyn and Queens, New York, through which JAVED submitted more than $8.5 million in fraudulent claims to Medicaid and Medicare.  JAVED’s arrest is part of an unprecedented nationwide sweep led by the Medicare Fraud Strike Force, resulting in criminal and civil charges against 301 individuals, including 61 doctors, nurses, or other licensed medical professionals, for their alleged participation in health care fraud schemes involving approximately $900 million in false billings.  Twenty-three state Medicaid Fraud Control Units also participated in today’s arrests.  In addition, the HHS Centers for Medicare & Medicaid Services (“CMS”) also suspended a number of providers using its suspension authority provided in the Affordable Care Act.  This coordinated takedown is the largest in the history of the Medicare Fraud Strike Force, both in terms of the number of defendants charged and loss amount. 

JAVED was arrested earlier today and is expected to be presented in Manhattan federal court later this afternoon.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Sajid Javed induced others to forego their prescription medications for a kickback, and then fraudulently billed Medicare and Medicaid more than $8 million for the drugs that were never actually dispensed.  This alleged scheme not only put patients at risk, it also contributed to the multibillion-dollar pillaging of federally funded public health care subsidies.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “These alleged criminals arrested around the country today and here in New York City are stealing money meant to help people seeking medical assistance.  It’s not a visible theft in public view, but the victims of the crime suffer greatly when they can’t get the assistance they need.  We are asking anyone who sees this sort of crime and fraud taking place to be vigilant, and report it to us at 1-800-CALL-FBI.”

HHS-OIG Special Agent in Charge Scott J. Lampert said: “Prescription drug scams, such as the one alleged in this case, work to undermine our nation's health care system.  Today’s arrests coordinated with our law enforcement partners serve as a stern warning to those who attempt to plunder government health programs meant to care for our most vulnerable citizens.”

As alleged in the Complaint and in other documents filed in Manhattan federal court[1]:

While owning and operating nine different pharmacies located in Brooklyn and Queens, SAJID JAVED conducted a multimillion-dollar scheme to defraud Medicare and Medicaid programs by seeking reimbursement for prescription drugs that were not distributed to customers.  Specifically, from January 2013 through December 2014, JAVED obtained more than $8.5 million in reimbursements from Medicare and Medicaid for prescription drugs that his pharmacies never actually dispensed.  JAVED defrauded Medicare and Medicaid into providing him with these reimbursements by obtaining prescriptions from other individuals, who were willing to forego delivery of the medications in exchange for a share of the reimbursed proceeds, in the form of kickbacks.  JAVED offered to pay, and did actually pay, kickbacks in furtherance of this scheme.

Including today’s enforcement actions, nearly 1,200 individuals have been charged in national takedown operations, which have involved more than $3.4 billion in fraudulent billings.  Today’s announcement marks the second time that districts outside Strike Force locations participated in a national takedown, and they accounted for 82 defendants charged in this takedown.

The Medicare Fraud Strike Force operations are part of the Health Care Fraud Prevention & Enforcement Action Team (“HEAT”), a joint initiative announced in May 2009 between the Department of Justice and HHS to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country.  The Medicare Fraud Strike Force operates in nine locations and since its inception in March 2007 has charged over 2,900 defendants who collectively have falsely billed the Medicare program for over $8.9 billion. 

*                      *                     *

JAVED, 45, of Fresh Meadows, Queens, is charged with one count of health care fraud, which carries a maximum sentence of 10 years in prison, and one count of illegal remuneration in connection with a federal health care program, which 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 defendant will be determined by the judge.

Mr. Bharara praised the investigative work of the FBI and HHS-OIG.

The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant United States Attorneys Christopher DiMase and Sarah Paul are in charge of the prosecution.

The charges 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, announced today that STEVEN RAWLINS, a former Chief Financial Officer to two healthcare services companies based outside Nashville, Tennessee, was sentenced to nine years in prison and $10,110,577.09 in forfeiture for engaging in a scheme to defraud that yielded over $10 million in ill-gotten gains.  On November 16, 2016, following an 11-day trial conducted before U.S. District Judge Alison J. Nathan, a jury found that RAWLINS, as the acting Chief Financial Officer for both privately-held healthcare companies, abused his authority to withdraw company funds for payment of legitimate business expenses and tax obligations by, among other things, using such funds to pay personal expenses incurred by RAWLINS, his family, and his associates.

Manhattan U.S. Attorney Preet Bharara said: “Steven Rawlins abused his trusted position as CFO with two healthcare companies to steal more than a combined $10 million from them.  As was established at trial, Rawlins spent the money he stole lavishly on himself, his family, and his friends, paying for a 12,000-square-foot home, Tiffany jewelry, several sports cars, and luxury suites at sporting events.”

According to the Criminal Information filed on June 16, 2015, other court documents, and the evidence presented at trial:

In or around 2005, RAWLINS was retained as an outside consultant by a private healthcare services company, which is headquartered in Tennessee (“Company-1”), to assist with financing and accounting matters.  RAWLINS’s responsibilities included securing financing for Company-1 and facilitating tax payments.  During that time period, RAWLINS was retained by another private healthcare services company, which at the time had operations in Florida and New York (“Company-2”), to perform a similar role.  As part of his responsibilities, RAWLINS was authorized to bill both Company-1 and Company-2 for legitimate business expenses incurred in connection with his services.  By 2009, RAWLINS had been appointed as acting Chief Financial Officer for both companies.

RAWLINS abused his authority to withdraw company funds and ultimately misappropriated more than $10 million, which he used to pay personal expenses incurred by himself, his family, and his associates.  For instance, as part of his responsibilities as a consultant to Company-1, RAWLINS represented that he would make the necessary tax payments owed by Company-1 to the State of Tennessee.  From 2011 to 2012, RAWLINS withdrew approximately $850,000 from Company-1’s bank accounts, purportedly in order to pay Company-1’s outstanding tax liabilities to Tennessee.  In reality, during that time period, Company-1 owed less than $85,000 in applicable Tennessee state taxes; RAWLINS converted the vast majority of the funds to his own use.  Moreover, from 2011 to 2013, RAWLINS caused approximately $4 million to be withdrawn from a Company-1 bank account in order to pay bills associated with RAWLINS’s American Express credit card accounts.  Those American Express accounts were in turn used to pay for numerous personal expenses incurred by RAWLINS, or those associated with him, including payments to a real estate development company that built RAWLINS a 12,000-square-foot home; payments for luxury suite access for the Tennessee Titans, Nashville Predators, and New York Yankees; payments for Tiffany jewelry; and payments to car dealerships including Ferrari, Porsche, Maserati, and Mercedes.

Evidence at trial established that, as part of the criminal scheme, Rawlins also defrauded or attempted to defraud additional victims, including the founders of a start-up construction firm from whom he obtained $67,000; a restaurant company owner from whom he obtained a $1.3 million loan; and the owner of a factoring company from whom he attempted to obtain a $1.3 million advance.  The evidence established that Rawlins used forged and fabricated documents in order to deceive several of his victims.

                                                *                      *                      *

RAWLINS, 59, of Brentwood, Tennessee, was sentenced to nine years in prison, $10,110,577.09 in forfeiture, and a $100 special assessment.

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

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 Andrew J. DeFilippis is in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and William J. Bratton, Commissioner of the New York City Police Department (“NYPD”), announced today that Deputy Chief MICHAEL HARRINGTON, Deputy Inspector JAMES GRANT, and Sergeant DAVID VILLANUEVA of the NYPD were arrested this morning, along with a Brooklyn-based man, JEREMY REICHBERG, on bribery charges.  HARRINGTON, GRANT, and REICHBERG were charged in Manhattan federal court with conspiring to commit honest services wire fraud for a bribery scheme involving the receipt of tens of thousands of dollars in meals, trips, home renovations, and other benefits in exchange for an array of official NYPD actions, including private police escorts, ticket fixing, and assistance in settling private disputes.  VILLANUEVA, formerly a supervisor in the NYPD’s gun licensing division, was charged in Manhattan federal court with bribery offenses in connection with his receipt of cash bribes to expedite and approve gun licenses.  In addition, the guilty plea of Police Officer RICHARD OCHETAL, who formerly worked in the gun licensing division, was unsealed today.  OCHETAL pled guilty to accepting bribes in exchange for the approval of gun license applications, and is cooperating with the Government in the investigation.

Manhattan U.S. Attorney Preet Bharara said: “The alleged conduct violates the basic principle that public servants are to serve the public, not help themselves to cash and benefits just for doing their jobs.  Jeremy Reichberg allegedly showered senior police officials, Commanding Officers Michael Harrington and James Grant, with bribes, and in exchange, got ‘cops on call,’ a private police force for themselves and their friends.  As alleged, Sergeant David Villanueva and Officer Richard Ochetal in the NYPD’s gun licensing division were also on the take, issuing gun licenses in exchange for cash, liquor, and limo rides.  It is heartbreaking to see police officers who have taken the oath to serve and protect allegedly bring dishonor to an institution and profession deserving of the greatest honor.  I thank the FBI for their work on this important investigation and the NYPD for its commitment and courage to police itself.”

FBI Assistant Director-in-Charge Diego Rodriquez said:  “The abuses of power alleged in this case are not victimless crimes.  The victims are the citizens of New York, who rely on officers to fulfill their sworn duty.  The victims are the upstanding police officers who do everything in their power to uphold the law and protect the public.  The victims are public trust and confidence in law enforcement, both critical to ensuring public safety.  The FBI, along with our partners, will continue to root out this kind of decay at every level in order to protect our citizens from the devastating consequences of corruption that undermines safety, and erodes the trust between law enforcement and the public.”

NYPD Commissioner William J. Bratton said: “These charges and today's arrests are a culmination of the joint investigative efforts of the NYPD's Internal Affairs Bureau along with the FBI and the US Attorney’s Office for the Southern District of New York.  During the past three years, NYPD Internal Affairs and FBI investigators worked diligently in pursuing leads into alleged corrupt activity involving uniformed members of this department.  Two separate investigations, by the NYPD and the FBI, merged seamlessly and resulted in today’s arrests of four members of the department as well as another individual.  This investigation is not over and we will continue to work together with our law enforcement partners to go where the facts of these cases lead us.‎”

According to the allegations in the Complaint against GRANT, HARRINGTON, and REICHBERG; the Indictment against VILLANUEVA and Brooklyn-based gun license “expeditor” ALEX LICHTENSTEIN, a/k/a “SHAYA,” who had been previously charged; and the Information to which OCHETAL pled guilty, all unsealed today in Manhattan federal court[1]:

United States v. GRANT, HARRINGTON, and REICHBERG

For several years from approximately 2012 through 2015, REICHBERG, who described himself as a “community liaison” for the NYPD, along with another individual who had pled guilty and is now cooperating with the Government (“CW-1”), engineered a scheme to provide lavish benefits to high-ranking members of the NYPD, including GRANT and HARRINGTON, so as to be able to call upon those members for police-related assistance for themselves and their communities over time.  GRANT and HARRINGTON, for their part, accepted numerous benefits and, in return, took several official police actions for REICHBERG and CW-1.  GRANT was, throughout this time period, a high-ranking police official and commanding officer of a precinct in Brooklyn, before becoming a Deputy Inspector and the Commanding Officer of the 19th Precinct on the Upper East Side of Manhattan.  HARRINGTON was an Inspector in Brooklyn North and, beginning around November 2013, the Executive Officer in the NYPD Chief of Department’s Office, which is responsible for overseeing all of the NYPD’s uniformed operations.

As alleged in the Complaint, among the benefits accepted by GRANT were a private jet trip to Las Vegas for the Super Bowl, costing $57,000 for the plane alone; a two-night stay in a hotel in Rome, worth more than $1,000; contracting work on his home worth approximately $12,000; and jewelry.  Among the benefits accepted by HARRINGTON were private security work worth tens of thousands of dollars for a company he unofficially helped manage; hotel rooms for a trip to Chicago for his family worth in excess of $6,000; and thousands of dollars in dinners.

GRANT and HARRINGTON helped REICHBERG and CW-1 with numerous police-related requests.  For example, both performed and arranged for police-related escorts for REICHBERG, CW-1, and their associates, at REICHBERG and/or CW-1’s request.  Both diverted police resources to investigate private, civil matters.  Both assisted with VIP access to parades and other New York City events.  GRANT provided cards that enabled REICHBERG, CW-1, and their associates to avoid tickets when pulled over by police.  GRANT also helped REICHBERG obtain a gun license from the NYPD, and attempted to help CW-1 obtain a gun license from the NYPD.  HARRINGTON sent police resources to religious sites upon request. 

REICHBERG and CW-1’s influence in certain spheres of the NYPD was, at a certain point, so significant as to have people believing that they had a say in promotions.  REICHBERG and CW-1, for example, advocated for GRANT to become the Commanding Officer of the 19th Precinct, which GRANT ultimately did, and which led to them being permitted to make the call informing him of the news.  REICHBERG also advocated for HARRINGTON to become a senior police official in Brooklyn after HARRINGTON left the Chief of Department’s office, which was unsuccessful.  A judicially authorized wiretap on REICHBERG’s phone in early 2015 revealed numerous conversations in which REICHBERG was dispensing advice on promotions to members of the NYPD and taking steps to facilitate promotions.

United States v. VILLANUEVA and LICHTENSTEIN; United States v. OCHETAL

VILLANUEVA was, for many years, a Sergeant assigned to the NYPD’s Licensing Division, which is responsible for reviewing all applications for gun licenses submitted by residents of New York City.  The Licensing Division receives approximately 5,000 applications for gun licenses per year.  Licensing Division personnel review those applications both for disqualifying characteristics, such as prior felony convictions, and for other characteristics that lead to discretionary denials.

From at least 2012 through 2016, VILLLANUEVA was given cash bribes and other benefits by LICHTENSTEIN, who ran a business charging clients thousands of dollars to expedite their gun license applications.  LICHTENSTEIN used some of the money paid by his clients to pay VILLANUEVA for his work in expediting and approving the applications for LICHTENSTEIN’s clients.  OCHETAL, a Police Officer who worked under VILLANUEVA, did first-level reviews of many of these applications and was instructed to approve them.  OCHETAL was compensated in the form of some of the cash that LICHTENSTEIN gave to VILLANUEVA.

In reviewing and approving applications for LICHTENSTEIN’s clients, VILLANUEVA and OCHETAL omitted some of the required checks, such as criminal history checks, and in other instances ran checks only after they approved licenses.  They also approved applications despite red flags that, had they not been bribed, may have led those applications to be rejected.  For example, they approved applications of individuals with prior arrests and previous allegations of domestic violence.  In addition, VILLANUEVA and OCHETAL approved applications for licenses to carry firearms, which require certain business-related justifications, in scenarios were there was no real business justification for the request.  A review of the applications of LICHTENSTEIN’s clients reveals that VILLANUEVA and OCHETAL were able to secure licenses for those clients often within weeks, whereas the process normally takes months to, in some instances, over a year.  VILLANUEVA and OCHETAL did this for LICHTENSTEIN’s clients because of the cash payments coming from LICHTENSTEIN, as well as other benefits, such as limousine rides, bottles of liquor, and a wine tour.

*                *                *

GRANT, 43, of Staten Island, New York, HARRINGTON, 50, of the Staten Island, New York, and REICHBERG, 42, of Brooklyn, New York, have been charged with one count of conspiracy to commit honest services wire fraud, which carries a maximum term of 20 years in prison.  VILLANUEVA, 42, of Valley Stream, New York, was charged with one count of bribery, which carries a maximum term of 10 years in prison, and one count of conspiracy to commit bribery, which carries a maximum term of five years in prison.  LICHTENSTEIN, 44, of Pomona, New York, is charged with two counts of bribery, each of which carries a maximum term of 10 years in prison, and one count of conspiracy to commit bribery, which carries a maximum term of five years in prison. OCHETAL, 37, previously pled guilty to one count of bribery, which carries a maximum term of 10 years in prison, and one count of conspiracy to commit bribery, which carries a maximum term of five years in prison. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

Mr. Bharara praised the investigative work of the FBI, the NYPD Internal Affairs Bureau, and the Internal Revenue Service’s Criminal Investigations Division, and noted that the investigation is continuing.  

These cases are being handled by the Office’s Public Corruption Unit.  Assistant United States Attorneys Martin Bell, Russell Capone, and Kan M. Nawaday are in charge of the prosecution.

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

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

There will be a press conference today at 12:00 p.m. to announce charges against several New York City Police Department officers and others for public corruption offenses.  Relevant charging documents are attached. 

WHO:        

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

Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation

William J. Bratton, Commissioner of the New York City Police Department

WHEN:     

Monday, June 20, 2016 at 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 arrive early to permit clearance through security.  Please silence all cell phones, PDAs, and pagers before start of press conference.