Southern District of New York

Preet Bharara, the United States Attorney for the Southern District of New York, Shantelle P. Kitchen, the Special Agent in Charge of the New York Field Office of the Internal Revenue Service - Criminal Investigation (“IRS-CI”), Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Division of the Federal Bureau of Investigation (“FBI”), George Beach, Superintendent, New York State Police, and Thomas P. DiNapoli, New York State Comptroller, today announced the arrest of MICHAEL KLEIN, the former treasurer of the Mahopac Volunteer Fire Department (“MVFD”), on charges of wire fraud and subscribing to false tax returns.

Manhattan U.S. Attorney Preet Bharara stated:  “Michael Klein repaid the trust his fellow volunteer firefighters placed in him by allegedly stealing $5.7 million of their money over a period of more than 13 years as their elected treasurer.  As alleged, Klein lavished the embezzled money on himself, buying yachts, jewelry, and a second home in Florida, and then failed to report any of it on his tax returns.  Public corruption victimizes the public generally, but here, the people of Mahopac and its volunteer firefighters have suffered specifically and directly, having lost almost $6 million that could have been used for good, but instead was allegedly squandered away by Klein. ”

IRS Special Agent in Charge Shantelle P. Kitchen said:  “Criminal tax investigations are often intertwined with investigations of alleged thefts by individuals entrusted with the stewardship of an organization’s assets.  Individuals who have access to an organization’s bank accounts, books and records, and financial resources should seriously consider all of the consequences if they are inclined to embezzle.  In addition to charges relating to the underlying financial theft, embezzlers expose themselves to federal criminal tax charges when they willfully fail to declare the proceeds of the thefts on their tax returns.”

FBI Assistant Director in Charge Diego Rodriguez said:  “The subject of this investigation spent more than a decade living life in high style, while his fellow firefighters were busy volunteering their time to save people’s homes and lives.  He allegedly embezzled millions of dollars in money that could have gone to help the firefighters in his department do their jobs.  The FBI and our law enforcement partners won’t allow this type of greed to overshadow the great service the men and women on this volunteer fire department do each and every day they show up for work.” 

New York State Police Superintendent George Beach said:  “I commend the work performed on this case by our investigators from Troop K, the State Comptroller’s Office, and our federal partners. Our investigation revealed that this individual took millions of dollars meant to support the community’s fire department, and instead used it for his own personal gain. We will have no tolerance for those who abuse their position.”

New York State Comptroller Thomas P. DiNapoli said:  “Mr. Klein allegedly stole nearly six million dollars from the Mahopac Volunteer Fire Department. Rather than protecting his neighbors as he pledged, they paid the price for his alleged thievery. I thank United States Attorney Preet Bharara, the Federal Bureau of Investigation, the New York State Police, and the Internal Revenue Service for their work with my office to bring Mr. Klein to justice.”          

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

Michael Klein was first elected treasurer of the MVFD in 2001.  From in or about January 2002 to in or about September 2015, Klein embezzled MVFD funds under his control by writing checks to the two businesses he owned, Abbie Graphic Services, Ltd. (“Abbie Graphic”) and Buckshollow Emergency Equipment Corp. (“BEEC”).  Klein then deposited the checks to bank accounts held by Abbie Graphics or BEEC.  He entered these checks into the MVFD’s books as having been made payable to various vendors, other than Abbie Graphics or BEEC, that sold firefighting equipment or services used by fire departments. 

Klein embezzled more than $5.7 million by writing more than 275 checks over a period of more than 13 years.  He used the money to purchase, among other things, yachts, including a 55-foot Neptunus motor yacht named “K’Bam;” a second residence in Palm City, Florida; and jewelry.  He also used the money to support Abbie Graphic and BEEC.  Klein also failed to report any of this income on his personal tax returns for the period from 2009 through 2014, thereby subscribing to false tax returns for each of these years.    

Following the discovery by law enforcement in the fall of 2015 of Klein’s embezzlement, Klein offered K’Bam for sale with a yacht broker in Florida for $229,000.  He rejected an offer he received of $175,000 but sold K’Bam to an automobile dealer for the $136,850 he owed on a loan secured by K’Bam.  The dealer is now offering K’Bam for sale for $260,000.

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KLEIN, 48, of Mahopac, New York, and Palm City, Florida, is charged with one count of wire fraud, which carries a maximum sentence of 20 years in prison, and six counts of subscribing to false tax returns, each of which carries a maximum sentence of three years in prison. 

Mr. Bharara praised the outstanding investigative work of the IRS, FBI, New York State Police, and New York State Comptroller.  He thanked the Putnam County District Attorney’s Office for its assistance in the investigation.

This case is being handled by the Office’s White Plains Division.  Assistant United States Attorney James McMahon 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.

 

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

Preet Bharara, the United States Attorney for the Southern District of New York, Delano A. Reid, Special Agent in Charge of the New York Office of the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), and William J. Bratton, the Commissioner of the New York City Police Department (“NYPD”), announced the unsealing this morning of two indictments, charging a total of 32 defendants with participating in conspiracies to distribute and possess with intent to distribute large quantities of crack cocaine in around the Lincoln Housing Development in East Harlem, New York (the “Lincoln Houses”).  Six defendants are also charged with possessing and using firearms in connection with one of the narcotics trafficking conspiracies.   Twenty-three defendants were taken into custody today and are expected to be presented in Manhattan federal court later today before U.S. Magistrate Judge James C. Francis IV.  Five defendants are incarcerated in various locations in New York and are expected to be transported to the Southern District of New York within the next two weeks.  Four defendants remain at large.

Manhattan U.S. Attorney Preet Bharara said:  “As alleged, these defendants blanketed the entire expanse of the Lincoln Houses with their round-the-clock drug dealing operation, using guns and violence to protect it.  All New Yorkers, including the residents of NYCHA housing, are entitled to live in neighborhoods free of drugs and the inevitable violence that comes with it.  Our actions today, with our partners at the ATF and NYPD, are a step toward making that a reality for the residents of the Lincoln Houses in East Harlem.”  

ATF Special Agent in Charge Delano A. Reid said:  “These defendants attempted to consolidate power over narcotics distribution in and around the Lincoln Houses, turning that community into an open air drug market.  In the process they are alleged to have had access to firearms and to have engaged in acts of violence to protect and maintain their drug business.   Today we say no more.   The members of this criminal organization thought that they could use firearms and violence to shield themselves and their illicit activities.   Instead, they have made themselves the targets of ATF and our law enforcement partners.  Today’s arrests will help to preserve dignity and restore safety for law abiding residents of the Lincoln Houses and surrounding communities.  To those that think they can use firearms and violence as tools to further their criminal ambitions, let this be a warning that we in law enforcement will be at the ready to ensure that your fate is the same as those arrested today.  ATF would like to thank the NYPD and United States Attorney’s Office for their professionalism and perseverance during this long term investigation.”         

NYPD Commissioner William J. Bratton said: “This long term investigation targeted key members of an East Harlem gang who, as alleged, distributed crack cocaine and engaged in rampant gun violence, willfully disregarding the safety of residents living in the Lincoln Houses. I commend both my NYPD detectives and our federal partners, whose diligence and perseverance have disrupted this criminal operation.”                

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

The New York City Housing Authority (“NYCHA”) operates, among others, a housing development in the East Harlem neighborhood of Manhattan, New York:  the Lincoln Houses, spanning an area between East 132nd Street and East 135th Street to the North and South, and Park Avenue and Fifth Avenue, to the East and West.

From at least in or about 2008, up to and including in or about 2016, in the Southern District of New York and elsewhere, RASHEED BAILEY, a/k/a “Ciroc,” WILLIAM BRYANT, a/k/a “Kenny,” KEVIN CHAVIS, JEFFREY CHILDS, a/k/a “Pap,” a/k/a “CJ,” TYRONE GLADDEN, a/k/a “Ty Boogie,” a/k/a “Ty Zooted,” TRAVIS HARRY, a/k/a “Trav Game,” RICHARD HILL, MICHAEL JOHNSON, a/k/a “Air,” KEVIN LEWIS, a/k/a “Ice,” DONTE McGILL, TORELL NIUELDER, a/k/a “Young,” a/k/a “Relli,” TUQUAN ROGERS, a/k/a “Tay,” DONALD ROSE, JAMAL RUSSEL, a/k/a “Mally,” LUKE RYANT, a/k/a “Berger,” KEVIN SAXON, a/k/a “Sax,” ANDREW SINGLETON, a/k/a “Drew,” SEON THOMAS, a/k/a “Cee,” a/k/a “Goon,” HENRY TRENTON, a/k/a “Kay,” a/k/a “Kels,” RENE VELEZ, a/k/a “White Boy,” TREVOR WATSON, a/k/a “Trev Wild,” and TYLER WILLIAMS, a/k/a “Ty Cracks,” and others known and unknown, conspired to distribute significant amounts of crack cocaine, in and around, among other places, the “West Side” of Lincoln Houses.  Specifically, these defendants sold narcotics most frequently on public streets and inside public housing developments between East 132nd Street and East 135th Street, to the North and South, and between Madison Avenue and Fifth Avenue, to the East and West.

During the same time period, KAREEM ALLEN, a/k/a “Rocket,” HAROLD HILL, a/k/a “Dee Wee,” AARON JOHNSON, a/k/a “A,” ANTOINE MITCHELL, a/k/a “Red,” JEREL POOL, a/k/a “Nast,” DEREK SMITH, a/k/a “Ice,” MARK SMITH, NAJHEA SMITH, a/k/a “Boogz,” QWAME THOMAS, a/k/a “Afro,” BERNARD WALKER, a/k/a “M,” the defendants, and others known and unknown, conspired to distribute significant amounts of crack cocaine in and around, among other places, the “East Side” of Lincoln Houses.  Specifically, these defendants sold narcotics most frequently on public streets and inside public housing developments between East 132nd Street and 135th Street, to the North and South, and Park Avenue to Madison Avenue, to the East and West.

The narcotics organizations operating on the West Side and the East Side of the Lincoln Houses distributed crack cocaine 24 hours each day, seven days each week. 

In addition, members of the West Side organization had access to firearms and engaged in acts of violence in order to, among other reasons, protect and maintain their drug business, including JEFFREY CHILDS, a/k/a “Pap,” a/k/a “CJ,” TUQUAN ROGERS, a/k/a “Tay,” JAMAL RUSSEL, a/k/a “Mally,” LUKE RYANT, a/k/a “Berger,” SEON THOMAS, a/k/a “Cee,” and TREVOR WATSON, a/k/a “Trev Wild.”

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All of the defendants face mandatory minimum prison terms ranging from 10 years to 15 years, and maximum terms of life in prison.  

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

A chart containing the names of the defendants who were arrested today, and the charges and maximum penalties they face, is attached.  

Mr. Bharara praised the outstanding investigative work of the Bureau of Alcohol, Tobacco, Firearms and Explosives, and the New York City Police Department.

The prosecution is being handled by the Office’s Violent and Organized Crime Unit.  Assistant U.S. Attorneys Amanda Houle, Hadassa Waxman, and Michael Gerber 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.

 

CHARGE(S)

DEFENDANTS

MAXIMUM PENALTIES

Conspiracy to distribute and possess with intent to distribute 280 grams and more of crack cocaine.

RASHEED BAILEY, WILLIAM BRYANT, KEVIN CHAVIS,JEFFREY CHILDS, TYRONE GLADDEN, TRAVIS HARRY, RICHARD HILL, MICHAEL JOHNSON, KEVIN LEWIS, DONTE McGILL, TORELL NIUELDER, TUQUAN ROGERS, DONALD ROSE, JAMAL RUSSEL, LUKE RYANT, KEVIN SAXON, ANDREW SINGLETON, SEON THOMAS, HENRY TRENTON,  RENE VELEZ, TREVOR WATSON, TYLER WILLIAMS, KAREEM ALLEN, HAROLD HILL, AARON JOHNSON, ANTOINE MITCHELL, JEREL POOL, DEREK SMITH, MARK SMITH, NAJHEA SMITH, QWAME THOMAS, and BERNARD WALKER.

Life in prison

 

Mandatory minimum: 10 years in prison

Possession of a firearm in furtherance of a narcotics trafficking offense

JEFFREY CHILDS, TUQUAN ROGERS, JAMAL RUSSEL, LUKE RYANT, SEON THOMAS, and TREVOR WATSON

Life in prison

Mandatory minimum: 5 years in prison, to be imposed consecutively to any other sentence

 

 

 

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[1] As the introductory phrase signifies, the entirety of the text of the Indictments, and the description of the Indictments 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 HEATHER GASTA, a/k/a “Heather Brez,” a former manager of a Buffalo, New York-based debt collection company (the “Company”), pled guilty today to participating in a scheme to coerce thousands of victims across the country through false threats and representations into paying a total of more than $31 million to the Company to resolve debts these victims purportedly owed.  Earlier this week, COLUMBUS SIMMONS, a/k/a “Timothy Ham,” and WILLIAM CLARK, a/k/a “John Harvey,” two former debt collectors at the Company, also pled guilty for their roles in the debt collection scheme.  GASTA, SIMMONS, and CLARK each pled guilty to one count of conspiracy to commit wire fraud and one count of wire fraud before U.S. District Judge Katherine Polk Failla.  To date, nine former employees of the Company have pled guilty to participating in the scheme. 

U.S. Attorney Preet Bharara said: “As they admitted in court this week, these defendants were key members of a band of predatory debt collectors, or as they called themselves, ‘the elite team.’  Armed with telephones and a litany of threatening lies, they and others at the Company coerced thousands of desperate, debt-ridden victims to send them tens of millions of dollars.  In a practice they called ‘juicing the balance,’ these defendants also falsely inflated the debt owed by the victims so they could collect even more.”

According to the allegations contained in the Indictment to which GASTA, SIMMONS, and CLARK pled guilty and statements made during their plea proceedings: 

Between 2010 and February 2015, GASTA, SIMMONS, CLARK, and their co-defendants (collectively, the “defendants”) 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.  The defendants, using a variety of aliases, falsely told victims, among other things, that: (1) the Company was affiliated with local government and law enforcement agencies, including the “county” and the district attorney’s office; (2) the consumers had committed criminal acts, such as “wire fraud” or “check fraud,” and if they did not pay the debt immediately, warrants or other process would be issued, at which point they would be arrested or hauled into court; (3) the victims would have their driver’s licenses suspended if they did not pay their debts immediately; (4) the Company was a law firm or mediation firm and that the Company’s employees were working with lawyers, a law firm, mediators, or arbitrators; and (5) a civil lawsuit would be filed, or was pending, against the victims for failing to pay their debts. 

As a further part of the scheme, the defendants lied to victims by falsely inflating the balances of the debts so that they could collect more money from the victims than the victims actually owed, a practice known within the Company as “juicing” balances. 

GASTA, SIMMONS, and CLARK were members of the Company’s so-called “elite team,” which used particularly aggressive and egregious tactics in attempting to trick consumers into paying debts.  GASTA also served as a Company manager.

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GASTA, 41, SIMMONS, 46, and CLARK, 30, all of Buffalo, New York, each pled guilty to one count of conspiracy to commit wire fraud and one count of wire fraud, each of which carries a maximum sentence of 20 years in prison and three years of supervised release.  The maximum potential 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.

GASTA, is scheduled to be sentenced on September 30, SIMMONS on September 23, and CLARK on September 29, 2016, respectively, before Judge Failla.  

In total, nine former employees of the Company have pled guilty to defrauding consumers as part of this debt collection scheme.  In addition to the pleas of GASTA, SIMMONS and CLARK, former Company mangers Mark Lavin and John Salatino and debt collectors Jessica Mann, Charles Starks, Michael Calandra, and Jennifer Sherk each pled guilty for their roles in the fraud.  The other defendants who have not pled guilty are presumed innocent unless and until proven guilty.   

On or about May 20, 2016, Mann was sentenced by Judge Failla to a prison term of one year and one day.  The sentencing of the other defendants who have pled guilty is pending. 

Mr. Bharara praised the efforts of the Office’s Criminal Investigators.

The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys Edward A. Imperatore and Jordan L. Estes 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 Elton Malone, Special Agent in Charge, Special Investigations Branch, U.S. Department of Health and Human Services, Office of Inspector General (“HHS-OIG”), announced today charges against SANJAY VALVANI and STEFAN LUMIERE, a portfolio manager and former portfolio manager, respectively, at a healthcare-focused hedge fund in New York, New York (“Investment Adviser-A”). 

VALVANI was charged with participating in a scheme, from in or about 2005 through in or about January 2011, to convert United States property, to defraud the United States, and to commit securities fraud and wire fraud relating to VALVANI’s agreement with GORDON JOHNSTON, a political intelligence consultant and former senior official at the Food and Drug Administration (“FDA”), to unlawfully obtain highly confidential and material nonpublic information from the FDA about the agency’s approval of pending generic drug applications and convert it to VALVANI’s use, including by using the information to execute profitable securities transactions.  VALVANI is also charged with passing certain highly confidential and material nonpublic information to CHRISTOPHER PLAFORD, a former portfolio manager at Investment Adviser-A, who also executed trades based on the information.  In addition, Mr. Bharara announced today the unsealing of charges against JOHNSTON and PLAFORD, who both pled guilty and admitted to their participation in the scheme.  As part of the scheme, for example, at VALVANI’s direction, JOHNSTON obtained highly confidential and material nonpublic information from a senior FDA official about the status and approval of a generic drug called enoxaparin, which information JOHNSTON passed to VALVANI.  VALVANI used this information to trade in the securities of two pharmaceutical companies likely to be affected by an approval of a generic enoxaparin application, earning approximately $25 million in trading profits when the FDA announced its first such approval.  VALVANI also tipped PLAFORD with this information.  VALVANI surrendered to authorities this morning.

Separately, LUMIERE was charged with participating in a scheme with PLAFORD, from in or about June 2011 through in or about September 2013, to commit securities and wire fraud relating to the mismarking of securities in a fixed-income fund for which PLAFORD was the portfolio manager at the time, which inflated the net asset value (“NAV”) of the fund and overstated the fund’s liquidity.  LUMIERE surrendered to authorities this morning.  PLAFORD also pled guilty to his participation in this scheme, as well as an additional scheme involving another political intelligence consultant. 

VALVANI will be presented and arraigned later today before United States District Judge Sidney H Stein.  LUMIERE will be presented later today before U.S. Magistrate Judge James C. Francis IV.  JOHNSTON’s case is assigned to U.S. District Judge Andrew L. Carter, Jr., and PLAFORD’s case is assigned to U.S. District Judge Ronnie Abrams.

In separate actions, the Securities and Exchange Commission (“SEC”) filed civil charges against VALVANI, LUMIERE, JOHNSTON, and PLAFORD.

U.S. Attorney Preet Bharara said:  “As alleged, Valvani, Johnston, and Plaford conspired to extract highly confidential and tightly guarded information about pending applications for generic drug approvals from the FDA, and traded on such information, reaping millions of dollars in illegal profits.  Lumiere and Plaford also allegedly conspired to mismark securities held by their fund, lying to their investors and unjustly enriching themselves in the process.”

FBI Assistant Director-in-Charge Diego Rodriguez said:  “As alleged, the defendants conspired and schemed over six years to obtain insider information from the FDA on the status of approvals for generic drugs in order to take that information and use it to make securities trades. Additionally, some of those same defendants schemed to defraud investors from an fixed-income fund by deceptively mismarking the value of certain securities. Sadly these are schemes we see time and time again, where lies and use of nonpublic information profits those conducting the crimes and everyday investors lose out.”

HHS-OIG Special Agent in Charge Elton Malone said:  “Trading on confidential, non-public FDA information corrupts the carefully guarded drug approval process and simply will not be tolerated.  People hoping to profit from insider data will be aggressively prosecuted for their crimes.” 

According to the allegations in the charging documents unsealed today in Manhattan federal court, including the Indictment charging VALVANI and the Complaint charging LUMIERE,[1] and statements made in court proceedings:

At all relevant times, Investment Adviser-A managed hedge funds specializing in healthcare-related investments.  One such fund focused on long-short equity investments in healthcare companies (“Fund-1”).  Another fund, which operated from in or about 2009 until in or about September 2013, invested primarily in debt instruments issued by healthcare companies (“Fund-2”). 

VALVANI served as a partner in Investment Adviser-A and one of Fund-1’s portfolio managers, managing the specialty pharmaceuticals portfolio within Fund-1.  From in or about May 2009 through in or about September 2013, PLAFORD served as a partner in Investment Adviser-A and as Fund-2’s portfolio manager.  LUMIERE served under PLAFORD as the Fund-2 portfolio manager for special situations, which represented a portion of Fund-2’s portfolio. 

The Scheme to Convert and Use Confidential FDA Information

The Scheme

As alleged in the Indictment, from in or about 2005 through in or about January 2011, VALVANI, JOHNSTON, PLAFORD, and others participated in a scheme to convert to their own use confidential and material nonpublic information from the FDA concerning, among other things, the FDA’s internal deliberations regarding the approval of generic drug applications for the purpose of making profitable securities transactions.           

During this time period, Investment Adviser-A retained JOHNSTON as a consultant who provided “political intelligence” related to, among other things, the likelihood and timing of the FDA’s approval of generic drugs.  JOHNSTON primarily consulted for VALVANI, and Investment Adviser-A paid JOHNSTON hundreds of thousands of dollars in total for his consulting work.  Before becoming a consultant, JOHNSTON had served as the Deputy Director of the FDA’s Office of Generic Drugs (“OGD”), an office within the FDA charged with, among other things, approving generic drugs.  In addition to serving as consultant to Investment Adviser-A, JOHNSTON worked for a trade association for manufacturers and distributors of generic drugs (the “Trade Association”).  As a result of his long employment with the FDA, as well as his ongoing work with the Trade Association, JOHNSTON maintained close relationships with FDA insiders.

VALVANI tasked JOHNSTON with obtaining highly confidential and material nonpublic information from the FDA about pending generic drug ANDAs and related citizen petitions, information that FDA employees were not authorized to disclose to the public.  An ANDA, or Abbreviated New Drug Application, is the process by which a pharmaceutical company can apply to the FDA for approval to sell a generic version of a brand name drug.  In many cases, the brand name drug company files a citizen petition with the FDA challenging the generic drug company’s ANDA and arguing that the FDA should deny it.  The FDA’s decision to approve a generic drug ANDA typically has a positive impact on the stock price of the company receiving approval, and a negative impact on the stock price of the company producing the brand name drug.

The Enoxaparin ANDA Approval

As alleged in the Indictment, at the direction of VALVANI, JOHNSTON improperly obtained confidential and material nonpublic information concerning the FDA’s approval of a generic version of an anticoagulant drug called enoxaparin and passed this information to VALVANI, which VALVANI used to make profitable securities trades.  Beginning in the mid-1990s, Sanofi-Aventis S.A. (“Sanofi”) manufactured and sold enoxaparin under the brand name Lovenox.  By 2005, three groups of publicly traded pharmaceutical companies had filed ANDAs with the FDA seeking approval to sell a generic version of Lovenox, including one such application filed by a publicly traded pharmaceutical company that had partnered with Momenta Pharmaceuticals, Inc. (“Momenta”) (the “Momenta ANDA”).  After the first two ANDAs were filed, Sanofi filed a citizen petition with the FDA opposing the approval of a generic version of Lovenox.  These three ANDAs were pending with the OGD for years, during which time it was unclear whether OGD would approve a generic version of Lovenox.

Beginning in or about 2005, VALVANI directed JOHNSTON to gather confidential and material nonpublic information from FDA employees about the FDA’s consideration of the enoxaparin ANDAs.  JOHNSTON, in turn, improperly obtained such information from a senior OGD official (“Individual-1”), who was close friends with and a former colleague of JOHNSTON’s.  Individual-1 participated in internal, confidential meetings regarding the Momenta ANDA.  As part of the ANDA review and approval process, OGD maintained an internal document tracking the progress of ANDAs, including the Momenta ANDA, and estimating the likelihood and timing of their approval (the “Tracking Document”).  The information contained in the Tracking Document was highly confidential and not intended to be disclosed to anyone outside the FDA.  Nonetheless, Individual-1 disclosed confidential and material nonpublic information about the status of the approval of a generic Lovenox ANDA, including information from the highly confidential Tracking Document, to JOHNSTON.  JOHNSTON breached a duty of trust to Individual-1 by passing the information to VALVANI, as JOHNSTON knew that Individual-1 expected him to keep the information confidential based on their history of sharing and keeping such confidences. 

For example, in or about late December 2009 or early January 2010, JOHNSTON told VALVANI, in sum and substance, that he had learned that the Tracking Document reflected that OGD was moving toward approval of a generic Lovenox ANDA.  This was information that was not known to the public and was not supposed to be known by anyone outside of the FDA.  Based on his prior role at OGD, JOHNSTON understood this to mean that the ANDA approval was highly likely and could occur in a matter of months, which information JOHNSTON shared with VALVANI.  VALVANI asked JOHNSTON to continue to contact his FDA sources to obtain additional updates about the agency’s internal deliberations related to the approval of a generic Lovenox ANDA.

Beginning on or about January 4, 2010, after receiving the tip from JOHNSTON, VALVANI requested that Investment Adviser-A give JOHNSTON a raise.  In a January 6, 2010, email to Investment Adviser-A’s chief financial officer, VALVANI sought to justify providing a raise to JOHNSTON by stressing how important JOHNSTON was to him:  “[JOHNSTON] is without question the most valuable consultant I’ve ever worked with and I’m pushing to reinforce the value of the relationship and encourage him to continue to go above and beyond for our team.”

The next day, on or about January 7, 2010, VALVANI caused Fund-1 to begin to increase its long position in Momenta by four-fold.  By on or about July 23, 2010, Fund-1 held an approximately 2,962,715-share long position in Momenta stock valued at approximately $35 million.  Beginning on or about January 14, 2010, VALVANI caused Fund-1 to short Sanofi securities.  By on or about July 23, 2010, Fund-1 held an approximately 1,320,454-share short position in Sanofi’s European-traded stock and an approximately 509,854-share short position in Sanofi’s American Depository Receipts (“ADRs”), together valued at approximately $78 million.

VALVANI also passed to PLAFORD the information that he had obtained from JOHNSTON, so that PLAFORD could execute securities trades in Fund-2, which he did.  PLAFORD understood this information to be highly confidential and material nonpublic information of the most sensitive kind that had been obtained from JOHNSTON’s source in the FDA.

On or about July 23, 2010 – approximately seven years after the first ANDA was filed – the FDA approved the Momenta ANDA (and denied Sanofi’s related citizen petition).  This approval was positive news for Momenta, as Momenta was the first company to receive generic Lovenox approval, and the company’s stock price increased by nearly 100 percent in one day.  The approval of the Momenta ANDA was negative news for Sanofi, which no longer had a monopoly on the drug, and the price of Sanofi’s stock and ADRs declined.  Following the FDA’s announcement, VALVANI caused Fund-1 to sell the Momenta shares it held and to close out its short positions in Sanofi ADRs and stock, yielding a total profit of approximately $25 million. 

In or about early January 2011, VALVANI called JOHNSTON and stated, in sum and substance, that Investment Adviser-A had decided to end its relationship with JOHNSTON in the wake of news reports of insider trading investigations.

The Scheme to Mismark Securities

As alleged in the Complaint, from in or about June 2011 through in or about September 2013, LUMIERE, PLAFORD, and others participated in a scheme to defraud Fund-2’s investors and potential investors by deceptively mismarking each month the value of certain securities held by Fund-2.  The objective of the scheme was two-fold: (1) to inflate Fund-2’s NAV; and (2) to mislead investors about the liquidity of Fund-2’s holdings.  Investment Adviser-A assessed performance fees to be paid by investors each year based on Fund-2’s profits and losses.  LUMIERE’s mismarking was in violation of Investment Adviser-A’s internal valuation procedures and contrary to Investment Adviser-A’s representations to investors.  The effect of the scheme was to overstate Fund-2’s NAV, often by tens of millions of dollars as calculated at the end of each month, which resulted in higher payments to Investment Adviser-A and higher bonuses for LUMIERE, among other benefits.  The effect of the scheme was also to deceive investors into believing that certain securities were properly categorized as Level II, or securities with a quoted price but in a more inactive market, when, in fact, these securities were highly illiquid Level III investments.

As to the first form of the scheme, LUMIERE, PLAFORD, and others solicited, obtained, and relied on false and fraudulent price quotes from employees of broker-dealers in order to improperly override prices calculated by Fund-2’s administrator and artificially inflate Fund-2’s NAV each month.  For each month-end valuation, LUMIERE and/or PLAFORD would begin by reviewing an inventory of Fund-2’s investments and proposed valuations for each prepared by Fund-2’s administrator and Investment Adviser-A’s back office.  LUMIERE and/or PLAFORD would then identify those relatively illiquid securities as to which they disagreed with or disliked the proposed price, and create a list reflecting the price at which they wanted each security to be marked for month-end valuation purposes.  That price was often significantly higher or lower than the price available from public price data.  LUMIERE, PLAFORD, and others would then contact one or two “friendly” brokers and dictate to the friendly brokers the price quotes that they needed.  The brokers would then parrot back the price quotes from their Bloomberg email account, giving the price quotes the appearance that they had come from an independent broker, and thus were in compliance with Fund-2’s pricing methodology.  PLAFORD then submitted the friendly brokers’ sham quotes as purportedly independent bases for that security’s valuation to Investment Adviser-A’s accounting department, for the eventual submission to Fund-2’s administrator.

By obtaining these sham quotes, LUMIERE and PLAFORD caused a number of Fund-2’s securities to be misclassified in order to mislead investors about the liquidity of the securities (i.e., how actively traded the securities were).  Specifically, for a number of illiquid bonds, LUMIERE and PLAFORD fraudulently caused Investment Adviser-A to assign a classification that led investors to believe that the bonds were relatively liquid, when in fact they were entirely illiquid.  This was done contrary to disclosures to investors about Fund-2’s percentage of illiquid investments, in order to induce investors to invest in or keep their money in Fund-2.

As to the second form of the scheme, LUMIERE and PLAFORD purchased additional quantities of certain securities – in which Fund-2 had an established position – at a deceptively inflated price, markedly higher than the prevailing market was offering that security, in a practice known as “painting the tape.”  PLAFORD would then report that inflated price to Investment Adviser-A’s accounting department for NAV purposes.  In both cases – the sham broker quotes and the inflated purchase prices – it was LUMIERE and PLAFORD’s intent to increase the price of certain securities in order to inflate Fund-2’s month-end valuation.

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VALVANI, 44, of Brooklyn, New York, is charged with five counts: one count of conspiracy to convert United States property, to commit securities fraud and to defraud the United States; two counts of securities fraud; one count of conspiracy to commit wire fraud; and one count of wire fraud.  Count One carries a maximum sentence of five years in prison.  Counts Two through Five each carry a maximum sentence of 20 years in prison.  The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense. 

LUMIERE, 45, of New York, New York, is charged with three counts: one count of conspiracy to commit securities fraud and wire fraud; one count of securities fraud; and one count of wire fraud.  Count One carries a maximum sentence of five years in prison.  Counts Two and Three each carry a maximum sentence of 20 years in prison.  The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense. 

On June 9, 2016, PLAFORD, 38, of Bedford, New York, pled guilty before Judge Abrams to seven counts: one count of conspiracy to commit securities fraud and wire fraud; one count of securities fraud; one count of conspiracy to defraud the United States and to convert United States property; one count of conversion of United States property; one count of conspiracy to convert United States property, to commit securities fraud, and to defraud the United States; one count of securities fraud; and one count of conspiracy to commit wire fraud.  Counts One, Three, and Five each carry a maximum sentence of five years in prison.  Counts Two, Six, and Seven each carry a maximum sentence of 20 years in prison.  Count Four carries a maximum sentence of 10 years in prison.  The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense. 

On June 13, 2016, JOHNSTON, 64, of Olney, Maryland, pled guilty before Magistrate Judge James C. Francis IV to four counts: one count of conspiracy to convert United States property, to commit securities fraud, and to defraud the United States; one count of securities fraud; one count of conspiracy to commit wire fraud; and one count of wire fraud.  Count One carries a maximum sentence of five years in prison.  Counts Two through Four each carry a maximum sentence of 20 years in prison.  The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense.

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

Mr. Bharara praised the work of the FBI and HHS-OIG, and thanked the SEC for its assistance. 

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

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

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

 

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[1]             As the introductory phrase signifies, the entirety of the text of the Indictment and the Complaint, and the description of the Indictment and 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 John P. Carlin, Assistant Attorney General for National Security, announced a six-count superseding indictment (the “Superseding Indictment”) charging XU JIAQIANG with economic espionage and theft of trade secrets, in connection with XU’s theft of proprietary source code from XU’s former employer, with the intent to benefit the National Health and Family Planning Commission of the People’s Republic of China.  XU was initially arrested by the Federal Bureau of Investigation (“FBI”) in White Plains on December 7, 2015, and had previously been charged with one count of theft of trade secrets.  XU is scheduled to be arraigned on the Superseding Indictment at 12:00 p.m. on Thursday, June 16, 2016, in White Plains federal court before the Honorable Kenneth M. Karas. 

U.S. Attorney Preet Bharara stated:  “As alleged, Xu Jiaqiang is charged with stealing valuable, proprietary software from his former employer, an American company, that he intended to share with an agency within the Chinese government.  Economic espionage not only harms victim companies that have years or even decades of work stolen, but it also crushes the spirit of innovation and fair play in the global economy.  Economic espionage is a serious federal crime, for which my office, the Department of Justice’s National Security Division, and the FBI will show no tolerance.”

Assistant Attorney General John P. Carlin stated: “Xu allegedly stole proprietary information from his former employer for his own profit and the benefit of the Chinese government.  Those who steal America’s trade secrets for the benefit of foreign nations pose a threat to our economic and national security interests.  The National Security Division will continue to work tirelessly to identify, pursue and prosecute any individual who attempts to harm American businesses by robbing them of their valuable intellectual property.”

According to the allegations contained in the criminal Complaint on which Xu was initially arrested, the original Indictment, and the Superseding Indictment[1] filed today in Manhattan federal court:

From November 2010 to May 2014, XU worked as a developer for a particular U.S. company (the “Victim Company”).  As a developer, XU enjoyed access to certain proprietary software (the “Proprietary Software”), as well as that software’s underlying source code (the “Proprietary Source Code”).  The Proprietary Software is a clustered file system developed and marketed by the Victim Company in the United States and other countries.  A clustered file system facilitates faster computer performance by coordinating work among multiple servers.  The Victim Company takes significant precautions to protect the Proprietary Source Code as a trade secret.  Among other things, the Proprietary Source Code is stored behind a company firewall and can be accessed by only a small subset of the Victim Company’s employees.  Before receiving Proprietary Source Code access, Victim Company employees must first request and receive approval from a particular Victim Company official.  Victim Company employees must also agree in writing at both the outset and the conclusion of their employment that they will maintain the confidentiality of any proprietary information.  The Victim Company takes these and other precautions in part because the Proprietary Software and the Proprietary Source Code are economically valuable, which value depends in part on the Proprietary Source Code’s secrecy.                                                                                                  

In May 2014, XU voluntarily resigned from the Victim Company.  XU subsequently communicated with one undercover law enforcement officer (“UC-1”), who posed as a financial investor aiming to start a large-data storage technology company, and another undercover law enforcement officer (“UC-2”), who posed as a project manager, working for UC-1.  In these communications, XU discussed his past experience with the Victim Company and indicated that he had experience with the Proprietary Software and the Proprietary Source Code.  On March 6, 2015, XU sent UC-1 and UC-2 a code, which XU stated was a sample of XU’s prior work with the Victim Company.  A Victim Company employee (“Employee-1”) later confirmed that the code sent by XU included proprietary Victim Company material that related to the Proprietary Source Code.           

XU subsequently informed UC-2 that XU was willing to consider providing UC-2’s company with the Proprietary Source Code as a platform for UC-2’s company to facilitate the development of UC-2’s company’s own data storage system.  XU informed UC-2 that if UC-2 set up several computers as a small network, then XU would remotely install the Proprietary Software so that UC-1 and UC-2 could test it and confirm its functionality.

In or around early August 2015, the FBI arranged for a computer network to be set up, consistent with XU’s specifications.  Files were then remotely uploaded to the FBI-arranged computer network (the “Xu Upload”).  Thereafter, on or about August 26, 2015, XU and UC-2 confirmed that UC-2 had received the Xu Upload.  In September 2015, the FBI made the Xu Upload available to a Victim Company employee who has expertise regarding the Proprietary Software and the Proprietary Source Code (“Employee-2”).  Based on Employee-2’s analysis of technical features of the Xu Upload, it appeared to Employee-2 that the Xu Upload contained a functioning copy of the Proprietary Software.  It further appeared to Employee-2 that the Xu Upload had been built by someone with access to the Proprietary Source Code who was not working within the Victim Company or otherwise at the Victim Company’s direction.

On December 7, 2015, XU met with UC-2 at a hotel in White Plains, New York (the “Hotel”).  XU stated, in sum and substance, that XU had used the Proprietary Source Code to make software to sell to customers, that XU knew the Proprietary Source Code to be the product of decades of work on the part of the Victim Company, and that XU had used the Proprietary Source Code to build a copy of the Proprietary Software, which XU had uploaded and installed on the UC Network (i.e., the Xu Upload).  XU also indicated that XU knew that the copy of the Proprietary Software XU had installed on the UC Network contained information identifying the Proprietary Software as the Victim Company’s property, which could reveal the fact that the Proprietary Software had been built with the Proprietary Source Code without the Victim Company’s authorization.  XU told UC-2 that XU could take steps to prevent detection of the Proprietary Software’s origins – i.e., that it had been built with stolen Proprietary Source Code – including writing computer scripts that would modify the Proprietary Source Code to conceal its origins. 

Later on December 7, 2015, XU met with UC-1 and UC-2 at the Hotel.  During that meeting, XU showed UC-2 a copy of what XU represented to be the Proprietary Source Code on XU’s laptop.  XU noted to UC-2 a portion of the code that indicated it originated with the Victim Company as well as the date on which it had been copyrighted.  XU also stated that XU had previously modified the Proprietary Source Code’s command interface to conceal the fact that the Proprietary Source Code originated with the Victim Company and identified multiple specific customers to whom XU had previously provided the Proprietary Software using XU’s stolen copy of the Proprietary Source Code. 

In connection with the economic espionage counts charged in the Superseding Indictment, XU stole, duplicated, and possessed the Proprietary Source Code with the intent to benefit the National Health and Planning Commission of the People’s Republic of China.

*                *                *

The Superseding Indictment charges XU, 30, with three counts of economic espionage, in violation of Title 18, United States Code, Sections 1831 and 2, each of which carries a maximum sentence of 15 years in prison, and three counts of theft of a trade secret, in violation of Title 18, United States Code, Sections 1832 and 2, each of which carries a maximum sentence of 10 years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.

Mr. Bharara praised the FBI’s outstanding investigative efforts.  This prosecution is the result of the close cooperative efforts of the U.S. Attorney’s Office for the Southern District of New York and the National Security Division of the U.S. Department of Justice. 

The case is being prosecuted by the Office’s Terrorism and International Narcotics Unit and its White Plains Division.  Assistant U.S. Attorneys Benjamin Allee and Ilan Graff are in charge of the prosecution, with assistance from Trial Attorney David Aaron of the National Security Division’s Counterintelligence and Export Control Section.

The charges in the Superseding Indictment, the original Indictment, and 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, the original Indictment, and the Superseding Indictment, and the description of those documents 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 JORGE JUVIER, a former owner and operator of multiple HIV/AIDS clinics in New York City, was sentenced today to 63 months in prison for engaging in a scheme to defraud Medicare out of more than $12 million through the use of fraudulent HIV/AIDS clinics in New York City.  As part of the Medicare fraud scheme, JUVIER and his co-conspirators paid patients cash kickbacks for coming to the clinics, coached patients on lies to tell clinic doctors to enable fraudulent billing, and billed Medicare for medications that were never administered, that were administered at incorrect dosages, or that were medically unnecessary.  JUVIER previously pled guilty to conspiring to commit health care fraud before U.S. Magistrate Judge Frank Maas.  U.S. District Judge Kimba M. Wood imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara said: “Jorge Juvier and his co-conspirators set up and operated health care fraud mills and billed Medicare for HIV/AIDS medications that were incorrectly provided or not provided at all.  Juvier and his co-conspirators effectively stole more than $12 million from U.S. taxpayers that could have been used to pay for legitimate Medicare expenses.  The sentence imposed today on Juvier reflects the seriousness of his offense.”           

According to the criminal complaint, the criminal information, and other documents filed in Manhattan federal court, as well as statements made at related court proceedings:

JUVIER and his co-conspirators set up and operated multiple health care clinics in New York City that purported to provide injection and infusion treatments to Medicare-eligible HIV/AIDS patients, but that were, in reality, health care fraud mills (the “Clinics”), that routinely billed Medicare for medications that were never provided or were provided at highly diluted doses, and that were often unnecessary because the person being “treated” did not medically need the treatments.

JUVIER and his co-conspirators executed the fraudulent scheme by recruiting HIV/AIDS patients who were eligible for Medicare to come to the Clinics multiple times per week, for multiple months, to undergo expensive “treatments” that were often unnecessary.  The purported treatments included drugs costing hundreds of dollars each to administer, which were typically reserved for cancer and anemia patients.  JUVIER and his co-conspirators paid the patients cash kickbacks of up to $300 per week in exchange for coming to the Clinics and agreeing to undergo the treatments.  Patients were also offered approximately $50 for each additional patient they referred to the Clinics.  JUVIER and his co-conspirators regularly instructed patients to lie to clinic doctors by claiming they had medical conditions that they did not in fact have.  JUVIER and his co-conspirators then used these patients’ status as Medicare beneficiaries to submit claims to Medicare for reimbursement for the treatments purportedly administered to the patients, often receiving tens of thousands of dollars in reimbursements per patient.  However, in truth, the treatments typically were provided in highly diluted doses or not provided at all, and were often medically unnecessary.  As a result of the scheme, from 2009 through 2013, JUVIER and his co-conspirators defrauded the Medicare system out of at least $12 million. 

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In addition to the term of prison, JUVIER, 58, of Queens, New York, was sentenced to three years of supervised release and was ordered to pay $12,233,292.23 in forfeiture and $12,233,292.23 in restitution. 

Oscar Huachillo, 56, of Manhattan, was charged separately in connection with the above-described Medicare fraud scheme.  On August 25, 2015, U.S. District Judge Katherine Polk Failla sentenced Huachillo to 87 months in prison, $31,177,987.84 in forfeiture, and $3,454,244.16 in restitution.  To date, the United States has recovered over $14 million in assets through forfeiture as part of this prosecution.

Mr. Bharara praised the outstanding efforts of the Department of Health and Human Services-Office of the Inspector General, IRS-Criminal Investigation Division, and the Federal Bureau of Investigation in the investigation. 

This case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorney Jonathan Cohen is in charge of the prosecution. 

Xu Jiaqiang, 30, was charged in a six-count superseding indictment with economic espionage and theft of trade secrets, in connection with Xu’s theft of proprietary source code from his former employer, with the intent to benefit the National Health and Family Planning Commission of the People’s Republic of China.

The superseding indictment was announced by Assistant Attorney General for National Security John P. Carlin and U.S. Attorney Preet Bharara of the Southern District of New York.

Xu was initially arrested by the FBI on Dec. 7, 2015, and was previously charged with one count of theft of trade secrets.  Xu is scheduled to be arraigned on the superseding indictment at 12 p.m. EDT on June 16, 2016, before U.S. District Judge Kenneth M. Karas of the Southern District of New York.

“Xu allegedly stole proprietary information from his former employer for his own profit and the benefit of the Chinese government,” said Assistant Attorney General Carlin.  “Those who steal America’s trade secrets for the benefit of foreign nations pose a threat to our economic and national security interests.  The National Security Division will continue to work tirelessly to identify, pursue and prosecute any individual who attempts to harm American businesses by robbing them of their valuable intellectual property.”

“As alleged, Xu Jiaqiang is charged with stealing valuable, proprietary software from his former employer, an American company, that he intended to share with an agency within the Chinese government,” said U.S. Attorney Bharara.  “Economic espionage not only harms victim companies that have years or even decades of work stolen, but it also crushes the spirit of innovation and fair play in the global economy.  Economic espionage is a serious federal crime, for which my office, the Department of Justice’s National Security Division, and the FBI will show no tolerance.”

According to the allegations contained in the criminal complaint on which Xu was initially arrested, the original indictment and the superseding indictment:

From November 2010 to May 2014, Xu worked as a developer for a particular U.S. company (victim company).  As a developer, Xu had access to certain proprietary software, as well as that software’s underlying source code.  The proprietary software is a clustered file system developed and marketed by the victim company in the United States and other countries.  A clustered file system facilitates faster computer performance by coordinating work among multiple servers.  The victim company takes significant precautions to protect the proprietary source code as a trade secret because the value of the proprietary source code depends in part on its secrecy.  Among other things, the proprietary source code is stored behind a company firewall and can be accessed by only a small subset of the victim company’s employees.  Before receiving proprietary source code access, victim company employees must first request and receive approval from a particular victim company official.  Victim company employees must also agree in writing at both the outset and the conclusion of their employment that they will maintain the confidentiality of any proprietary information.     

In May 2014, Xu voluntarily resigned from the victim company.  Xu subsequently communicated with one undercover law enforcement officer (UC-1), who posed as a financial investor aiming to start a large-data storage technology company, and another undercover law enforcement officer (UC-2), who posed as a project manager working for UC-1.  In these communications, Xu discussed his past work with the victim company and indicated that he had experience with the proprietary software and the proprietary source code.  On March 6, 2015, Xu sent UC-1 and UC-2 a code, which Xu stated was a sample of Xu’s prior work with the victim company.  A victim company employee (employee-1) later confirmed that the code sent by Xu included proprietary victim company material that related to the proprietary source code. 

Xu subsequently informed UC-2 that he was willing to consider providing UC-2’s company with the proprietary source code as a platform for UC-2’s company to facilitate the development of UC-2’s company’s own data storage system.  Xu informed UC-2 that if UC-2 set up several computers as a small network, then Xu would remotely install the proprietary software so that UC-1 and UC-2 could test it and confirm its functionality.

In or around early August 2015, the FBI arranged for a computer network to be set up, consistent with Xu’s specifications (UC network).  Files were then remotely uploaded to the FBI-arranged computer network.  Thereafter, on or about Aug. 26, 2015, Xu and UC-2 confirmed that UC-2 had received the upload.  In September 2015, the FBI made Xu’s upload available to a victim company employee who has expertise regarding the proprietary software and the proprietary source code (employee-2).  Based on employee-2’s analysis of technical features of Xu’s upload, it appeared to employee-2 that the upload contained a functioning copy of the proprietary software.  It further appeared to employee-2 that Xu’s upload had been built by someone with access to the proprietary source code that was not working within the victim company or otherwise at the victim company’s direction.

On Dec. 7, 2015, Xu met with UC-2 at a hotel in White Plains, New York.  Xu stated, in sum and substance, that he had used the proprietary source code to make software to sell to customers, that he knew the proprietary source code was the product of decades of work on the part of the victim company and that he had used the proprietary source code to build a copy of the proprietary software, which he had uploaded and installed on the UC network.  Xu also indicated that he knew that the copy of the proprietary software he had installed on the UC network contained information identifying the proprietary software as the victim company’s property, which could reveal the fact that the proprietary software had been built with the proprietary source code without the victim company’s authorization.  Xu told UC-2 that he could take steps to prevent detection of the proprietary software’s origins, including writing computer scripts that would modify the proprietary source code to conceal its origins.

Later on Dec. 7, 2015, Xu met with UC-1 and UC-2 at the hotel.  During that meeting, Xu showed UC-2 a copy of what he represented to be the proprietary source code on his laptop.  Xu noted to UC-2 a portion of the code that indicated it originated with the victim company as well as the date on which it had been copyrighted.  Xu also stated that he had previously modified the proprietary source code’s command interface to conceal the fact that the proprietary source code originated with the victim company and identified multiple specific customers to whom he had previously provided the proprietary software using his stolen copy of the proprietary source code.

In connection with the economic espionage counts charged in the superseding indictment, Xu stole, duplicated and possessed the proprietary source code with the intent to benefit the National Health and Planning Commission of the People’s Republic of China.

The superseding indictment charges Xu with three counts of economic espionage, which each carry a maximum sentence of 15 years in prison.  He was also charged with three counts of theft of a trade secret, which each carry a maximum sentence of 10 years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.

A superseding indictment contains allegations that a defendant has committed a crime.  Every defendant is presumed to be innocent until and unless proven guilty.

The case is being investigated by the FBI, and is being prosecuted by Assistant U.S. Attorneys Benjamin Allee and Ilan Graff of the Southern District of New York, with assistance from Trial Attorney David Aaron of the National Security Division’s Counterintelligence and Export Control Section.

Xu Superseding Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that OWEN LI was sentenced to probation for securities fraud and making a false statement, stemming from LI’s lies to investors and the U.S. Securities and Exchange Commission (“SEC”) regarding the performance of Canarsie Capital, LLC (“Canarsie”) – a hedge fund LI had founded and for which he acted as portfolio manager – which collapsed in January 2015.  LI pled guilty on December 16, 2015, before United States Magistrate Judge Frank Maas.  U.S. District Judge Robert W. Sweet imposed today’s sentence.

According to the Information, other documents filed in the case, and statements made in open court:

LI founded Canarsie in January 2013 with approximately 10 investors and $16.55 million in assets under management.  By the end of 2013, Canarsie had approximately $47.75 million in assets under management, and LI earned over $2.2 million that year.  Li raised another $16.8 million in 2014, and at the time of its collapse in January 2015, Canarsie had approximately 41 investors and $56.8 million in assets under management.

According to Canarsie’s offering memorandum (the “Offering Memorandum”), which was provided to investors, Canarsie’s portfolio would be balanced and risk would be managed “through limits on position sizing and market exposure.”  Generally no position, whether long or short, would exceed 10% of Canarsie’s assets.

LI Reported Fictitious Trades to His Prime Broker

Canarsie reported Canarsie’s trades daily to its prime broker.  At the end of each trading day, the prime broker would match Canarsie’s trade report against trade reports submitted by executing brokers who had filled Canarsie’s orders that day.  Mismatches of information concerning trades reported by Canarsie and the executing brokers were considered “trade breaks.”

In March and early April 2014, LI began reporting fictitious “sell” trades to Canarsie’s prime broker at that time (“Prime Broker-1”) as if Canarsie had executed the trades, when, in fact and as LI knew, Canarsie had never actually sold the shares in question.  On April 9, 2014, Prime Broker-1 discovered multiple instances from March and early April 2014 in which LI had caused Canarsie to report trades that had not in fact been executed.  Specifically, Prime Broker-1 noted that LI had engaged in a pattern of reporting sell trades, particularly in shares of Facebook, Inc. (“Facebook”), to Prime Broker-1, and subsequently canceling the sell trades before the settlement date.

As LI knew, Prime Broker-1 calculated Canarsie’s margin requirement on the basis of trade date, not settlement date.  LI’s pattern of booking and canceling “sell” trades temporarily created the false appearance that the long positions in Facebook and other stocks (and thus the leverage in the account) were diminishing.  This allowed Canarsie to (a) avoid a margin call from Prime Broker-1, and (b) avail itself of greater leverage than Prime Broker-1 ordinarily would have extended to Canarsie.  Therefore, on April 1, 2014, Canarsie’s account was levered approximately eight times, in that it was employing approximately $377 million of margin with equity of approximately $45 million.  In addition, LI had accumulated a position in Facebook that exceeded 10% of Canarsie’s total portfolio, in violation of the risk-management parameters set forth in the Offering Memorandum.

In light of those trade breaks, Prime Broker-1, among other things, forbid Canarsie from using margin and insisted that Canarsie hire a second prime broker, suggesting that eventually the second prime broker would become Canarsie’s sole prime broker in lieu of Prime Broker-1. In a meeting with a prospective second prime broker (“Prime Broker-2”), LI did not inform Prime Broker-2’s representatives that (a) Prime Broker-1 had told Canarsie to find a second prime broker, (b) Prime Broker-1 had withdrawn margin, and (c) if Canarsie established a relationship with Prime Broker-2, Prime Broker-2 would be, in essence, the sole prime broker for Canarsie.  In August 2014, Canarsie established a prime brokerage account with Prime Broker-2, and conducted virtually all of its trading through that account from that point on.

LI’s Misstatements to Investors About Canarsie’s Performance

At or around the end of each month, LI and others prepared and sent emails to Canarsie’s investors describing the fund’s performance.  Those emails contained an estimated net asset value (“NAV”) and monthly return.  Canarsie’s administrator (the “Administrator”) emailed each investor a monthly account statement showing the value of his or her investment and Canarsie’s NAV.  On at least two occasions, the estimated NAV supplied by LI and emailed to investors by Canarsie differed materially from the Administrator’s NAV, which appeared in the investors’ monthly statements.

In April 2014, Canarsie suffered approximately $13.6 million in losses and was down approximately 23% from the beginning of the month.  However, on or about April 30, 2014, LI falsely told at least one investor that performance was down only nine percent.  LI then intentionally delayed approving the correct April NAV, as calculated by the Administrator, because it was significantly worse than the NAV he had reported to investors at the end of April, and lied to investors about the reason for the delayed monthly statement and the reason for the discrepancy.

In December 2014, LI again delayed a monthly statement, this time for November 2014.  LI did not approve the preliminary November NAV because it showed losses the fund had incurred toward the end of November and trades that LI had deliberately broken and later canceled or amended.  Despite repeated requests from the Administrator, LI delayed approving the November NAV until January 8, 2015, falsely telling the Administrator that he had been in the hospital for a week.  LI also falsely told investors who inquired about the November statements that they were late because of staffing changes at the Administrator and the Administrator’s focus on preparing for the annual audit.

On January 9, 2015, LI instructed the Administrator to release the November 2014 statements to investors.  LI forwarded the statements to others at Canarsie, informing them that the fund’s November 2014 performance had been worse than the estimate Canarsie had provided to investors.  LI falsely told others at Canarsie that the discrepancy was due to a residual amount of money transferred from Canarsie’s account at Prime Broker-1 to the account at Prime Broker-2 on or about November 28, 2014, which was not credited to the account at Prime Broker-2 until December 2014.

LI Misled the SEC Examination Staff

On November 5, 2014, members of the SEC’s Office of Compliance Inspections and Examinations Staff (the “Examination Staff”) conducted a phone interview of LI and others at Canarsie.  Among other things, the Examination Staff asked why Canarsie appeared to be moving away from Prime Broker-1 as its prime broker, and conducting virtually all trading activity with Prime Broker-2.  LI responded that he had contacts at Prime Broker-2 from his prior employment and certain harder-to-cover stocks were easier to locate through Prime Broker-2 than through Prime Broker-1.  LI concealed from the Examination Staff that Prime Broker-1 (a) had withheld margin from Canarsie in or about April and May 2014, and (b) suggested that Canarsie move its prime brokerage relationship elsewhere.

On December 3, 2014, the Examination Staff again interviewed LI, and asked about the Facebook trades canceled in or about April 2014.  LI responded that he had assumed that the brokers executed those orders, and had reported those trades to Prime Broker-1 as executed trades based on that assumption.  In fact, LI never placed or transmitted those orders to executing brokers.  LI concealed from the Examination Staff that he had fraudulently reported those trades as executions to Prime Broker-2 in an effort to conceal the extent of leverage in the fund and the size of the position in Facebook.

LI Caused Catastrophic Losses in the Fund

In December 2014 and January 2015, LI concealed from investors and others at Canarsie the fact that he was trading the fund in violation of the investment mandates in the Offering Memorandum and that, in doing so, he had placed the fund at excessive risk of catastrophic loss.

The fund’s net account value on or about December 31, 2014, was approximately $59.7 million.  Beginning in early January 2015, LI began liquidating the equity long positions in the account – resulting in approximately $18 million in losses – and eliminated all short positions in the fund.  At the same time, LI bought short-dated long positions in market index options.  The result was an entirely long, unhedged portfolio.

On January 16, 2015, index options prices moved against Canarsie’s positions, resulting in losses of approximately $39 million.  At the end of the day on January 16, the account was left with no equity, short, or options positions.  As a result of LI’s trading, the fund lost substantially all of its assets between on or about December 31, 2014, and on or about January 16, 2015.

*                      *                      *

LI, 30, was also ordered to pay restitution, forfeit $690,000, and pay a $100 special assessment.

Mr. Bharara praised the work of the Federal Bureau of Investigation, and thanked the SEC for its assistance.

The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it’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 Michael Ferrara is in charge of the prosecution.

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

OLINS was arrested on August 26, 2015, and pled guilty today before United States District Judge Jesse M. Furman.

U.S. Attorney Preet Bharara said:  “As he admitted today, Robert Olins carried out a scheme to deceive and hide assets from two federal courts, a court-appointed receiver, and the SEC.  Olins repeatedly lied to get approval for transactions, and used the proceeds to pay for personal luxuries, rather than to satisfy court judgments, as he was required to do.”

According to the Indictment and statements made at today’s plea hearing:

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

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

*                      *                      *

OLINS, 59, of West Hartford, Connecticut, faces a maximum sentence of five years in prison, three years of supervised release, the greatest of $250,000, twice the gross pecuniary gain derived from the offense, or twice the gross pecuniary loss to persons other than the defendant resulting from the offense, and a $100 mandatory special assessment on Count One; and a maximum term of 20 years in prison, three years of supervised release, a fine of the greater of $500,000 or twice the value of the funds involved in the transfer, and a mandatory $100 special assessment on Count Five.  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 Judge Furman.  OLINS is scheduled to be sentenced by Judge Furman on September 29, 2016, at 3:30 p.m.

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. 

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

Preet Bharara, the United States Attorney for the Southern District of New York,  Diego Rodriguez, Assistant Director-in-Charge of Federal Bureau of Investigation, (“FBI”), Robert E. Perez, Director of the New York Field Office of U.S. Customs and Border Protection (“CBP”),  William J. Bratton, Commissioner of the New York City Police Department (“NYPD”), and Julie L. Jones, Secretary of the Florida Department of Corrections (“FDC”) announced that DAVID JENKINS, ANTHONY BROOKS, LAKEATHA COOPER, SHARON LARA, DOMINEK GRANT, and ROBERTO CONCEPCION were taken into federal custody today for participating in a scheme to defraud merchants of diamonds and jewelry in New York, New York, and around the United States.  BROOKS was presented this afternoon in Fort Lauderdale, Florida.  COOPER and LARA were presented this afternoon in federal court in Fort Pierce, Florida.  GRANT was presented this afternoon in federal court in Charleston, South Carolina.  JENKINS and CONCEPCION, who were incarcerated in a Florida state correctional institution, have been taken into federal custody and will be presented upon their arrival in the Southern District of New York.  The case is assigned to the Honorable Jesse M. Furman. 

Manhattan U.S. Attorney Preet Bharara said: “The six defendants allegedly tricked merchants around the country, including in New York’s Diamond District, into sending valuable jewelry in exchange for what turned out to be counterfeit checks and bogus money orders.  Two of the defendants allegedly engaged in this brazen scheme while incarcerated for other crimes.”

FBI Assistant Director Diego Rodriguez said: “Using a contraband cell phone and a complex network of co-conspirators throughout the United States, an inmate in Florida allegedly defrauded jewelers in New York’s Diamond District out of thousands of dollars’ worth of jewelry pieces.  By posing as legitimate jewelry companies, David Jenkins negotiated a cash-on-delivery sale of jewelry with New York jewelers that was eventually paid with counterfeit certified checks and then re-sold. This cross-country scheme was met with cross-country law enforcement efforts, with FBI New York working closely with FBI Miami.  We appreciate the assistance with today’s operations by FBI Columbia, FBI Phoenix, and FBI Miami.  The FBI will continue to investigate big and small organized crime groups who seek to profit from fraudulent criminal activities.”

CBP New York Director Robert E. Perez said: “U.S. Customs and Border Protection is proud of the expertise we bring to support and assist investigations that result in the takedown of criminal enterprises.  It is through interagency partnerships and collaborative efforts, like the one leading to today’s arrests, that law enforcement successfully combats today’s criminal organizations.”

NYPD Commissioner William J. Bratton said: “As alleged, defrauding diamond dealers, while two of the defendants ran this racket from a jail, speaks to the audacity of the crime. Today, this scheme of swindling New York City Diamond District merchants and others is over.”

FDC Secretary Julie L. Jones said: “The apprehension and arrest of the six defendants in this case represents what can be achieved through cooperation and collaboration between law enforcement agencies, regardless of their location.  The Department is proud of its investigative contribution and will continue its efforts in ensuring not only the safety of Florida’s citizens, but the freedom to safely and securely conduct business in our state.”

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

From at least in or about June 2015 to in or about June 2016, JENKINS, BROOKS, COOPER, LARA, GRANT, and CONCEPCION defrauded jewelry merchants in New York City and elsewhere by inducing the merchants to send gemstones, precious metals, and jewelry to them in exchange for counterfeit checks or other fictitious forms of payment.

The defendants contacted jewelry and antiques merchants by telephone, electronic message, and email.  In many of these communications, JENKINS masqueraded as representatives of legitimate jewelry companies and, in doing so, often appropriated the names and personal identifying information of real people in order to induce merchants to ship jewelry and precious goods interstate.  In the typical scenario, JENKINS, negotiated cash-on-delivery terms of payment from merchants, ensuring both that merchants would not meet any of the defendants in person and that the defendants could pay for the goods by counterfeit and fictitious certified checks.  After receiving the merchants’ goods, the defendants typically sold those goods to other jewelry stores. 

Contrary to the representations made to the merchants, JENKINS never represented any legitimate jewelry business.  In fact, at all relevant times, JENKINS was incarcerated at a Florida state correctional institution, where he was assisted by CONCEPCION, who was also incarcerated at the same institution.  BROOKS, COOPER, LARA, and GRANT, who at all relevant times were at liberty in the community, created and delivered counterfeit checks, accepted packages from merchants, and distributed proceeds from the fraud to others in the scheme.

JENKINS, 51 of Indiantown, Florida, BROOKS, 27, of Miramar, Florida; COOPER, 36, of West Palm Beach, Florida; LARA, 41, of Port Saint Lucie, Florida; GRANT, 31, of North Charleston, South Carolina; and CONCEPCION, 46, of Indiantown, Florida, are each charged with one count of conspiring to commit mail and wire fraud, which carries a maximum penalty of 20 years in prison, one count of interstate transportation of stolen property, which carries a maximum penalty of 10 years in prison, and one count of possessing fictitious obligations, which carries a maximum penalty of 25 years in prison.  JENKINS is also charged with one count of aggravated identity theft, which carries a mandatory penalty of two years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants will be determined by the judge.

*            *           *                       

Mr. Bharara praised the outstanding work of the FBI, the New York FBI’s Eurasian Joint Organized Crime Task Force, CBP, NYPD, and FDC for their investigative efforts and ongoing support and assistance with the case.

The prosecution of this case is being overseen by the Office’s General Crimes Unit.  Assistant U.S. Attorneys Andrew M. Thomas and Karin Portlock are in charge of the case.

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

 

---

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States has filed a lawsuit against the NEW YORK CITY DEPARTMENT OF EDUCATION (the “DOE”) for engaging in a pattern and practice of discrimination and retaliation in violation of Title VII.  The Government alleges that during the 2012-2013 school year, the DOE permitted Principal Minerva Zanca and Superintendent Juan Mendez to discriminate against every black teacher at Pan American International High School (“Pan American”) and retaliate against an assistant principal who spoke out against the discrimination.

Manhattan U.S. Attorney Preet Bharara said: “It is nearly unthinkable that, in this day and age, one of the largest and most diverse school districts in the United States would allow racial discrimination and retaliation to flourish.  Yet that is what we allege happened at Pan American International High School.  Federal civil rights laws prohibit this misconduct.  This suit seeks to remedy the violations that occurred at Pan American and ensure that the New York City Department of Education protects its employees’ civil rights in the future.”

As alleged in the Complaint filed in Manhattan federal court:

In August 2012, Superintendent Mendez selected Minerva Zanca as Pan American’s new principal.  During the 2012-2013 school year, Pan American employed 27 teachers, three of whom were black.  Throughout that school year, Principal Zanca purposely targeted John Flanagan and Heather Hightower, two untenured black teachers, for unsatisfactory lesson ratings. According to Assistant Principal Anthony Riccardo, Principal Zanca decided to give Mr. Flanagan and Ms. Hightower unsatisfactory ratings before she had seen the lesson she was supposed to evaluate.

In connection with her reviews of Mr. Flanagan and Ms. Hightower, Principal Zanca made derogatory racial comments to Assistant Principal Riccardo.  Specifically, Principal Zanca stated that Hightower “looked like a gorilla in a sweater,” asked whether Assistant Principal Riccardo had seen Flanagan’s “big lips quivering” during a meeting, complained that she could “never” have “fucking nappy hair” like Hightower, and stated that she had difficulty not laughing at Flanagan because he reminded her of a Tropicana commercial where a black man “with those same lips” danced down a supermarket aisle.

Principal Zanca also discriminated against Lisa-Erika James, a tenured black teacher, by cutting the highly successful theater program Ms. James oversaw.  On multiple occasions during the 2012-2013 school year, Principal Zanca attempted to cancel student productions.  First, she refused to pay for expenses associated with a production.  When money for the production was obtained from other sources, Principal Zanca then claimed that the school could not pay overtime wages for more than five hours of rehearsal per week.  Pan American in fact had sufficient money to pay for more rehearsal, and Principal Zanca simply reallocated that money to other projects.  Ultimately, the second student production of the 2012-2013 school year was cancelled.

During the spring of 2013, when Assistant Principal Riccardo refused to give an unsatisfactory rating to a lesson taught by Ms. Hightower, Principal Zanca yelled at Assistant Principal Riccardo, accused him of “sabotaging her plan,” and called school security to have him removed from the building.  Subsequently, Principal Zanca initiated two complaints against Assistant Principal Riccardo with the DOE’s internal investigatory offices.  Those offices determined that Principal Zanca’s allegations did not warrant any charges against Assistant Principal Riccardo.  In June of 2013, Principal Zanca gave Assistant Principal Riccardo, Mr. Flanagan, and Ms. Hightower annual performance ratings of “unsatisfactory.”

The allegations that Principal Zanca engaged in discrimination and retaliation were brought to the attention of Superintendent Mendez, but the DOE did not take any disciplinary action against Principal Zanca.  Even after the United States Equal Employment Opportunity Commission found reasonable cause to believe that the DOE had discriminated and retaliated against James, Riccardo, and Hightower, Principal Zanca was allowed to remain in charge of Pan American.  Neither Ms. Hightower, Mr. Flanagan, Ms. James, nor Mr. Riccardo worked at Pan American after the 2012-2013 school year.

Title VII authorizes the Department of Justice to commence an action in the United States District Court against the DOE to remedy discrimination and retaliation for opposing discrimination.  The Complaint seeks declaratory and injunctive relief, as well as compensatory damages on behalf of Mr. Flanagan, Ms. James, Ms. Hightower, and Assistant Principal Riccardo.

In October of 2013, Mr. Flanagan filed a lawsuit against the DOE, Principal Zanca, Superintendent Mendez, and others.  That suit was docketed as Flanagan v. N.Y.C. Dep’t of Educ. et al., No. 13 Civ. 8456.  On August 21, 2015, Magistrate Judge James C. Francis IV recommended the denial of Defendants’ motion for summary judgment on Mr. Flanagan’s Title VII claims for discrimination and retaliation.  The DOE has not objected to Judge Francis’s recommendation, and the deadline for doing so has expired.  The United States anticipates moving to intervene in Flanagan and to consolidate that case with its own.

The case is being handled by the Office’s Civil Rights Unit.  Assistant U.S. Attorney Caleb Hayes-Deats is in charge of the case.

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 David E. Beach, Special Agent in Charge of the U.S. Secret Service New York Field Office (“USSS”), announced today that GERY SHALON, a/k/a “Garri Shalelashvili,” a/k/a “Gabriel,” a/k/a “Gabi,” a/k/a “Phillipe Mousset,” a/k/a “Christopher Engeham,” and ZIV ORENSTEIN, a/k/a “Aviv Stein,” a/k/a “John Avery,” were extradited from Israel.  SHALON and ORENSTEIN were arrested in July 2015 for charges arising out of SHALON’s orchestration of massive computer hacking crimes against U.S. financial institutions, brokerage firms, and financial news publishers, including the largest theft of customer data from a U.S. financial institution in history.  SHALON is charged with committing these crimes with JOSHUA SAMUEL AARON, a/k/a “Mike Shields,” in furtherance of securities market manipulation schemes that SHALON and AARON perpetrated with defendant ORENSTEIN.  SHALON, a Georgian and Israeli citizen, and ORENSTEIN, an Israeli citizen, arrived in the Southern District of New York last night and early this morning, respectively, and will be presented today in Manhattan federal court, before U.S. Magistrate Judge Kevin Nathaniel Fox. 

Manhattan U.S. Attorney Preet Bharara said:  “Gery Shalon and Ziv Orenstein, two of the alleged perpetrators of the cybercrime that we described at the time of their arrests as securities fraud on cyber steroids, have been successfully extradited from Israel to the United States.  For the alleged hacks into numerous U.S. companies, including the largest theft of customer data from a U.S. financial institution in history, in furtherance of their securities fraud, Sharon and Orenstein will now face prosecution in a U.S. court.”

SHALON and ORENSTEIN were arrested by Israeli authorities in July 2015, pursuant to a provisional arrest warrant that was issued on the securities fraud charges in this case.    AARON, a U.S. citizen, has yet to be arrested by U.S. authorities.

*                *                *

The charges in the Indictment against SHALON, 31, of Savyon, Israel, AARON, 31, a U.S. citizen who is believed to reside in Moscow, Russia, and ORENSTEIN, 40, of Bat Hefer, Israel, are included in the chart below.  The maximum potential sentences listed below are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

Mr. Bharara praised the investigative work of the FBI and the United States Secret Service, and expressed his sincere gratitude to the Office of the State Attorney of the Israel Ministry of Justice’s Department of International Affairs and the Israel National Police, including its Cyber Unit - Lahav 433, for their support and assistance with the investigation and the extradition proceedings.  He also thanked the Securities and Exchange Commission, Immigration and Customs Enforcement - Homeland Security Investigations, the Financial Industry Regulatory Authority, the National Credit Union Administration, the Office of International Affairs of the U.S. Department of Justice, the Financial Services Information Sharing and Analysis Center, which significantly aided the investigation by facilitating information-sharing among the victim institutions, and the U.S. Marshals Service, for their assistance in the extradition of the defendants.

The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys Eun Young Choi and Sarah Lai are in charge of the prosecution.  Assistant U.S. Attorney Edward Diskant of the Office’s Money Laundering and Asset Forfeiture Unit is in charge of the forfeiture aspects of the case.

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

Count

Defendants

Charge

Maximum Prison Term

One

SHALON and AARON

Conspiracy to commit computer hacking

Five years

Two

SHALON and AARON

Computer hacking

Five years

Three

SHALON and AARON

Computer hacking

Five years

Four

SHALON, AARON, and ORENSTEIN

Conspiracy to commit securities fraud

Five years

Five

SHALON, AARON, and ORENSTEIN

Conspiracy to commit wire fraud: Securities Market Manipulation Scheme

 

20 years

Six

SHALON, AARON, and ORENSTEIN

Securities fraud

20 years

Seven

SHALON, AARON, and ORENSTEIN

Eight

SHALON, AARON, and ORENSTEIN

Nine

SHALON, AARON, and ORENSTEIN

10

SHALON, AARON, and ORENSTEIN

11

SHALON, AARON, and ORENSTEIN

12

SHALON, AARON, and ORENSTEIN

 

 

13

SHALON, AARON, and ORENSTEIN

Wire fraud

20 years

14

SHALON, AARON, and ORENSTEIN

Conspiracy to commit identification document fraud

15 years

15

SHALON, AARON, and ORENSTEIN

Aggravated identity theft

Mandatory two years

16

SHALON and  ORENSTEIN

Unlawful internet gambling enforcement act conspiracy

Five years

17

SHALON and  ORENSTEIN

Unlawful internet gambling enforcement act

Five years

18

SHALON and  ORENSTEIN

Operation of illegal gambling business

Five years

19

SHALON and  ORENSTEIN

Conspiracy to commit wire fraud: unlawful payment processing

20 years

20

SHALON

Conspiracy to operate an unlicensed money transmitting business

Five years

21

SHALON

Operation of an unlicensed money transmitting business

10 years

22

SHALON, AARON, and ORENSTEIN

Conspiracy to commit money laundering: Securities Market Manipulation Scheme

20 years

23

SHALON  and  ORENSTEIN

Conspiracy to commit money laundering: Internet Gambling and Payment Processing Schemes

20 years

Preet Bharara, the United States Attorney for the Southern District of New York, Scott J. Lampert, Special Agent in Charge of the U.S. Department of Health and Human Services, Office of Inspector General’s New York Region (“HHS-OIG”), and Diego Rodriguez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today a $54 million settlement in a civil fraud lawsuit against SALIX PHARMACEUTICALS, INC. (“SALIX”), a specialty pharmaceutical company based in Raleigh, North Carolina, that sells products used to treat various gastroenterology conditions.  The settlement resolves claims that SALIX violated the federal Anti-Kickback Statute and False Claims Act by using its “speaker programs” as a mechanism to pay kickbacks to doctors to induce them to prescribe SALIX drugs and medical devices that were reimbursed by federal health care programs.  Specifically, the United States’ Complaint-in-Intervention alleges that SALIX held sham speaker programs, frequently at high-end restaurants, where doctors were paid substantial honoraria purportedly to educate other doctors about a Salix product, but in reality spent little or no time discussing the product.  The settlement will also resolve numerous state law civil fraud claims.

Today, U.S. District Court Judge Denise L. Cote approved a settlement stipulation to resolve the Government’s claims against SALIX.  Under the settlement, SALIX is required to pay approximately $46.53 million to the United States and has made extensive admissions regarding its conduct.  Further, as part of the settlement, SALIX will pay approximately $7.47 million to resolve the state law civil fraud claims. 

Manhattan U.S. Attorney Preet Bharara said:  “For years, Salix Pharmaceuticals unlawfully sought to increase prescriptions of its products by using its ‘speaker programs’ as a vehicle to pay kickbacks to doctors.  Through these ‘speaker programs,’ which were frequently nothing more than social gatherings with little or no educational component, Salix found a way to pay doctors money and treated them to fancy meals to push their drugs.  With today’s settlement, Salix has taken responsibility for its conduct and agreed to pay a significant financial penalty.  This action and settlement is part of our continuing effort to pursue health care providers who put their profits ahead of patient safety.” 

HHS-OIG Special Agent in Charge Scott J. Lampert said: “When Salix Pharmaceuticals paid doctors large sums of money to speak at programs that were primarily social events, the goal was to induce the doctors to prescribe Salix products and enhance the company’s bottom line.  We will continue to investigate such illegal arrangements that undermine impartial medical judgment and place company interests above those of patients.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “Salix used high priced meals at swanky restaurants to get doctors to push its products.  Whether those doctors actually prescribed those medications, the simple idea behind the pitch eats away at the faith patients have in their doctors to put their health and wellbeing above the interests of a corporation.  The FBI and our partners will do all that we can to keep these practices from doing more harm than good.”

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

During the period January 2009 through December 2013 (the “Covered Period”), many of SALIX’s speaker programs for Xifaxan, Apriso, Relistor, MoviPrep, OsmoPrep, Solesta, and Deflux (the “Covered Products”) were nothing more than social events at which SALIX wined and dined doctors to induce them to write prescriptions for these products.  These speaker programs included both in-person events (at which both the speaker and the attendees were present in person and the speaker was paid to provide an educational talk on a Covered Product to the attendees using a slide presentation), as well as pre-recorded events (at which a SALIX employee was supposed to use a laptop or other device to play for the attendees a pre-recorded video of a doctor delivering a slide presentation, and then call the paid speaker, who was to be available to answer any questions by telephone). 

The speaker programs, which were typically held in restaurants, were supposed to be educational in nature and the cost of the meal was supposed to be modest.  But in practice, SALIX held many speaker programs that were primarily social in nature, including events where it repeatedly invited the same doctors, who frequently were from the same practice or otherwise knew each other, to attend the same exact program on the same exact topic.  With respect to the pre-recorded programs – which SALIX personnel internally referred to as “doc-in-the-box programs” – the pre-recorded video frequently was not played or was intentionally played in a manner so it could be ignored.  SALIX also held many speaker programs at very expensive, high-end restaurants.

The doctors whom SALIX paid to be speakers and whom SALIX invited to its events were often the high prescribers of its products or were viewed as having the potential to be high prescribers.  Many of these doctors increased their prescription-writing for the Covered Products after becoming speakers and/or repeatedly attending sham speaker programs.  During the Covered Period, SALIX spent approximately $25 million on speaker payments and meals.

As part of the settlement, SALIX admitted, acknowledged, and accepted responsibility for the following conduct:

 

• Throughout the Covered Period, speaker programs were an important part of SALIX’s strategy for increasing sales of the Covered Products.SALIX conducted approximately 10,000 speaker programs for the Covered Products, including approximately 8,000 programs alone for Xifaxan, Apriso, and Relistor.

   

• Speaker honoraria payments for a program ranged from $250 (for a doctor available on call to answer questions associated with a pre-recorded program) to $4,500 (for a doctor who spoke at an in-person program and had a specified level of experience and certain credentials).During the Covered Period, SALIX paid over 500 physicians honoraria for serving as speakers on the Covered Products, with dozens of physicians earning more than $50,000, and several earning more than $100,000.

   

• Throughout the Covered Period, SALIX did not have effective mechanisms in place to monitor adequately its speaker programs to ensure compliance with internal policies. For example, there were no effective mechanisms in place to audit speaker programs and insufficient efforts were made to review data and other information on speaker programs to ensure compliance with the company’s internal policies.

 

• Throughout the Covered Period, numerous SALIX employees held speaker programs for the Covered Products that were primarily social in nature and/or otherwise did not comply with the company’s internal policies.For example, there were programs where: 

   

  • the designated speaker spent little or no time discussing the Covered Product;

     

  • the required slide presentation was not shown in its entirety or not at all;

     

  • doctors attended multiple programs on the same topic (at which the same slide presentation was supposed to have been shown) within a short period of time;

     

  • the programs were held in the main dining rooms of restaurants or other locations that were not conducive to an educational program;

     

  • the programs were held at high-end restaurants (such as Nobu and Le Bernardin in New York City), with per-person costs exceeding $200 and even $300;

     

  • the SALIX sales representative responsible for a program reported that certain physicians had attended the event even though they had not, in order to make the per-person cost of the event appear lower than it actually was;

     

  • attendees included individuals other than healthcare professionals with a legitimate interest in the scheduled topic, such as a physician’s spouse; and/or

     

  • the programs were used as an opportunity to provide a physician’s practice (in some cases including administrative staff) with a meal or a happy hour.

     

• Additionally, with respect to the pre-recorded speaker programs, there were numerous instances where:(1) the SALIX sales representative did not play the pre-recorded presentation; (2) the SALIX sales representative played the pre-recorded presentation but placed the laptop or other viewing device in a location where it could not readily be seen or at a volume at which it could not readily be heard; and/or (3) the designated approved speaker was not called at the end of the pre-recorded presentation but still received an honorarium payment.

   

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

*                *                *

Mr. Bharara thanked HHS’s Office of the Inspector General, the FBI, and the Medicaid Fraud Control Units for Ohio and New York for their investigative efforts and assistance with the case.

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

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 Scott Lampert, Special Agent in Charge of the U.S. Department of Health and Human Services, Office of Inspector General’s (“HHS-OIG”) New York Region, announced that JONATHAN ROPER, a former District Manager at a pharmaceutical company (“Pharma Company-1”), and FERNANDO SERRANO, a former sales representative at Pharma Company-1, were charged today with violating the Anti-Kickback Statute in connection with their participation in a scheme to pay doctors thousands of dollars to participate in sham educational programs in order to induce the doctors to prescribe millions of dollars’ worth of a fentanyl-based sublingual spray manufactured by Pharma Company-1 (the “Fentanyl Spray”).  ROPER was arrested this morning by FBI agents on Long Island, and SERRANO was arrested this morning by FBI agents in New Jersey.  They will be presented before U.S. Magistrate Judge Kevin N. Fox in Manhattan this afternoon.

Manhattan U.S. Attorney Preet Bharara said: “Fentanyl is an incredibly dangerous and highly addictive drug that is finding its way into, and destroying, too many lives in our communities.  Because of its deadly power, its legitimate prescription faces significant and severe restrictions.  Yet, as alleged, former drug company employees Jonathan Roper and Fernando Serrano corruptly induced doctors to prescribe millions of dollars’ worth of Fentanyl through thousands of dollars in kickbacks disguised as phony educational programs.  As alleged, Roper and Serrano helped feed this devastating surge of opioid addictions by tapping into another age-old addiction, greed.”

FBI Assistant Director Diego Rodriguez said: “This case should be something the medical industry and the general public should pay close attention to because it’s one of the reasons we’re experiencing an epidemic of overdoses and deaths in this country.  Not only did the defendants in this case allegedly bully sales reps into pushing this highly addictive drug, they paid doctors to prescribe it to patients.  The more prescriptions written, the more money the doctors made.  Instead of seeing a way to help people who are dealing with extreme pain, they allegedly saw a huge payday that potentially put people’s lives in danger.”

HHS OIG Special Agent in Charge Scott J. Lampert said: “We expect drug company representatives to be part of the prescription drug abuse solution – not part of the problem, as alleged in this case.  We will continue to investigate kickback arrangements, which can undermine impartial medical decision-making and worsen the overuse of opioids in this country.”

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

Fentanyl is a synthetic opioid that is classified as a Schedule II controlled substance and is approximately 100 times more potent than morphine as an analgesic.  Because of the risk of misuse, abuse, and addiction associated with prescription products like the Fentanyl Spray, only doctors who have enrolled in a mandated U.S. Food and Drug Administration (“FDA”) program and completed necessary training are permitted to prescribe the Fentanyl Spray. 

Pharma Company-1’s Fentanyl Spray was approved by the FDA in or about January 2012, solely for the management of breakthrough pain in cancer patients who are already receiving and who are tolerant to opioid therapy for their underlying persistent pain.  The Fentanyl Spray is the only FDA-approved product that Pharma Company-1 currently has on the market.  Pharma Company-1 reported approximately $330 million in net revenue from the Fentanyl Spray in 2015. 

In order to market the Fentanyl Spray, Pharma Company-1 established a program purportedly to educate healthcare professionals about the Fentanyl Spray (the “Speaker Program”).  Doctors selected as speakers at these Speaker Programs by Pharma Company-1 (“Speakers”) were compensated for purportedly providing educational presentations to a peer-level audience of healthcare professionals using a preapproved PowerPoint presentation.  In reality, however, many of the Speaker Programs that ROPER and SERRANO organized and attended were predominantly social gatherings at high-end restaurants in Manhattan that involved no education regarding the Fentanyl Spray and no slide presentation at all.  Many of the Speaker Programs also lacked an appropriate audience of healthcare professionals.  In order to make these Speaker Programs appear legitimate, sign-in sheets for these Speaker Programs – including Speaker Programs organized by ROPER and SERRANO – were frequently forged by adding the names and signatures of doctors to sign-in sheets who had not, in fact, been present at the Speaker Program.  Repeat attendees were also commonplace at Speaker Programs organized by SERRANO.  In numerous instances, all of the attendees at Speaker Programs organized by SERRANO had previously attended Pharma Company-1 Speaker Programs.  Because all legitimate Speaker Programs required use of the same preapproved slide presentation, there was no educational purpose for healthcare professionals to attend Speaker Programs on a repeated basis.

While employed at Pharma Company-1, ROPER and SERRANO were each involved in organizing Speaker Programs for two Manhattan-based doctors (“Doctor-1” and “Doctor-2”), among other doctors.  Doctor-1 and Doctor-2 were frequently the purported Speakers at sham Speaker Programs that were social in nature and lacked an educational component.  Doctor-1 and Doctor-2 were highly compensated by Pharma Company-1 for acting as Speakers.  In 2014 alone, Doctor-1 and Doctor-2 received over $147,000 and $112,000, respectively, in Speaker Program fees.  During this same time period, Doctor-1 and Doctor-2 were also two of the largest prescribers of the Fentanyl Spray in the United States.  In 2014 alone, Doctor-1 and Doctor-2 prescribed, respectively, over $3 million and over $2 million worth of the Fentanyl Spray that was reimbursed by various private insurance companies, and over $1 million worth of the Fentanyl Spray that was reimbursed by Medicare.

It was well understood among Pharma Company-1 employees that doctors were selected as Speakers in order to induce these doctors to prescribe large quantities of the Fentanyl Spray, and ROPER explicitly instructed the sales force he supervised that this was the case.  For example, on or about May 6, 2014, ROPER sent an email to certain sales representatives in which he expressed displeasure that certain doctors who were Speakers were not prescribing sufficient quantities of the Fentanyl Spray:   

Where is the ROI [Return on Investment]??!!! All prescribers from this team that are on this list are [Pharma Company-1] speakers. We invest a lot of time, $, blood, sweat, and tears on “our guys” and help spreading the word on treating BTCP [breakthrough cancer pain]. We hire only the best of the best to be apart [sic] of our speaker bureau and dropping script counts is what we get in return?

. . . 

This is a slap in the face to all of you and is a good indication as to why NONE of you are climbing in the rankings this quarter. DO NOT be afraid to set your expectations and make them crystal clear as to what they are before, during, and after HIRING these priviliged [sic] set of docs who are fortunate enough to be a part of the best speaker bureau in the market in the world of BTCP [breakthrough cancer pain]. Please handle this immediately as funding will not be given out to anymore [sic] “let downs” in the future. Thanks.                                                                                                                $$$$

ROPER decided which doctors would be allocated Speaker Programs in the sales territory that included New York City.  ROPER instructed one sales representative that a Speaker would receive fewer Speaker Programs in the future because ROPER was not pleased with the quantity of Fentanyl Spray prescriptions this doctor was writing.  ROPER informed the sales representative that he wanted to hit the doctor “in his pocket” in order to try to cause the doctor to start writing more Fentanyl Spray prescriptions.  ROPER also once instructed this same sales representative to offer cash to a medical professional in order to induce this medical professional to prescribe the Fentanyl Spray.            

*          *          *

ROPER, 37, of Commack, New York, and SERRANO, 30, of Manalapan, New Jersey, are each charged with one count of conspiracy to violate the Anti-Kickback Statute and one count of violating the Anti-Kickback Statute.  Each of the two counts 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.

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

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

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

 

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

Preet Bharara, United States Attorney for the Southern District of New York, announced today that DAVID POLOS, formerly an Assistant Special Agent-in-Charge with the Drug Enforcement Administration (“DEA”), and GLEN GLOVER, a DEA Information Technology Specialist, were convicted of conspiracy and making false statements to the government in national security forms regarding, among other things, their employment at an adult entertainment establishment.  POLOS and GLOVER were convicted after a two-week trial before U.S. District Judge Paul G. Gardephe.

Manhattan U.S. Attorney Bharara said:  “David Polos and Glen Glover had important and sensitive law enforcement jobs that required honest answers to national security clearance forms.  But as a unanimous jury found today, Polos and Glover lied on those national security forms, concealing their secret jobs owning and operating an adult entertainment club.  Their actions were not just a betrayal of their oaths as DEA employees, but as the jury found, a violation of federal law.”

According to the allegations in the Complaint and evidence established at trial:

POLOS, who supervised the Organized Crime and Drug Enforcement Strike Force, and GLOVER, an expert in sensitive law enforcement techniques who assisted narco-trafficking investigations domestically and abroad, failed to disclose their employment at, and ownership interests in, an adult entertainment establishment (the “Club”) in Northern New Jersey in connection with a background check to determine their suitability as employees of a federal law enforcement agency with access to classified information.  POLOS also failed to disclose his relationship with a dancer at the Club in response to a question about his relationships with foreign nationals.  The national security forms POLOS and GLOVER submitted in connection with the background check required disclosure of outside employment in part due to concerns attendant to certain types of employment, including proximity to crime and persons involved in crime and the risk of employee blackmail.

GLOVER and POLOS submitted national security forms in August and September 2011, respectively, which stated, among other things, that they did not have employment other than their DEA jobs within the previous seven years, and that POLOS had not had any close, continuing contact with foreign nationals during that same period of time.  In fact, GLOVER was the part owner of, and POLOS had a convertible ownership interest in, the Club.  In addition, POLOS had, at the time he submitted his form, begun an intimate relationship with a foreign national from Brazil who worked as a dancer at the Club.  POLOS and GLOVER had been warned by others, including Club employees, that at times drug use, drug sales, and illicit sexual activity appeared to be taking place at and outside the Club, which also operated as an all-cash business and did not pay required taxes during its first year in operation. 

GLOVER and POLOS both worked regular managerial shifts at the Club in the months prior to and following their submission of the national security forms.  They also hired, fired, and paid bartenders, dancers, and bouncers; supervised the Club’s renovation, advertised the Club in local periodicals; manned a back office available only to employees; remotely monitored video camera feed from the Club when not present; and generally tended to various Club-related matters.  GLOVER and POLOS at times attended to Club matters during DEA work hours. 

Had POLOS and GLOVER truthfully disclosed their employment at the Club, their ownership and involvement in the affairs of the Club would have been investigated as part of their background checks, and the security clearances that they were required to maintain as federal law enforcement employees likely would have been denied.

*              *             *  

POLOS, 51, of West Nyack, New York, and GLOVER, 45, of Lyndhurst, New Jersey, were convicted of one count of conspiracy to make false statements, and were each convicted of one count of making false statements, in connection with their work at the Club.  POLOS was convicted of an additional count of false statements in connection with his failure to disclose his relationship with a foreign national.  Each count carries a maximum sentence of five years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge. 

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and the Department of Justice Office of the Inspector General.  He also thanked the Internal Revenue Service-Criminal Investigation Division for its assistance.

This case is being handled by the Office’s Public Corruption Unit.  Assistant United States Attorneys Martin S. Bell, Andrew D. Goldstein, and Paul M. Monteleoni are in charge of the prosecution.

        

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Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that NORMAN SEABROOK and MURRAY HUBERFELD were arrested this morning and charged in Manhattan federal court with committing honest services wire fraud, in connection with HUBERFELD’s payment of a $60,000 bribe to SEABROOK, the President of the Correction Officers’ Benevolent Association (“COBA”), and the promise of future bribe payments, in exchange for SEABROOK’s investment of $20 million of COBA money in HUBERFELD’s hedge fund.  SEABROOK was arrested this morning by FBI agents in the Bronx, and HUBERFELD was arrested this morning by FBI agents in Manhattan.  They will be presented before U.S. Magistrate Judge Kevin N. Fox in Manhattan this afternoon.

Manhattan U.S. Attorney Preet Bharara said:  “As alleged, Norman Seabrook and Murray Huberfeld engaged in a straightforward and explicit bribery scheme.  For a Ferragamo bag stuffed with $60,000 in cash, Seabrook allegedly sold himself and his duty to safeguard the retirement funds of his fellow correction officers.  Norman Seabrook, as COBA’s president for over two decades, allegedly made decisions about how to invest the nest egg for thousands of hard-working public servants, based not on what was good for them, but on what was good for Norman Seabrook.”

FBI Assistant Director-in-Charge Diego Rodriquez said:  “When an official takes advantage of his or her position as steward of an organization’s financial resources in order to line their own pockets, it is a dereliction of duty for someone trusted to protect the financial contributions of the hard working men and women who belong to the organization.  When a hedge fund manager provides bribe payments to organizations to gain their business, he or she puts the financial security of the fund’s investors at risk.  This kind of criminal collusion destabilizes the system and undermines investors’ confidence in the integrity of the marketplace.  The FBI, along with our partners, will continue to work to protect our citizens from the destructive consequences of corruption and deceit.”

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

COBA is New York City’s largest correction officers union and the largest municipal jail union in the United States.  COBA represents over 9,000 correction officers in New York City, including at Riker’s Island.  NORMAN SEABROOK, the defendant, is the President of COBA and has been for over 20 years.  SEABROOK’s power over the affairs of COBA is rarely questioned by his Executive Board due to his ability to affect their assignments, pay, and hours.  SEABROOK’s control extends to the union’s finances, including the administration of its “Annuity Fund,” a retirement benefits program funded by the City of New York that invests more than $70 million for correction officers’ retirements.         

Toward the end of 2013, on a trip to the Dominican Republic with, among others, an individual who is now a cooperating witness for the Government (“CW-1”), SEABROOK told CW-1 that he worked hard to invest COBA’s money and was not getting anything out of it, and it was time that “Norman Seabrook got paid.”  CW-1 was friendly with and had done business with MURRAY HUBERFELD, a founder and part owner of Platinum Partners (“Platinum”), a Manhattan-based hedge fund that principally ran two funds.  CW-1 was aware that Platinum was looking to attract public and institutional investors – as opposed to its more typical investor set of high net-worth individuals – and told HUBERFELD that SEABROOK would likely invest COBA money in Platinum if HUBERFELD were willing to pay SEABROOK money.  HUBERFELD agreed to the proposition, and HUBERFELD worked out a formula in which SEABROOK would be paid a kickback of a portion of the profits from COBA’s investment that HUBERFELD estimated could be between $100,000 and $150,000 per year.

SEABROOK then began investing COBA’s money, at first going through the motions of having Platinum make a pitch to COBA’s Annuity Fund board and having advisers conduct diligence.  Those advisers included attorneys who expressed concern that public pensions like COBA do not typically invest in higher-risk vehicles like hedge funds.  In March 2014, COBA’s Annuity Fund made a $10 million investment in one of Platinum’s funds.  In June 2014 – this time without running the investment by the COBA Board or seeking any approval – SEABROOK invested $5 million, or 40 percent, of COBA’s own assets in the same fund.  In August 2014, the Annuity Fund invested another $5 million in Platinum.  By that point, COBA was the largest investor in that Platinum fund for all of 2014, and amounted to more than half of all incoming investments for the fund.  At the same time, the fund was experiencing significant redemptions by other investors.

Toward the end of 2014, SEABROOK wanted the first of his kickback payments, and demanded it from CW-1.  HUBERFELD told CW-1 that the fund had not performed as well as expected, and that he could pay SEABROOK only $60,000.  CW-1 agreed to lay out the cash, and HUBERFELD agreed to reimburse CW-1 on Platinum’s behalf.  HUBERFELD suggested that to paper over the reimbursement, CW-1 invoice Platinum for a number of CW-1’s tickets to the Knicks, in the amount of $60,000, and Platinum would then cut a check to CW-1.

CW-1 paid SEABROOK the first $60,000 kickback on December 11, 2014.  Before meeting SEABROOK that evening, CW-1 went to one of SEABROOK’s favorite stores, Salvatore Ferragamo on Fifth Avenue in Manhattan, and bought an expensive bag for SEABROOK.  CW-1 put the money in the bag, and met SEABROOK a few blocks away in SEABROOK’s COBA vehicle, where he handed SEABROOK the bag.  CW-1 and SEABROOK had dinner with two other persons, then attended a Torah dedication ceremony, after which SEABROOK left Manhattan.  These events have been corroborated by, among other things, phone records, e-mails, license plate reader records, and a receipt from Salvatore Ferragamo.  On the same day, CW-1’s assistant prepared a $60,000 invoice to Platinum for Knicks tickets, which CW-1 forwarded by e-mail to HUBERFELD.  Three days later, Platinum paid CW-1 by check.

HUBERFELD, through another co-conspirator not identified in the Complaint, continued to lobby SEABROOK for more money in 2015.  However, after a lawsuit filed by a former COBA board member referred to the Platinum investments, and the U.S. Attorney’s Office grand jury investigation resulted in subpoenas to Platinum and COBA in May 2015, no further investments were made.

*                *                *

SEABROOK, 56, of the Bronx, New York, and HUBERFELD, 55, of Manhattan New York, have been charged with one count of conspiracy to commit honest services wire fraud, and one count of honest services wire fraud.  Each of the two counts carries a maximum term of 20 years in prison.  The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the 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.  

This case is 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 are merely accusations and the defendants are presumed innocent unless and until proven guilty.

 

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[1] As the introductory phrase signifies, the entirety of the text of the 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 Edward J. Ryan, the Special Agent in Charge of the United States Social Security Administration, Office of the Inspector General, announced that THOMAS SHEA, a former New York City Police Department (“NYPD”) sergeant, pled guilty today to one count of theft of public funds for fraudulently obtaining more than $600,000 in disability benefits from the Social Security Administration (“SSA”).  In 1995, SHEA submitted a fraudulent application for disability benefits to the SSA that contained misrepresentations regarding his claimed disability.  Then, at the same time SHEA was collecting disability benefits in the years since 1995, he was employed in a number of positions that he knowingly failed to report to the SSA.  SHEA pled guilty before U.S. District Judge Jed S. Rakoff.

Manhattan U.S. Attorney Preet Bharara said: “Thomas Shea defrauded the Social Security Administration for over twenty years, fraudulently collecting more than half a million dollars of funds meant for people who are the truly disabled.  I would like to thank the Social Security Administration, Office of the Inspector General, for their work in bringing an end to Shea’s fraud.”

Special Agent in Charge John F. Grasso said:  “This investigation should serve as a warning to people who choose to selfishly defraud Social Security’s disability programs. The Social Security Office of the Inspector General vigorously pursues these cases and works closely on prosecution efforts with United States Attorney’s Offices across the country. We will continue to partner with the USAO in the Southern District of New York to identify and prosecute Social Security fraud perpetrators. We would also like to thank the Manhattan District Attorney’s Office for its assistance with this this investigation.  I strongly encourage the public to report suspected instances of Social Security fraud to the OIG’s Fraud Hotline at 1-800-269-0271 or https://oig.ssa.gov/report.”

According to the Information filed in the case, as well as statements made during the plea proceedings:

Beginning in 1981, SHEA worked as a police officer with the NYPD.  In approximately 1987, SHEA was promoted to sergeant and then retired in 1993 due to a shoulder injury.

In January 1995, at the age of approximately 35, SHEA submitted a fraudulent application for Social Security Disability Insurance (“SSDI”), a federal benefits program that provides monthly cash benefits to individuals who have worked in the past and paid into Social Security, but who can no longer work due to qualifying medical disabilities.  In order to receive disability benefits, a beneficiary must certify that he or she is incapable of performing any gainful activity due to the stated disability.  In addition, a beneficiary must report to the SSA all sources of income from work activity and any changes in the beneficiary’s medical condition.  The application for SSDI submitted by SHEA contained misrepresentations regarding SHEA’s claimed disability.

From June 1994 through September 2015, SHEA received over $600,000 in disability benefits for himself and members of his family based on his reported disability and lack of other work or income.  During this time, SHEA also provided the SSA with periodic forms concerning his status.  For example, in January 1999, SHEA submitted a form to the SSA in which SHEA agreed that he would “notify the Social Security Administration if [his] medical condition improves or [he] go[es] to work.”  By signing this document, SHEA acknowledged his understanding that “anyone who makes a false statement or representation of a material fact in an application or for use in determining a right to payment under the Social Security Act commits a crime under Federal Law.”

While SHEA was receiving SSDI benefits, SHEA was gainfully employed in a number of positions that he knowingly failed to report to the SSA.  For example, from 1999 through 2014, SHEA worked as a commercial driver in the Bronx, New York, and elsewhere for at least three different employers.

In June 2015, the SSA issued a decision to redetermine the eligibility of SHEA for disability benefits on the basis that there was reason to believe that fraud or similar fault was involved in SHEA’s application for benefits.  Specifically, the SSA found that SHEA’s application was based on tainted evidence submitted by a discredited physician, and that there was no non-tainted evidence supporting the prior finding of SHEA’s disability.

In September 2015, after the SSA scheduled a hearing regarding the eligibility of SHEA for disability benefits, SHEA requested that the SSA terminate his benefits.                   

*                      *                      *

SHEA, 56, of Stony Point, New York, pled guilty to one count of theft of government funds, which carries a maximum sentence of 10 years in prison.  According to the agreement with the Government to which he pled guilty, SHEA owes approximately $622,843 in restitution and forfeiture.  SHEA is scheduled to be sentenced on October 7, 2016, before Judge Rakoff.

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

Mr. Bharara praised the outstanding investigative work of the United States Social Security Administration, Office of the Inspector General.

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced today a plea of guilty by MANUEL GEOVANNY RODRIGUEZ-PEREZ, a/k/a “Shorty,” to his role as a leader of a massive and violent racketeering organization (the “Rodriguez Enterprise”) whose members sold large quantities of marijuana, murdered and attempted to murder nearly 20 people, transported and laundered millions of dollars, obstructed justice and committed perjury, and engaged in firearms offenses.  RODRIGUEZ-PEREZ was previously charged in connection with “Operation Green Venom,” a coordinated multi-agency investigation that was led by Immigration and Customs Enforcement’s Homeland Security Investigations (“ICE HSI”) and first announced in October 2010.  In a proceeding today before U.S. District Judge Laura T. Swain, RODRIGUEZ-PEREZ entered a plea of guilty to one count of racketeering conspiracy, and accepted responsibility for dozens of illegal acts associated with that conspiracy, including nine murders and 10 attempted murders in the United States and the Dominican Republic.    

Manhattan U.S. Attorney Preet Bharara said: “As he admitted in court today, Manuel Geovanny Rodriguez-Perez was responsible for the murders of nine people, the attempted murders of 10 more, and numerous other criminal acts.  Rodriguez-Perez’s years-long reign of terror ended with his arrest nearly six years ago.  His public admissions to his crimes and his ultimate sentence hopefully will provide some closure to the victims of Rodgriguez-Perez’s brutal violence.” 

According to the terms of his plea, RODRIGUEZ-PEREZ acknowledged his leadership role in a wide range of criminal activity, including his responsibility for the murders of the following victims: 

• Francisco Perez, a/k/a “Francie,” on October 26, 1997

• Antonio Kasse, a/k/a “Toasty,” on December 13, 1998

• FNU LNU, a/k/a “Carlos Valentin,” a/k/a “Campi,” in or about 2000

• Noel Herrera, on December 29, 2001

• Kelly Perez, a/k/a “Red,” on September 16, 2002

• Marino Molina, on January 11, 2003

• Wilfredo Molina, a/k/a “Willie,” on May 3, 2004

• Manuel Rivas, a/k/a “Tony el Mono,” on October 29, 2005

• Richard Cabrera, a/k/a “Bori,” on January 16, 2006

Noel Herrera, Marino Molina, and Manuel Rivas were each murdered by or at the command of RODRIGUEZ-PEREZ in the Dominican Republic.  Wilfredo Molina was murdered at the command of RODRIGUEZ-PEREZ in New Jersey, and the remaining victims were murdered in New York City.  

The maximum potential sentence for Count One of the Superseding Indictment, to which RODRIGUEZ-PEREZ pled guilty today, is 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.

Additionally, RODRIGUEZ-PEREZ agreed to pay $25 million as a forfeiture penalty, which is the approximate amount of gross proceeds received by RODRIGUEZ-PEREZ derived from racketeering activities, properties in New York, Florida, and the Dominican Republic, and cash and jewelry seized by law enforcement officers.

RODRIGUEZ-PEREZ, 43, has been in federal custody since October 15, 2010, when he was arrested during a takedown of more than 50 members of a massive marijuana trafficking ring that transported ton-quantities of marijuana from Florida and California for distribution in the greater New York area from the early 1990s to 2010. RODRIGUEZ-PEREZ is scheduled to be sentenced by Judge Swain on October 25, 2016, at 2:00 p.m.

Mr. Bharara praised the outstanding investigative work of ICE HSI, the New York City Police Department, and the U.S. Drug Enforcement Administration.  He also thanked the U.S. Marshals Service, the Bergen County, New Jersey, Prosecutor’s Office, the Englewood, New Jersey, Police Department, the U.S. Department of Housing and Urban Development, and the New York City Department of Investigation for their assistance, and added that the investigation is continuing.                       

The investigation and prosecution of the cases arising from “Operation Green Venom” has been overseen by the Office’s Violent and Organized Crime Unit.Assistant U.S. Attorneys Andrew C. Adams and Micah W.J. Smith are responsible for the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today the return of a stolen 11th or 12th Century bronze statue of Ganesha to the Republic of India, pursuant to an agreement between the U.S. Attorney’s Office for the Southern District of New York and the Toledo Museum of Art.  The Ganesha was returned today along with several other stolen antiquities at a repatriation ceremony with Indian Prime Minister Narendra Modi and U.S. Attorney General Loretta Lynch at Blair House in Washington, D.C.

Manhattan U.S. Attorney Preet Bharara said: “A decade ago, a valued piece of India’s cultural heritage was stolen and sold in the United States.  We are proud to have played a role in returning this treasure to the Indian people, and reaffirm our commitment to ensuring that the United States does not become a marketplace for stolen art and antiquities.”

The statue of Ganesha, also known in Tamil Nadu as Vinayagar, is a bronze statue dating from the Chola dynasty period (1080-1150 A.D.).  The Ganesha was stolen from the Sivan temple at Sree Puranthan Village in the Ariyalur District of Tamil Nadu in 2006, and obtained by Subhash Kapoor, an antiquities dealer in Manhattan.  Kapoor has been charged with various offenses by both Indian authorities and the New York County District Attorney’s Office for his alleged involvement in trafficking in stolen antiquities, and is currently awaiting trial in Tamil Nadu.  Kapoor sold the Ganesha to the Toledo Museum of Art (the “Museum”) in 2006.

Working with U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (“HSI”), the Office identified the Ganesha as stolen, and contacted the Museum.  Upon being presented with the evidence of the Ganesha’s illicit origin, the Museum voluntarily agreed to turn over the Ganesha to HSI for return to the Republic of India.

Mr. Bharara thanked HSI for their outstanding work in connection with this matter.  He also thanked the Manhattan District Attorney’s Office for their assistance.  Mr. Bharara also thanked the Toledo Museum of Art for their willingness to voluntarily return the Ganesha to the Republic of India.

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced that JASON PAUL SMITH pled guilty in Manhattan federal court today to communicating a hoax threat to bomb the Statue of Liberty that resulted in the evacuation of more than 3,200 people from Liberty Island in New York Harbor.  SMITH pled guilty to a one-count Indictment before U.S. District Judge Vernon S. Broderick.

According to the criminal Complaint, Indictment, other documents filed in federal court, and statements made at various proceedings in this case, including today’s guilty plea:

On April 24, 2015, SMITH initiated a call to the emergency 911 system (the “911 Call”) from his iPad using a service that assists hearing-impaired individuals with making and receiving telephone calls (the “Service”).  In the 911 Call, SMITH identified himself as “Abdul Yasin,” described himself as an “ISI terrorist,” and threatened that “we” are preparing to “blow up” the Statue of Liberty.   

Law enforcement officers responded to the threat that SMITH conveyed in the 911 Call, and conducted a sweep of the areas in and around the Statue of Liberty and Liberty Island with the aid of canine units trained to detect explosives.  Canine units alerted in the vicinity of the visitor lockers at the base of the Statue of Liberty, prompting law enforcement officers and emergency responders to evacuate the more than 3,200 people who were on Liberty Island at the time.  Later, the threat conveyed by SMITH was determined to be unfounded.

The iPad registered in SMITH’s name has used the Service to make other 911 calls, including at least two calls in May 2015 from a user who identified himself as “Isis allah Bomb maker” and who threatened to attack Times Square and kill police officers at the Brooklyn Bridge.

*                      *                      *

SMITH, 42, pled guilty to one count of conveying false and misleading information and hoaxes, which carries a maximum sentence of five years in prison.  The maximum penalty is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.  SMITH is scheduled to be sentenced on September 6, 2016, at 11:00 a.m., before Judge Broderick.           

Mr. Bharara praised the work of the Federal Bureau of Investigation’s (“FBI”) New York Joint Terrorism Task Force – which principally consists of agents from the FBI and detectives from the New York City Police Department.  Mr. Bharara also thanked the United States Park Police for its assistance.

The prosecution is being handled by the Office’s Terrorism and International Narcotics Unit.  Assistant U.S. Attorney David Zhou is in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that TERRENCE JOHNSON, 23, of Sullivan County, pled guilty to distributing a mixture of heroin and fentanyl that resulted in the overdose death of Malcolm Perry, 35, a resident of Liberty, New York.  JOHNSON also pled guilty to multiple additional counts of distributing heroin and fentanyl, distributing cocaine, conspiring to distribute at least 100 grams of heroin, and conspiring to distribute at least 280 grams of crack cocaine.  The charges to which JOHNSON pled guilty are set forth in a ten-count superseding indictment (the “Indictment”), which was filed in April 2016.  JOHNSON pled guilty to the Indictment today before U.S. Magistrate Judge Paul E. Davison.  The case is assigned to U.S. District Judge Cathy Seibel.

U.S. Attorney Bharara stated:  “As he admitted today in court, Terrence Johnson sold a deadly mixture of heroin and fentanyl in Sullivan County on multiple occasions, one of which resulted in the tragic overdose death of Malcolm Perry.  Heroin abuse – on the rise along with prescription painkiller abuse – is causing too many deaths and destroying too many communities.”

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

On multiple occasions between May 28, 2015, and June 6, 2015, JOHNSON sold heroin mixed with fentanyl in Sullivan County.  Fentanyl is a synthetic opioid that is significantly stronger than both ordinary heroin and morphine.  Several customers who purchased that dangerous mixture from JOHNSON overdosed and required emergency medical attention.  On or about June 1, 2015, Malcolm Perry overdosed and died of acute fentanyl intoxication as a result of using drugs sold by JOHNSON.  As a consequence of committing the offense of distributing a controlled substance that resulted in death, as charged in Count Four of the Indictment, JOHNSON faces a mandatory minimum sentence of 20 years in prison, and a maximum sentence of life in prison.

JOHNSON also pled guilty to multiple additional counts of distributing and possessing with intent to distribute heroin and fentanyl (Counts One through Three, Seven, and Eight); one count of distributing and possessing with intent to distribute heroin and fentanyl within 1,000 feet of an elementary school (Count Six); one count of distributing and possessing with intent to distribute cocaine within 1,000 feet of an elementary school (Count Five); one count of conspiring to distribute 100 grams or more of heroin (Count Nine); and one count of conspiring to distribute 280 grams or more of crack cocaine (Count Ten).

A chart summarizing the counts to which JOHNSON pled guilty and the maximum penalties for each count is set forth below.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as the sentencing of the defendant will be determined by the judge.

JOHNSON is scheduled to be sentenced on September 12, 2016, at 2:30 p.m., before Judge Seibel.

*                *                *

Mr. Bharara praised the outstanding investigative work of the FBI, the Village of Liberty Police Department, the New York State Police, the Sullivan County Sheriff’s Department, and the Village of Monticello Police Department.  Mr. Bharara also thanked the Sullivan County District Attorney’s Office for its assistance in the case.

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

           

CHARGE

MAXIMUM PENALTY

Counts One, Two, Three, Seven, and Eight

Distribution and possession with intent to distribute controlled substances, in violation of Title 21, United States Code, Sections 812, 841(a)(1), and 841(b)(1)(C)

20 years in prison for each count

 

Counts Five and Six

Distribution and possession with intent to distribute controlled substances within one thousand feet of the real property comprising a public or private elementary school, in violation of Title 21, United States Code, Sections 812, 841(a)(1), 841(b)(1)(C), and 860

40 years in prison for each count

Mandatory minimum: One year in prison for each count

Count Four

Distribution of controlled substances resulting in death, in violation of Title 21, United States Code, Sections 812, 841(a)(1), and 841(b)(1)(C)

Life in prison

Mandatory minimum: 20 years in prison

Count Nine

Conspiracy to distribute and possess with intent to distribute 100 grams or more of heroin, in violation of Title 21, United States Code, Section 846

40 years in prison

Mandatory minimum: Five years in prison

Count Ten

Conspiracy to distribute and possess with intent to distribute 280 grams or more of crack cocaine, in violation of Title 21, United States Code, Section 846

Life in prison

Mandatory minimum: Ten years in prison

 

 

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that ROMAN KITROSER was sentenced in Manhattan federal court to 25 years in prison for conspiring to distribute heroin, cocaine, MDMA, crack cocaine, and marijuana.  KITROSER, who pled guilty to one count of narcotics conspiracy on November 2, 2015, was also found to have possessed dangerous weapons in connection with the conspiracy, including firearms and hand grenades.  KITROSER pled guilty before U.S. District Judge Katherine Polk Failla, who imposed today’s sentence. 

U.S. Attorney Preet Bharara stated:  “In Roman Kitroser’s drug dealing operations, customers could literally pick their poison: he trafficked in heroin, cocaine, crack, MDMA, and marijuana.  To protect his illicit trade, Kitroser armed himself with an arsenal of dangerous weapons, including guns, silencers and even hand grenades.  Thanks to the work of the DEA, NYPD and New York State Police, Kitroser’s dangerous business is finished.”

According to the Indictment and other documents filed in federal court, statements made at various proceedings in this case, and evidence presented at the sentencing hearing:

From December 2013, to December 2014, KITROSER conspired to distribute heroin, cocaine, and marijuana as a member of a drug trafficking organization.  In connection with his arrest, KITROSER was found in possession of nine firearms, two silencers, high-capacity magazines, and a large press used to form loose narcotics into kilogram-sized bricks.  Law enforcement officers also seized more than $2 million, as well as two hand grenades, in connection with the investigation.

*                *                *

In addition to the prison sentence, KITROSER, 39, of Brooklyn, New York, was sentenced to five years of supervised release.

United States Attorney Bharara praised the investigative work of the Drug Enforcement Administration, the New York City Police Department, and the New York State Police.

The case is being handled by the Office’s Narcotics Unit.  Assistant U.S. Attorney Megan Gaffney and Alex Rossmiller 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 the arrest of DAVID HOBSON, who served as an investment adviser in the Providence, Rhode Island, offices of two different national broker-dealer and investment advisers (“Brokerage Firm-1” and “Brokerage Firm-2”), for engaging in a scheme to commit insider trading in connection with deals involving a pharmaceutical company (the “Pharma Company”) at which MICHAEL MACIOCIO, HOBSON’s friend and client, worked.  In addition, Mr. Bharara announced the unsealing of charges against MACIOCIO, who pled guilty and admitted to his participation in the scheme in May.  MACIOCIO, who had been employed by the Pharma Company, regularly possessed material, nonpublic information (“Inside Information”) concerning pending acquisitions and transactions under consideration by the Pharma Company.  From at least 2008 through April 2014, MACIOCIO breached his duty of confidentiality to the Pharma Company by providing Inside Information about potential acquisitions and transactions to his friend and long-time broker, HOBSON.  HOBSON, in turn, used the Inside Information to execute profitable securities trades for himself, for MACIOCIO, and for other clients of HOBSON’s.  

HOBSON was arrested this morning in Providence, Rhode Island, and was presented today before a magistrate judge in Providence.  The case against HOBSON and MACIOCIO is before United States District Judge Laura Taylor Swain.  On Friday, May 20, 2016, MACIOCIO pled guilty before United States Magistrate Judge Barbara Moses to an Information charging him with conspiracy to commit securities fraud, conspiracy to commit wire fraud, and securities fraud.           

In a separate action, the Securities and Exchange Commission (“SEC”) filed civil charges against HOBSON and MACIOCIO.

U.S. Attorney Preet Bharara said:  “As alleged, Michael Maciocio abused his position at a major pharmaceutical company to feed insider information to his friend and broker, David Hobson, who allegedly helped both benefit from trades based on that illegal edge.  Unfortunately, illegal insider trading remains a blight on our securities markets and we will continue to work with the FBI to investigate and prosecute it.”

FBI Assistant Director-in-Charge Diego Rodriguez said:  “Having material, nonpublic information on public companies is a trusted privilege that should be used to carry out business matters, not used as advantage on which to trade and profit. As alleged, Michael Maciocio used his position at a pharmaceutical company to share nonpublic information with his friend and long-time broker, David Hobson. Hobson allegedly used traded on the information, for both Maciocio and other clients, profiting all parties $370,000.  Keeping our markets fair for all investors remains a top priority for the FBI and we will continue to work with our law enforcement partners to bring charges against those who use illegal and unfair advantages in our securities markets.”

According to the allegations in the charging documents unsealed today in Manhattan federal court, including the Information and Indictment[1], and statements made in court proceedings:

From in or about May 2008 through in or about April 2014, MACIOCIO and HOBSON participated in a scheme to commit insider trading in advance of and in connection with acquisitions and transactions under consideration by the Pharma Company.  MACIOCIO and HOBSON were childhood friends and HOBSON had served as MACIOCIO’s investment adviser and broker for many years.

MACIOCIO learned about the impending transactions through his role as a Master Planner in the Active Pharmaceutical Ingredient Supply Chain Group at the Pharma Company.  In that role, MACIOCIO was tasked with evaluating manufacturing demands and capacity within the Pharma Company and was consulted about potential acquisitions to assist in determining whether the Pharma Company would be able to manufacture any new product in-house.  Although MACIOCIO was not typically provided with the name of the target acquisition, he used the Inside Information he received – including the Pharma Company’s code name of the acquisition, the drug indication, the dosage, the phase of any clinical trial, and the chemical structure of the drug – to uncover the true identity of the target company.  He was at times aided in this task by HOBSON.

Having learned the Inside Information about these impending transactions, MACIOCIO, in breach of fiduciary duties and other duties of trust and confidence owed to the Pharma Company, traded on his own behalf and tipped HOBSON so that HOBSON could use the information to trade for both himself and for MACIOCIO.  HOBSON also used the Inside Information to trade in other of his clients’ accounts, first at Brokerage Firm-1 and later at Brokerage Firm-2.

HOBSON used the Inside Information that he received from MACIOCIO to make profitable trades in, among other securities: Medivation, Inc., Ardea Biosciences, Inc., and Furiex Pharmaceuticals, Inc.  As a result of the scheme, HOBSON reaped approximately $180,000 in ill-gotten gains for himself, $40,000 for MACIOCIO, and nearly $150,000 for certain of HOBSON’s other clients.  

*                *                *

HOBSON, 47, is charged with one count of conspiracy to commit securities fraud, one count of conspiracy to commit wire fraud, and two counts of securities fraud.  Count One carries a maximum sentence of five years in prison.  Counts Two through Four each carry a maximum sentence of 20 years in prison.  The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense. 

On May 20, 2016, MACIOCIO, 46, pled guilty before Judge Moses to one count of conspiracy to commit securities fraud, one count of conspiracy to commit wire fraud, and two counts of securities fraud.  Count One carries a maximum sentence of five years in prison.  Counts Two through Four each carry a maximum sentence of 20 years in prison.  The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense.  

The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any 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. Attorneys Aimee Hector and Rebecca Mermelstein are in charge of the prosecution.  

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

 

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

Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, Assistant Director-in-Charge New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the return of a rare “Inverted Jenny” stamp to the American Philatelic Research Library (“APRL”), the assignee of Ethel B. McCoy, the owner from whom it was stolen.  The stamp, one of four stolen from McCoy in 1955, was recently recovered by the FBI.  It is the third of the four McCoy Inverted Jennys to be recovered to date.

Manhattan U.S. Attorney Preet Bharara said: “The treasured Inverted Jenny stamp returned today has been missing for more than 60 years since it was stolen.  We are proud to be able finally to return this Inverted Jenny to its rightful owner.  We hope that someday soon we can celebrate the return of the final missing McCoy Inverted Jenny as well, and encourage anyone with information regarding its whereabouts to come forward.”

Assistant Director-in-Charge Diego Rodriguez said: “More than 60 years ago, a block of four of the most famous error stamps in philatelic history – the Inverted Jenny – was stolen from an exhibition.  There were no witnesses, no suspects and little evidence to pursue.  Today, the FBI is proud to assist in the return of the third Inverted Jenny stamp to the American Philatelic Research Library.  This is just one example of the FBI’s commitment to restore significant arts and antiques to their rightful owners.”

According to court filings and other publically available information:

The Inverted Jenny stamp returned today (the “Stamp”) is from a sheet of 100 24-cent stamps issued by the United States Postal Service in 1918.  The stamps contained the image of a Curtiss Jenny JN-4HM, a biplane specially modified for shuttling mail, to commemorate the Postal Service’s first airmail flight, which took place on May 15, 1918.  Significantly, this particular sheet (the “Inverted Jenny Sheet”) was misprinted, with the airplane image upside down, or “inverted.”  It was sold on or about May 14, 1918, to collector William T. Robey of Washington, D.C.

Robey eventually sold the Inverted Jenny Sheet for $15,000 to a noted Philadelphia dealer named Eugene Klein, who in turn sold it for $20,000 to collector H. R. Green.  Green, on the advice and with the help of Klein, subsequently broke up the Inverted Jenny Sheet and sold many of the individual stamps to other collectors.  Prior to breaking up the Inverted Jenny Sheet, Klein and Green lightly penciled a number on the back of each stamp so that each stamp’s original position on the sheet could later be identified.  The Stamp returned today is position 76 from the Inverted Jenny Sheet.

Ethel B. Stewart McCoy, a philatelist and daughter of Charles Bergstresser, one of the founders of Dow Jones & Co., purchased a block of four stamps from the Inverted Jenny Sheet, specifically positions 65, 66, 75, and 76 (the “McCoy Block”), from New York City stamp dealer Spencer Anderson in 1936 for $16,000.  On or about September 23, 1955, during an exhibition at a convention of the American Philatelic Society in Norfolk, Virginia, the McCoy Block, including the Stamp, was stolen by an unknown thief or thieves. 

Before her death in 1980, McCoy assigned all of her right, title, and interest in the stolen McCoy Block to the APRL.  The FBI recovered the stamp in position 75 from the McCoy Block in 1977, and recovered the stamp in position 65 in 1982, and both were returned to the APRL.                   

The Stamp remained missing until April of this year, when it was consigned to Spink USA, Inc. (“Spink”), by an individual named Keelin O’Neill.  Spink sent the Stamp to the Philatelic Foundation in New York to be authenticated, and personnel of the Foundation identified it as one from the stolen McCoy block.  They then alerted the FBI and the APRL.  The FBI approached O’Neill, who stated that he had received the Stamp in or about October 2013 from his grandfather, who is now deceased.  Once he was advised that the Stamp was stolen, O’Neill voluntarily agreed to relinquish the Stamp to the APRL.                                                                                        

The fourth and final Inverted Jenny from the McCoy block remains missing.

The return today to the APRL is being made pursuant to a stipulated agreement entered between the Government, the APRL, and Mr. O’Neill, and so ordered by the Honorable Jesse M. Furman, United States District Court Judge for the Southern District of New York.  

Mr. Bharara thanked the FBI for their outstanding work on this matter.

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

 

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Preet Bharara, the United States Attorney for the Southern District of New York, and Angel M. Melendez, Special Agent in Charge of the New York Field Office of the Department of Homeland Security, Homeland Security Investigations (“HSI”), announced today that HAENA PARK was arrested this morning on commodities fraud and wire fraud charges stemming from her scheme to defraud more than 20 investors of more than $23 million in which PARK solicited investments for the purpose of trading in a variety of securities and commodities, including off-exchange foreign currency contracts, through the use of false and misleading statements about, among other things, her historical trading performance.  PARK was arrested this morning in Manhattan, New York, and was presented today before United States Magistrate Judge Andrew J. Peck.

U.S. Attorney Preet Bharara said:  “Haena Park is charged with lying to prospective investors about her remarkably high returns and trading expertise in the forex markets to lure them into investing with her.  Through deceit, we’ve alleged, she raised more than $23 million from victims and lost nearly all of it.  Then to cover up trading losses, she allegedly sent fictitious statements to investors and used money from new investors to pay other investors back.”

HSI Special Agent in Charge Angel M. Melendez said:  “It is alleged that Haena Park defrauded investors and covered up millions of dollars in financial losses with fake documents and lies that may devastate the financial security of these victims.  HSI and its El Dorado Task Force partners are committed to investigating those who seek to exploit vulnerabilities in the US Financial System.”

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

From in or about January 2010 through in or about June 2016, HAENA PARK, the defendant, raised more than $23 million from more than 20 individual investors, purportedly for the purpose of trading in a variety of securities and commodities, including equities, futures, and off-exchange foreign currency (“forex”) transactions.  In connection with the scheme, PARK made a series of false and misleading representations to investors, including that PARK was an accomplished forex trading advisor earning annualized returns as high as 48.9 percent for her investors.  In truth and in fact, PARK was not an accomplished forex trader, her trading was consistently unsuccessful, and the trading results emailed to investors by PARK were false and did not reflect the trading losses actually incurred by PARK.  Rather, from in or about January 2010 through in or about June 2016, Park lost approximately $19.5 million of the $20 million that she traded, including in commissions and fees, principally in highly leveraged futures and forex transactions.

To prevent or forestall redemptions by investors, and to continue to raise money from investors to fund her scheme, PARK generated fictitious account statements, which she sent to investors on a monthly basis.  Instead of accurately reporting the trading losses PARK was suffering, the account statements indicated that the investors were making money nearly every month.  To hide her trading losses, PARK used new investor funds to pay back other investors in a Ponzi-like fashion.  In total, PARK distributed approximately $3 million back to investors from funds deposited by new investors. 

*                      *                      *

PARK, 40, of Manhattan, New York, is charged with one count of commodities fraud, which carries a maximum sentence of 10 years in prison and a maximum fine of $1 million, or twice the gross gain or loss from the offense; and one count of wire fraud, which 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.

Mr. Bharara praised the work of HSI and the El Dorado Task Force.  He also thanked the Commodity Futures Trading Commission and the Securities and Exchange Commission, each of which filed civil charges against PARK today. 

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.  

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, announced that CARLTON P. CABOT, the former owner and chief executive officer of Cabot Investment Properties LLC (“CIP”), pled guilty yesterday to one count of securities fraud for participating in a scheme to defraud investors in numerous CIP-sponsored real estate investments.  As part of the fraud, CABOT and his co-defendant misappropriated over $17 million of investor funds to pay for personal and business expenses, and concealed the fraud from the investors with manipulated financial statements.  CABOT pled guilty before U.S. District Judge Jesse M. Furman.

U.S. Attorney Preet Bharara said:  “Yesterday, Carlton Cabot, CEO of Cabot Investment Properties LLC, admitted to taking over $17 million in investor funds and spending it on himself, including for private school tuition for his family and a luxury vacation apartment.  Cabot camouflaged his fraud by doctoring financial statements and lying to his investors.”

According to the allegations contained in the criminal complaint against CABOT, the indictment to which CABOT pled guilty, and statements made during CABOT’S plea proceeding:

From 2003 through 2012, CIP – which was controlled by CABOT – sponsored and oversaw approximately 18 so-called tenants-in-common (“TIC”) securities offerings to investors located all over the United States (collectively, the “TIC Investments” and the “TIC Investors”). A TIC investment is a real estate investment in which investors collectively own a piece of commercial real estate and are entitled to receive a portion of the rental income from the property.

From 2008 through 2012, CABOT engaged in a scheme to defraud the TIC Investors by misappropriating funds belonging to the TIC Investments and concealing his misappropriations by knowingly providing false and misleading financial reports and other information to the TIC Investors.

According to the representations in the offering prospectuses for the TIC Investments, CIP was only allowed to collect “excess” rental income from the TIC Investments – i.e., any additional money left over after the TIC Investments had paid the operating expenses for the properties and the disbursements due to the TIC Investors.  Despite these representations, CABOT repeatedly transferred money out of bank accounts belonging to the TIC Investments and into CIP bank accounts that he controlled (the “CIP Operating Accounts”) before these funds could be used to pay for operating expenses and disbursements to the TIC Investors. 

CABOT then used these funds to pay for unauthorized purposes without the knowledge or authorization of the TIC Investors, including: (1) to cover the operating expenses and investor distributions of other TIC Investments that had no available funds; (2) to pay for millions of dollars of personal expenses, including expensive cars, rental apartments, and private school tuition; and (3) to pay for CIP business expenses, including an approximately $1,125,651 civil settlement to certain TIC Investors who had sued CABOT and others.

To conceal the misappropriation of TIC Investment funds from the TIC Investors, CABOT and his co-defendant, Timothy J. Kroll, CIP’s chief operating officer, provided false and misleading financial reports to the TIC Investors that intentionally hid the fact that CIP owed large sums of money to the TIC Investments. 

By in or about the end of 2012, when CIP ceased its day-to-day operations, CIP and its principals, CABOT and Kroll, owed approximately $17 million to the TIC Investments, which has never been repaid.

*                *                *

CABOT, 53, of Stamford, Connecticut, pled guilty to one count of securities fraud, which carries a maximum sentence of 20 years in prison and three years of supervised release.  According to the agreement with the Government to which he pled guilty, CABOT owes $17 million in restitution and forfeiture.  CABOT is scheduled to be sentenced on September 15, 2016, before Judge Furman.

On October 7, 2015, Kroll pled guilty for his role in the scheme.  Kroll is scheduled to be sentenced on July 19, 2016, before Judge Furman.

The maximum potential 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 efforts of the U.S. Postal Inspection Service and Internal Revenue Service’s Criminal Investigation Division.

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 Edward A. Imperatore 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 Division of the Federal Bureau of Investigation (“FBI”), Delano Reid, the New York Special Agent in Charge of the Bureau of Alcohol, Tobacco, Firearms, and Explosives (“ATF”), Joseph A. D’Amico, the Superintendent of the New York State Police (“NYSP”), Daniel C. Cameron, the Chief of the City of Newburgh Police Department, and Bruce Campbell, the Chief of the Town of Newburgh Police Department, today announced the unsealing of an Indictment charging a total of nine defendants with committing various narcotics and firearms offenses as part of an organization known as the “Yellow Tape Money Gang”  in Newburgh, New York.

Manhattan U.S. Attorney Preet Bharara stated: “These defendants allegedly sought to invoke the violence of a crime scene by calling themselves the ‘Yellow Tape Money Gang,’ and using this vivid imagery, they allegedly pumped large quantities of crack cocaine into the streets of Newburgh.  Those who deal in these dangerous drugs destroy communities and fuel a cycle of drug-induced violence.  Working with our partners at the FBI, ATF, the New York State police, and the Newburgh Police Department, we seek to stamp out this type of drug trade in Newburgh.”

FBI Assistant Director-in-Charge Diego Rodriguez stated: “We believe the arrests today will make a significant dent in the violent crime that has been escalating recently in the City of Newburgh.  Our actions should also serve as a warning to others that the FBI Hudson Valley Safe Streets Task Force and the City of Newburgh Police Department are not going away.  If gang members and drug pushers choose to fill the void left behind today, we will be there tomorrow, and the next day and the next, to protect the law abiding citizens in the City of Newburgh.”

ATF New York Special Agent in Charge Delano Reid stated: “ATF’s mission to combat gun violence in our community remains our highest priority.  The crimes committed by this organization will not be tolerated by the ATF or our law enforcement partners.  We will continue to work tirelessly until gangs like the Yellow Tape Money Gang, and others that would follow their destructive patterns, no longer terrorize the citizens of Newburgh.”

City of Newburgh Police Chief Daniel C. Cameron stated: “We operate under the national Group Violence Intervention model wherein we tirelessly target those individuals who cause the majority of the violence in our City.  Today’s operation is an example of how our law enforcement partnership is strong and that violence will not be accepted in our community.  The individuals arrested today are charged with narcotics offenses of the kind that often bring violence in our City.  Those causing violence are on notice.  Our collaborative efforts will continue as we move Newburgh forward.”

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

From at least October 2015 through May 2016, TYRIN GAYLE, a/k/a “Spazzo,” LAQUAN FALLS, a/k/a “Greedy,” GABRIEL WARREN, a/k/a “Stackz,” DAVID BROWN, a/k/a “Baby Thot,” BRENDAN GERMAINE, a/k/a “Brandan Germain,” RASHUN EVANS, LAQUAVIOUS BOYKIN, BRITTANY HALL, and CHRISTOPHER JOHNSON, conspired to sell crack cocaine in and around Newburgh, New York, referring to themselves as the “Yellow Tape Money Gang,” or “YTMG” for short.  The conspiracy was led, at different times, by GAYLE, FALLS, and WARREN. 

In May 2016, EVANS used, carried, and possessed a firearm in furtherance of the crack cocaine conspiracy in which he was a member.

According to statements made during bail hearings this afternoon, YTMG members advertised their affiliation with their drug trafficking organization through posts on social media websites such as Facebook.  Based on these posts, law enforcement learned that the “Yellow Tape Money Gang” name referred to the yellow caution tape that law enforcement uses to cordon off dead bodies following a murder.  The reference was apparently meant as a warning to rival gang members that they would need yellow tape if they crossed YTMG.  These Facebook posts included photographs and videos of YTMG members with what appear to be guns, large amounts of cash, and narcotics.  At least three firearms were seized during the execution of search warrants this morning in connection with the arrests.

*                      *                     *

Nine defendants were taken into federal custody this morning.  These defendants were presented in White Plains federal court today before U.S. Magistrate Judge Paul E. Davison.                                   

Charts containing the names of the defendants who were charged today, and the charges and maximum penalties they face, are attached.  The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants would be determined by the judge.

Mr. Bharara praised the outstanding investigative work of the FBI, ATF, the New York State Police, the City of Newburgh Police Department, the Town of Newburgh Police Department, and the Orange County Sheriff’s Department.

The case is being handled by the Office’s White Plains Division.  Assistant United States Attorneys Maurene Comey, Jacqueline Kelly, and Lauren Schorr are in charge of the prosecutions.

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

United States v. Tyrin Gayle, et al., 16 Cr. 361

CHARGE(S)

DEFENDANT(S)

MAXIMUM PENALTIES

Narcotics conspiracy

(Conspiracy to distribute and possess with intent to distribute 28 grams or more of crack cocaine.)

TYRIN GAYLE,

    a/k/a “Spazzo,”

LAQUAN FALLS,

    a/k/a “Greedy,”

GABRIEL WARREN,

    a/k/a “Stackz”

DAVID BROWN,

    a/k/a “Baby Thot,”

BRENDAN GERMAINE,

    a/k/a “Brandan Germain,”

RASHUN EVANS,

LAQUAVIOUS BOYKIN,

BRITTANY HALL, and

CHRISTOPHER JOHNSON

40 years in prison

 

Mandatory minimum: five years in prison

Possession of a firearm in furtherance of a drug trafficking crime

 

RASHUN EVANS

Life in prison

 

Mandatory minimum: five years in prison, to be imposed consecutively to any other sentence

 

 

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

Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the arrest of STEVEN MCCLATCHEY, a director at an investment bank in Manhattan (the “Investment Bank”), on charges of participating in a scheme to commit insider trading in connection with potential mergers and acquisitions (“M&A”) in which the Investment Bank was involved.  In addition, charges against GARY PUSEY were unsealed.  PUSEY pled guilty and admitted to his participation in the scheme last week.  

MCCLATCHEY was arrested this morning in Long Island, New York, and will be presented this afternoon in Manhattan federal court before U.S. Magistrate Judge Kevin Nathaniel Fox.  On Friday, May 27, 2016, PUSEY pled guilty before U.S. District Judge Katherine Polk Failla to conspiracy, securities fraud, and wire fraud.

In a separate action, the Securities and Exchange Commission (“SEC”) filed civil charges against MCCLATCHEY and PUSEY.

U.S. Attorney Preet Bharara said:  “Insider trading continues to tarnish our securities markets.  As alleged, Steven McClatchey abused his position at a major investment bank, feeding sensitive information about mergers and acquisitions to his close friend, Gary Pusey, who in turn traded on that material, nonpublic information.  McClatchey did not tip Pusey for free, allegedly receiving cash kickbacks and home renovations from Pusey in exchange.  A free and fair marketplace is what securities investors deserve and is what we seek to enforce through prosecutions like this one.”   

FBI Assistant Director-in-Charge Diego Rodriguez said:  “As alleged, Steven McClatchey violated his confidentiality duty at an investment bank when he shared insider material information with his boat dock buddy, Gary Pusey, who ultimately used the information to make trades.  McClatchey allegedly benefited from thousands of dollars cash payments and home repairs.  Investing in our markets should be fair to all investors with equal access to information, not boat-side chats that give certain investors advantage.  The FBI will continue to work with our partners to ensure our markets are fair and equitable to all.”

According to the allegations in the charging documents unsealed today in Manhattan federal court, including the Complaint and Information, and statements made in court proceedings[1]:

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, PUSEY.  PUSEY, in turn, used the Inside Information to execute profitable securities trades ahead of at least 10 separate M&A announcements.

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 which 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, is charged with one count of conspiracy to commit securities and wire fraud, which carries a maximum sentence of 25 years in prison; one count of wire fraud, which carries a maximum sentence of 20 years in prison; and 11 counts of securities fraud, each carrying a maximum sentence of 25 years in prison. The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense. 

On May 30, 2016, PUSEY, 47, of Long Island, New York, pled guilty to one count of conspiracy to commit securities and wire fraud, which carries a maximum sentence of 25 years in prison; one count of wire fraud, which carries a maximum sentence of 20 years in prison; and 11 counts of securities fraud, each carrying a maximum sentence of 25 years in prison. The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense. 

The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any 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.  

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, announced today that JOSEPH HUNTER, a former member of the U.S. Army, was sentenced today to 20 years in prison based on his convictions for conspiracy to murder an agent of the Drug Enforcement Administration (“DEA”) and a DEA informant, conspiracy to import cocaine into the United States, and conspiracy to possess a firearm in furtherance of a crime of violence.  HUNTER pled guilty on February 13, 2015, before U.S. District Judge Laura Taylor Swain, who imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara said:  “The sentencing of Joseph Hunter, an admitted contract killer, convicted drug trafficker, and ringleader of trained assassins, ends another chapter in a chilling criminal case that spanned the globe.  Hunter and his cohorts turned from serving their countries as soldiers to becoming mercenaries for hire, plotting to kill a DEA agent and informant and trafficking in massive quantities of cocaine.  Thanks to the outstanding investigative work of the DEA, these soldiers of fortune have met their rightful fate, long sentences in federal prison.”

According to the Indictment and Superseding Indictments filed against HUNTER and co-defendants Timothy Vamvakias, Dennis Gogel, Slawomir Soborski, and Michael Filter; other documents publicly filed in this case; and statements made during court proceedings, including today’s sentencing:

All five defendants previously served in the armed forces of their respective nations. HUNTER served in the U.S. Army between approximately 1983 and 2004; Vamvakias served in the U.S. Army between approximately 1991 and 2004; Gogel served in the German armed forces until 2010; Filter served in the German armed forces until 2009; and Soborski served in the Polish armed forces until 2011.  HUNTER served as a sniper instructor and a senior drill sergeant, training other soldiers in marksmanship and tactics.  Vamvakias attained the rank of sergeant and served both as infantryman and a military police officer.  Gogel, Soborski, and Filter were also trained as snipers. 

In 2013, HUNTER recruited Vamvakias, Gogel, Soborski, and Filter to serve as security for a Colombian drug trafficking organization and to perform contract killings.  For example, in March 2013, HUNTER described the work to Soborski, Filter, and Gogel as follows:  “It’s just like a military mission.  Right.  This is a real [expletive].  You know, you see everything.  You see James Bond in the movie and you’re saying, ‘Oh, I can do that.’  Well, you’re gonna do it now.”  During the same recorded meeting, HUNTER described in detail his previous participation in weapons trafficking, using grenades to conduct an attack, and shootings, as well as his participation in two actual murders-for-hire in the Philippines.

During meetings in Asia, Africa, and the Caribbean that began in January 2013 and continued through late September 2013, HUNTER communicated with three confidential sources (the “CSs”) working with the DEA, who purported to be Colombian narcotics traffickers.  HUNTER agreed to serve as the head of security for the CSs’ purported narcotics trafficking organization, and assembled a “security team” consisting of Vamvakias, Gogel, Filter, and Soborski.  HUNTER explained to his co-defendants that this work would involve “tons of cocaine” and “millions of dollars,” and that they would also have the opportunity to do “bonus work, that is, assassination” for which they would be paid at least $25,000, and “depending on the threat level, the price goes up.” 

HUNTER and his co-defendants thereafter agreed, in meetings and communications with the CSs, to provide security and surveillance services to the narcotics trafficking organization.  In late-March 2013, in Thailand, Gogel, Filter, and Soborski surveilled a vessel on behalf of the CSs’ purported narcotics trafficking organization and reported their activities to HUNTER.  In April 2013, in Mauritius, at the direction of the CSs, Gogel, Filter, and Soborski provided security for meetings at which the participants – including Scott Stammers and Philip Shackels, who were later extradited to the Southern District of New York and pled guilty to a drug-trafficking offense before U.S. District Judge Andrew L. Carter, Jr., in United States v. Stammers, et al., 13 Cr. 579 (ALC) (S.D.N.Y.) – discussed actual weapons trafficking activities and the distribution of illegal narcotics to the United States.  In late June 2013, Vamvakias, Gogel, Filter, and Soborski conducted surveillance of a purported U.S.-registered aircraft at the direction of the third CS (“CS-3”), who posed as a member of the CSs’ narcotics trafficking organization.  CS-3 informed the defendants that the aircraft was to be loaded with 300 kilograms of cocaine to be shipped to New York.  The security team reported their activities to HUNTER.

Furthermore, HUNTER, Vamvakias, and Gogel agreed to commit murders-for-hire in Liberia by assassinating both a DEA Special Agent and a person who, according to the CSs, was providing information to the DEA about the CSs’ narcotics trafficking organization.  In exchange for the murders, Vamvakias and Gogel were together to be paid approximately $700,000, and HUNTER was to receive an additional $100,000 for supervising the hit team.  Communications between the defendants and the CSs occurred by telephone, over e-mail, and in a series of surreptitiously audio-recorded and videotaped meetings over an approximately nine-month period.

In mid-May 2013, at a meeting with the CSs in Thailand, HUNTER, Vamvakias, Gogel, and Soborski were told that a “bonus job” – that is, a contract killing – was in the offing, due to a leak within the CSs’ narcotics trafficking organization.  In late May 2013, in email communications, HUNTER confirmed that his team would be willing to murder both a U.S. law enforcement agent and a source (a boat captain), who was purportedly providing information to U.S. law enforcement authorities about the CSs’ narcotics trafficking organization.  HUNTER confirmed by email that his team would kill both the DEA agent and the informant.  At a meeting in late June 2013, CS-3 explained to Vamvakias and Gogel that “the job is to kill a U.S. DEA agent and a source with the DEA,” who would be located in Liberia.  Vamvakias and Gogel discussed the weapons that could be used and masks to be worn for the murders, and Vamvakias stated that it would be better to “hit the agent first” and then “the snitch.”  In early July 2013, HUNTER sent via e-mail a list of the items needed for the murders, including “[t]wo Submachine Guns with silencers . . . [t]wo .22 pistols with Silencers.” 

In mid-August 2013, at a meeting in Thailand, HUNTER, Vamvakias, and Gogel discussed in detail the weapons that would be used and the possibility of entering Liberia without having their passports stamped.  They suggested that CS-3 fly them out of the country via private plane following the murders.  Vamvakias stated that, among other weapons, a sub-machine gun and two .22 caliber pistols would be needed for the murders, and CS-3 agreed to deliver the weapons to Liberia.  The next day, at a meeting with Gogel, CS-3 confirmed that an order for the requested weapons had been made.  Later that same day, Gogel met again with CS-3 and provided CS-3 with two highly sophisticated latex facemasks, which can make the wearer appear to be of another race, for CS-3 to transport to Liberia.   

In late September 2013, Vamvakias and Gogel arrived in Liberia to commit the planned murders-for-hire.

*          *          *

In addition to the prison sentence, Judge Swain also sentenced HUNTER, 51, to 10 years of supervised release and to pay a $300 special assessment.

Vamvakias, 44, pled guilty on January 9, 2015, to conspiracy to murder a DEA agent and a DEA informant, conspiracy to import cocaine into the United States, conspiracy to possess a firearm in furtherance of a crime of violence, and conspiracy to distribute cocaine on board an aircraft, and was sentenced by Judge Swain on July 16, 2015, to 20 years in prison.  Gogel, 30, pled guilty on January 13, 2015, to conspiracy to murder a DEA agent and a DEA informant, conspiracy to import cocaine into the United States, conspiracy to possess a firearm in furtherance of a crime of violence, and conspiracy to distribute cocaine on board an aircraft, and was sentenced by Judge Swain on September 24, 2015, to 20 years in prison.  Filter, 31, pled guilty on February 10, 2015, to conspiracy to import cocaine into the United States, and was sentenced by Judge Swain on September 9, 2015, to eight years in prison.  Finally, Soborski, 44, pled guilty on February 10, 2015, to conspiracy to import cocaine into the United States, and is scheduled to be sentenced by Judge Swain on June 10, 2016.

Today’s sentencing was the result of the close cooperative efforts of the United States Attorney’s Office for the Southern District of New York; DEA’s Special Operations Division; DEA’s  Bangkok, Ghana, Pretoria, Bucharest, Manila, Nassau and Copenhagen Offices; the Royal Thai Police Narcotics Suppression Bureau and Crime Suppression Division;  the Royal Thai Immigration; the Royal Thai Attorney General’s Office; Republic of Liberia’s National Security Agency; the Republic of Liberia’s Attorney General’s Office; the Estonian Police and Border Guard; the Estonian National Criminal Police, Investigative Bureau; the Estonian State Prosecutors Office; the Royal Bahamas Police Force and Drug Enforcement Unit; Interpol; and the U.S. Department of Justice’s Office of International Affairs.

The prosecution is being handled by the Office’s Terrorism and International Narcotics Unit.  Assistant United States Attorneys Emil J. Bove III, Michael D. Lockard, Aimee Hector, and Anna Skotko are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and John P. Carlin, Assistant Attorney General for National Security, announced that MINH QUANG PHAM, a/k/a “Amin,” was sentenced today in Manhattan federal court to 40 years in prison for his efforts in support of al Qaeda in the Arabian Peninsula (“AQAP”), a designated foreign terrorist organization.  PHAM was arrested in the United Kingdom on June 29, 2012, and was extradited to the United States in February 2015.  PHAM pleaded guilty on January 8, 2016, to providing material support to AQAP, conspiring to receive military training from AQAP, and possessing and using a machine gun in furtherance of crimes of violence.  U.S. District Judge Alison J. Nathan imposed today’s sentence. 

Manhattan U.S. Attorney Preet Bharara said: “Minh Quang Pham committed himself to the violent mission of al Qaeda in the Arabian Peninsula, a terrorist organization that has claimed responsibility for deadly attacks around the world, including the 2015 Charlie Hebdo attack in Paris.  Pham went to Yemen to receive military training from AQAP and contributed to Inspire magazine, a recruitment tool and ‘how-to’ guide for would-be terrorists around the world.  This prosecution and today’s sentencing show that terrorists and those who support them will continue to be brought to justice in American courts, thanks to the continuing resolve of the Department of Justice, this Office and our global law enforcement partners.”

Assistant Attorney General John P. Carlin said: “This sentence holds Minh Quang Pham accountable for his terrorist activities, including providing material support to al Qaeda in the Arabian Peninsula and receiving explosives training from Anwar al-Aulaqi in Yemen for the purpose of committing an attack in the United Kingdom.  Counterterrorism is the National Security Division’s highest priority, and we will continue to bring justice to those who seek to aid designated foreign terrorist organizations in their efforts to commit violent attacks against the United States and our allies.”

According to the Indictment, extradition materials and court filings, and statements made at related court proceedings, including today’s sentencing:

AQAP was designated by the United States Department of State as a foreign terrorist organization in January 2010.  AQAP’s leadership has publicly claimed responsibility for plots to murder U.S. nationals and commit terrorist attacks against U.S. interests, including the 2009 Christmas Day bomb plot, in which an AQAP operative attempted to detonate an explosive device on a civilian airplane traveling to Detroit, Michigan.  Only months later, AQAP attempted to detonate explosive devices within the holds of commercial airliners traveling to the United States.  More recently, AQAP claimed responsibility for the January 2015 massacre in Paris, France at the office of the magazine Charlie Hebdo, which had published cartoons of the Prophet Mohammed.  The attack killed 11 people and injured 11 others.

In December 2010, after informing his wife and others that he planned to travel to Ireland, PHAM traveled from London, where he resided, to Yemen, the principal base of operations for AQAP.  PHAM traveled to Yemen in order to join AQAP, to wage jihad on behalf of AQAP, and to martyr himself for AQAP’s cause.  After arriving in Yemen, he swore an oath of loyalty to AQAP in the presence of an AQAP commander.

While in Yemen in 2010 and 2011, PHAM provided assistance to and received training from Anwar al-Aulaqi, a U.S.-born senior leader of AQAP.  Prior to al-Aulaqi’s death in September 2011, al-Aulaqi called on his followers to conduct attacks against American interests abroad, including by killing American civilians.  Al-Aulaqui advised PHAM to return to the United Kingdom for the purpose of finding and making contact with individuals who, like PHAM, wanted to travel to Yemen to join AQAP, and provided PHAM with money, as well as a telephone number and e-mail address that PHAM was to use to contact al-Aulaqi upon his return to the United Kingdom.  In addition, PHAM provided his laptop computer to al-Aulaqi, and al-Aulaqi provided PHAM with a new “clean” laptop to take with him when he returned to the United Kingdom so that PHAM would not have any issues if authorities searched his computer.

In or about June 2011, prior to his departure from Yemen, PHAM approached al-Aulaqi about conducting a suicide attack whereby he would “sacrifice” himself on behalf of AQAP.  Al-Aulaqi instructed PHAM to conduct a bombing at Heathrow International Airport, and specifically directed him to target the arrivals section, with a specific focus on the area where flights arrived from the United States or Israel.  In connection with that terrorist plot, which would have entailed PHAM carrying the explosive concealed in a backpack, PHAM received training from AQAP, including from al-Aulaqi, on how to build an explosive device using readily available household chemicals and other materials.  In particular, al-Aulaqi instructed PHAM to tape bolts around the explosive device to act as shrapnel.

During his time in Yemen, PHAM also assisted with the preparation and dissemination of AQAP’s propaganda magazine, Inspire.  AQAP uses Inspire magazine not only as a recruitment and propaganda tool, but also as an operational tool by encouraging its supporters to engage in terrorist attacks against the United States and other Western countries.  In furtherance of that goal, AQAP has published articles praising so-called “lone-wolf” style attacks, as well as articles providing detailed instructions on how to conduct a terror attack using household or commercially available materials.  Dzkokhar Tsarnaev – the convicted “Boston bomber” responsible for detonating two homemade bombs made from pressure cookers near the finish line of the Boston Marathon in April 2013, killing three spectators and maiming 260 other people – previously told the Federal Bureau of Investigation (“FBI”) that he and his brother learned how to create the pressure cooker bombs from Inspire magazine.

PHAM worked directly with now-deceased U.S. citizen Samir Kahn, who was a prominent member of AQAP and responsible for editing and publishing Inspire magazine.  PHAM, who has college degrees in both graphic design and animation, received training in the various types of software used for Inspire magazine and worked closely with Khan, contributing to the magazine in numerous ways.  For example, PHAM used graphic design software to edit videos and photos that would be used as propaganda in Inspire magazine; recorded television programs for Khan that Khan might find useful to the magazine; and offered his camera to be used for the taking of numerous photos used for Inspire magazine.  PHAM also posed in photographs that accompanied Inspire magazine’s articles and provided instructions to its followers.  Among those were a series of photographs accompanying an article with instructions on disassembling and cleaning a Kalashnikov assault rifle.  In another photograph, accompanying an article entitled, “Why Did I Choose Al Qaeda,” which was written by al-Aulaqi, PHAM and three other men were shown wielding automatic Kalashnikov assault rifles.  During his time in Yemen, PHAM received training from AQAP in the use of a Kalashnikov assault rifle, and was provided with a Kalashnikov assault rifle by the organization, which he carried with him in furtherance of his activities on behalf of AQAP in Yemen. 

On July 27, 2011, PHAM returned to the United Kingdom from Yemen.  Upon his arrival at London’s Heathrow International Airport, United Kingdom authorities detained PHAM, searched him, and recovered various materials from him.  For example, PHAM was found in possession of various electronic media that contained computer files forensically identical to those possessed by a cooperating witness who had previously reported sharing electronic documents with PHAM while they were in Yemen with AQAP.  In addition, upon his arrival in the United Kingdom from Yemen, PHAM was found to be in possession of a live round of .762 caliber armor-piercing ammunition, which is consistent with ammunition that is used in a Kalashnikov assault rifle.

*                *                *

In imposing the 40-year prison term, Judge Nathan found that PHAM had been convicted of “among the most serious crimes” prosecutable in the United States, the details of which were “extremely disturbing.”  Judge Nathan found that PHAM provided material support to AQAP, including by agreeing to carry out a “horrific and violent” plot to conduct a suicide bombing at Heathrow International Airport in London. 

In addition to the 40-year prison term, Judge Nathan imposed a life term of supervised release and a $300 special assessment.  On January 8, 2016, Judge Nathan issued an order that PHAM be ordered removed from the United States to the United Kingdom promptly upon completion of his sentence.

Mr. Bharara praised the extraordinary investigative work of the Washington, D.C., Field Office of the FBI.  He also expressed his gratitude to the New York Joint Terrorism Task Force – which principally consists of agents from the FBI and detectives from the New York City Police Department – for the critical role it played in the investigation and prosecution.  In addition, Mr. Bharara thanked the Department of Justice’s National Security Division and Office of International Affairs.  Lastly, Mr. Bharara also thanked the British law enforcement authorities, including the Metropolitan Police Service/SO15 Counter Terrorism Command at New Scotland Yard and the Crown Prosecution Service, for their cooperation in the investigation and prosecution.

This case is being handled by the Terrorism and International Narcotics Unit of the U.S. Attorney’s Office for the Southern District of New York.  Assistant U.S. Attorneys Anna M. Skotko, Sean S. Buckley, Shane T. Stansbury, and Ian McGinley are in charge of the prosecution, with assistance provided by Rebecca Magnone of the National Security Division’s Counterterrorism Section.

           

Preet Bharara, the United States Attorney for the Southern District of New York, announced that today WALI BURGOS, a/k/a “Guy Fisher,” pled guilty to participating in a racketeering conspiracy, and in connection with that plea, admitted to committing the murder of Johnny Moore and a separate attempted murder of another intended victim, all in connection with a violent street gang known as “18 Park,” which is based primarily in and around the New York City Police Department’s 40th Precinct in the Bronx, New York.  As part of his guilty plea, BURGOS admitted to shooting and killing Johnny Moore, a 16-year-old, in the Patterson Houses area in the Bronx, and to committing a shooting and attempted murder in which Burgos fired shots at a rival gang member, hitting the rival gang member’s cap, knocking it off his head.  BURGOS faces a maximum term of life in prison, and will be sentenced before United States District Judge Paul A. Engelmayer on September 8, 2016.

Manhattan U.S. Attorney Preet Bharara said:  “For far too long, members of 18 Park and their rival gangs have terrorized the people of New York by engaging in all manner of mayhem – including murder, attempted murder, and other racketeering activities.  In 2013, Wali Burgos was acquitted of the murder of Johnny Moore after a jury trial in Bronx County Supreme Court.  Today, Burgos accepted responsibility for that murder and pled guilty to it in federal court.  Gang violence cannot be allowed to persist, and today’s guilty plea shows that law enforcement won’t give up until the perpetrators of such violence are brought to justice.”

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

BURGOS was a member of the Bronx-based street gang known as 18 Park, and in that capacity committed acts of violence with other gang members, including murder and attempted murder.  From at least 2006 to December 2015, members and associates of 18 Park enriched themselves by selling drugs, such as crack cocaine, heroin, and marijuana, and committed acts of violence, including murder and attempted murder, against various people, including rival gang members, rival drug traffickers, and innocent bystanders.  As part of this enterprise, members and associates of 18 Park – including BURGOS – killed and attempted to kill other individuals.  On May 29, 2011, BURGOS shot Moore to death in the Patterson Houses area.  On October 2, 2014, BURGOS shot at and attempted to murder a member of a rival gang, also in the Patterson Houses area.  BURGOS just missed the rival gang member, shooting the cap off his head.

*                      *                     *

Mr. Bharara praised the work of ATF, the DEA, and the NYPD.  He also thanked the Bronx County District Attorney’s Office for their participation and support in this case.

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

Preet Bharara, the United States Attorney for the Southern District of New York, James J. Hunt, Special Agent in Charge of the New York Field Division of the Drug Enforcement Administration (“DEA”), William J. Bratton, the Commissioner of the New York City Police Department (“NYPD”), and Joseph A. D’Amico, the Superintendent of the New York State Police (“NYSP”), announced today the arrest of MARC HENRY JOHNSON and JAMES HOLDER, a/k/a “Pepsi,” for cocaine-related charges.  JOHNSON and HOLDER were arrested last night and will be presented in Manhattan federal court before U.S. Magistrate Judge Gabriel W. Gorenstein today. 

U.S. Attorney Preet Bharara said: “Drugs destroy lives and communities.  The charges unsealed today against James Holder and Marc Henry Johnson are a reminder of that.  And the work of the DEA, NYPD, and State Police in this investigation is also a reminder of law enforcement’s commitment to stem the distribution of dangerous drugs in our communities.”   

DEA Special Agent in Charge James J. Hunt said: “Drug overdoses take too many lives too soon and become a family’s worst nightmare.  DEA is committed to dismantling drug trafficking organizations and those responsible for putting poison in the hands of users.  By retracing alleged crimes, the DEA Strike Force has sent a message to dealers that the consequences of their actions affect them as well as the families of drug users.  DEA commends our law enforcement partners who have worked diligently throughout this investigation.”

NYPD Commissioner William J. Bratton said: “As alleged, ‎the defendants’ apparent disregard for a victim of this poison is frankly, unimaginable.  As alleged, when the defendants realized someone was unresponsive after an apparent overdose, they dragged her body down to a building lobby in Manhattan's Chelsea neighborhood. We will continue to pursue those who pour this poison into our streets with every single judicial tool at our disposal.”

State Police Superintendent Joseph A. D’Amico said: “The hard work of our partners on the New York Organized Crime Drug Enforcement Strike Force has led to the arrests of two subjects who have allegedly been dealing or buying cocaine in the city for years, with little regard for the impact of their actions on users or the rest of the community. We will continue to work with our partners to disrupt the supply of dangerous narcotics in our communities and put those responsible behind bars.”        

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

From approximately 2003 to October 4, 2015, HOLDER lived in and sold cocaine from a third-floor apartment in Chelsea.  He also delivered cocaine to customers at other locations.  Since 2003, HOLDER distributed a total of more than five kilograms of cocaine. 

HOLDER and JOHNSON are longtime friends.  JOHNSON regularly bought cocaine from HOLDER, used cocaine, and provided cocaine to others in social situations.  JOHNSON also introduced HOLDER to other individuals as a potential supplier of cocaine.  HOLDER then provided cocaine to those individuals in exchange for money, and those individuals, in turn, introduced still more cocaine buyers to HOLDER. 

During the night of October 3, 2015, and the early morning hours of October 4, 2015, JOHNSON sent text messages saying he “may go to Pepsi for a pickup” “in chelsea,” and later met up with a 38-year-old woman (“Individual-1”) and others at a bar in Manhattan.  Individual-1 had been using cocaine before JOHNSON arrived.  JOHNSON told Individual-1 and others at the bar that he had a significant amount of cocaine, which he offered to share. 

Later, JOHNSON and Individual-1 left the bar together in a taxi.  They arrived at the Chelsea building where HOLDER lived at approximately 4:25 a.m., and walked upstairs to HOLDER’s apartment.  Video surveillance footage shows hours later, JOHNSON and HOLDER dragged Individual-1’s apparently unconscious body into the building’s first-floor vestibule.  HOLDER then left the building, carrying an object as he walked away. 

JOHNSON called 911 to summon an ambulance at approximately 8:30 a.m.  He declined to provide his name to the 911 operator, and neither identified Individual-1 nor described his relationship to her, nor did he explain what had happened to her and why she needed medical assistance.  Emergency Medical Technicians (“EMTs”) responded and found Individual-1 unresponsive in the Chelsea building’s vestibule.  JOHNSON left the building soon after the EMTs arrived. 

Individual-1 was taken to a hospital and pronounced dead later on October 4, 2015.  Her death was caused by, among other things, cocaine use.

HOLDER moved out of the Chelsea building after October 4, 2015, but continued to sell cocaine in Manhattan until at least January 2016.

*                *                *

HOLDER is charged with one count of conspiracy to distribute at least five kilograms of cocaine.  The charge carries a mandatory minimum sentence of 10 years in prison, and a maximum potential sentence of life in prison.  JOHNSON is charged with one count of attempting to distribute cocaine, which carries a maximum potential sentence of 20 years in prison; and one count of acting as an accessory after the fact in relation to the conspiracy charge against HOLDER, which carries a maximum potential sentence of 15 years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

Mr. Bharara praised the outstanding investigative work 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 case is being prosecuted by the Office’s Narcotics Unit.  Assistant U.S. Attorneys Margaret Garnett and David Abramowicz are in charge of the prosecution.

 

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

Evgeny Buryakov, aka Zhenya, 41, was sentenced to 30 months in prison today for conspiring to act in the United States as an agent of the Russian Federation without providing prior notice to the Attorney General.

The sentence was announced by Assistant Attorney General for National Security John P. Carlin and U.S. Attorney Preet Bharara of the Southern District of New York.

“Evgeny Buryakov is being held accountable for his efforts to secretly operate as a Russian foreign intelligence officer in the United States,” said Assistant Attorney General Carlin.  “Foreign intelligence officers attempting to illegally collect information pose a direct threat to our national security.  Working with our law enforcement and intelligence partners at tracking down and disrupting these clandestine operations against our country will continue to remain one of the National Security Division’s highest priorities.”

“Evgeny Buryakov, in the guise of being a legitimate banker, gathered intelligence as an agent of the Russian Federation in New York,” said U.S. Attorney Bharara.  “He traded coded messages with one of his Russian spy co-defendants, who sent the clandestinely collected information back to Moscow.  So long as this type of Cold War-style spy intrigue continues to go on in present-day New York City, the FBI and the prosecutors in my office will continue to investigate and prosecute it.”

According to the complaint, indictment, other court filings and statements made during court proceedings:

Beginning in at least 2012, Buryakov worked in the United States as an agent of Russia’s foreign intelligence agency, known as the SVR.  Buryakov operated under non-official cover, meaning he entered and remained in the United States as a private citizen, posing as an employee in the New York office of a Russian bank, Vnesheconombank (VEB).  SVR agents operating under such non-official cover (NOCs) are typically subject to less scrutiny by the host government and, in many cases, are never identified as intelligence agents by the host government.  As a result, an NOC is an extremely valuable intelligence asset for the SVR.

Federal law prohibits individuals from acting as agents of foreign governments within the United States without prior notification to the Attorney General.  Department of Justice records indicate that Buryakov never notified the Attorney General that he was, in fact, an agent of the Russian Federation.

Buryakov worked in New York with at least two other SVR agents, Igor Sporyshev and Victor Podobnyy.  From on or about Nov. 22, 2010, to on or about Nov. 21, 2014, Sporyshev officially served as a trade representative of the Russian Federation in New York.  From on or about Dec. 13, 2012, to on or about Sept. 12, 2013, Podobnyy officially served as an attaché to the Permanent Mission of the Russian Federation to the United Nations.  The investigation, however, showed that Sporyshev and Podobnyy also worked as officers of the SVR. 

The directives from the SVR to Buryakov, Sporyshev and Podobnyy, as well as to other covert SVR agents acting within the United States, included requests to gather intelligence on, among other subjects, potential U.S. sanctions against Russian banks and the United States’ efforts to develop alternative energy resources. 

During the course of their work as covert SVR agents in the United States, Buryakov, Sporyshev and Podobnyy regularly met and communicated using clandestine methods and coded messages in order to exchange intelligence-related information while shielding their associations with one another as SVR agents. 

In the summer of 2014, Buryakov met multiple times with a confidential source working for the FBI and an FBI undercover employee, both of whom purported to be working on a casino development project in Russia.  During these meetings, Buryakov accepted documents that were purportedly obtained from a U.S. government agency and which supposedly contained information potentially useful to Russia, including information about U.S. sanctions against Russia.

For their alleged roles in the conspiracy, Sporyshev and Podobnyy are charged with conspiracy to act in the United States as an agent of a foreign government without first notifying the Attorney General, which carries a maximum sentence of five years in prison.  They are also charged with aiding and abetting Buryakov’s actions in the United States as an agent of a foreign government without first notifying the Attorney General, which carries a maximum sentence of 10 years in prison.  These 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 a judge.  The charges against Sporyshev and Podobnyy are merely accusations, and those defendants are presumed innocent unless and until proven guilty.  Sporyshev and Podobnyy no longer live in the United States and have not been arrested.  By virtue of their prior positions in the United States on behalf of Russia, both of them were afforded diplomatic immunity from arrest and prosecution while in the United States. 

Assistant Attorney General Carlin joined U.S. Attorney Bharara in praising the investigative work of the FBI’s Counterintelligence Division.

The prosecution is being handled by Assistant U.S. Attorneys Stephen J. Ritchin, Emil J. Bove III, Brendan F. Quigley, Anna M. Skotko and Ian McGinley of the Southern District of New York, with assistance provided by Senior Trial Attorney Heather Schmidt of the National Security Division’s Counterintelligence and Export Control Section. 

Preet Bharara, the United States Attorney for the Southern District of New York, and John P. Carlin, Assistant Attorney General for National Security, announced that EVGENY BURYAKOV, a/k/a “Zhenya,” who worked for a Russian bank in Manhattan, was sentenced today to 30 months in prison for conspiring to act in the United States as an agent of the Russian Federation without providing prior notice to the Attorney General.  BURYAKOV pled guilty on March 11, 2016, before U.S. District Judge Richard M. Berman, who imposed today’s sentence.   

Manhattan U.S. Attorney Preet Bharara said: “Evgeny Buryakov, in the guise of being a legitimate banker, gathered intelligence as an agent of the Russian Federation in New York.  He traded coded messages with one of his Russian spy co-defendants, who sent the clandestinely collected information back to Moscow.  So long as this type of Cold War-style spy intrigue continues to go on in present-day New York City, the FBI and the prosecutors in my office will continue to investigate and prosecute it.”

Assistant Attorney General John P. Carlin said: “Evgeny Buryakov is being held accountable for his efforts to secretly operate as a Russian foreign intelligence officer in the United States.  Foreign intelligence officers attempting to illegally collect information pose a direct threat to our national security.  Working with our law enforcement and intelligence partners at tracking down and disrupting these clandestine operations against our country will continue to remain one of the National Security Division's highest priorities.”           

According to the Complaint, the initial and superseding Indictments, other documents publicly filed in this case, and statements made during court proceedings, including today’s sentencing:

Beginning in at least 2012, bURYAKOV worked in the United States as an agent of Russia’s foreign intelligence agency, known as the “SVR.”  BURYAKOV operated under “non-official cover,” meaning he entered and remained in the United States as a private citizen, posing as an employee in the Manhattan office of a Russian bank, Vnesheconombank, also known as “VEB.”  SVR agents operating under such non-official cover – sometimes referred to as “NOCs” – typically are subject to less scrutiny by the host government, and, in many cases, are never identified as intelligence agents by the host government.  As a result, an NOC is an extremely valuable intelligence asset for the SVR.

Federal law prohibits individuals from acting as agents of foreign governments within the United States without prior notification to the United States Attorney General.  Department of Justice records indicate that BURYAKOV never notified the United States Attorney General that he was, in fact, an agent of the Russia Federation.

BURYAKOV worked in New York with at least two other SVR agents, Igor Sporyshev and Victor Podobnyy.  From on or about November 22, 2010, to on or about November 21, 2014, Sporyshev officially served as a Trade Representative of the Russian Federation in New York.  From on or about December 13, 2012, to on or about September 12, 2013, Podobnyy officially served as an Attaché to the Permanent Mission of the Russian Federation to the United Nations.  The investigation, however, showed that Sporyshev and Podobnyy also worked as officers of the SVR. 

BURYAKOV’s Co-Conspirators Are Recorded Inside the SVR’s New York “Residentura”

During the course of the investigation, the FBI recorded Sporyshev and Podobnyy speaking inside the SVR’s offices in New York, known as the “Residentura.” 

The FBI obtained the recordings after Sporyshev attempted to recruit an FBI undercover employee (“UCE-1”), who was posing as an analyst from a New York-based energy company.  In response to requests from Sporyshev, UCE-1 provided Sporyshev with binders containing purported industry analysis written by UCE-1 and supporting documentation relating to UCE-1’s reports, as well as covertly placed recording devices.  Sporyshev then took the binders to, among other places, the Residentura.

During subsequent recorded conversations, Sporyshev and Podobnyy discussed, among other things, Sporyshev’s SVR employment contract and his official cover position, their work as SVR officers, and the FBI’s July 2010 arrests of ten SVR agents in the United States, known as the “Illegals.”

Sporyshev and Podobnyy also discussed BURYAKOV’s prior service with the SVR in South Africa.  BURYAKOV worked in South Africa between approximately 2004 and 2009, officially as a representative of VEB.  During a conversation about Sporyshev’s cover position in New York, Podobnyy related that, when BURYAKOV was working in South Africa, Podobnyy had dinner with an SVR official and BURYAKOV’s supervisor at VEB and that, during the dinner, the SVR official told the VEB official that BURYAKOV was an “employee of the Service,” i.e., the SVR.           

Further, Sporyshev and Podobnyy were recorded discussing, among other things, their (i) attempting to recruit New York City residents as intelligence sources for Russia; (ii) tasking BURYAKOV to gather intelligence; and (iii) transmitting intelligence reports prepared by BURYAKOV back to SVR headquarters in Moscow. 

The directives from the SVR to BURYAKOV, Sporyshev, and Podobnyy, as well as to other covert SVR agents acting within the United States, included requests to gather intelligence on, among other subjects, potential United States sanctions against Russian banks and the United States’ efforts to develop alternative energy resources. 

BURYAKOV’s Intelligence Taskings

Sporyshev was responsible for relaying intelligence assignments from the SVR to BURYAKOV.

BURYAKOV Drafts a Proposal for the SVR’s “Active Measures Directorate”

For example, in May 2013, Sporyshev and Podobnyy were recorded discussing a proposal that BURYAKOV had drafted about a planned deal in which Bombardier Aircraft Company in Canada would manufacture certain airplanes in Russia.  Sporyshev noted that Canadian “unions were resisting” and that BURYAKOV’s “proposal [was] for MS” – the SVR’s Active Measures Directorate – to “pressur[e] the unions and secur[e] from the company a solution that is beneficial to us.”  Other evidence developed during the investigation showed that, around the time of this conversation, BURYAKOV had conducted Internet searches relating to Bombardier and labor unions and, earlier, had obtained news articles regarding the planned deal and attended a conference in Canada that Bombardier personnel also attended. 

BURYAKOV Assists Sporyshev in Attempting to Obtain Sensitive Information About the New York Stock Exchange

Also, on May 21, 2013, Sporyshev called BURYAKOV, greeted him, and then described a tasking from “top sources” relating to three questions that ITAR-TASS, a Russian news agency, could put to the New York Stock Exchange.  Sporyshev called the defendant back approximately 20 minutes later.   During the call, BURYAKOV proposed questions regarding (i) Exchange Traded Funds (ETFs), including the “mechanisms of their use to destabilize the market”; (ii) “curbing of trading robot activities”; and (iii) “technical parameters” and “other regulations directly related to the exchange.”  On July 8, 2013, a purported “Bureau Chief” for ITAR-TASS sent an email to an employee of the New York Stock Exchange that parroted the questions that BURYAKOV proposed to Sporyshev.

BURYAKOV Assists Sporyshev in Analyzing the Effect of Sanctions

Another example of an intelligence tasking occurred in late March 2014.  Specifically, on or about March 28, 2014, Sporyshev was recorded telling BURYAKOV that Sporyshev needed help researching the “effects of economic sanctions on our country,” among other things.  A few days later, on April 2, 2014, Sporyshev called BURYAKOV and stated, in an intercepted conversation, that he had not seen BURYAKOV in a while, and asked to meet BURYAKOV outside VEB’s office in Manhattan in 20 minutes.  A court-authorized search of BURYAKOV’s computer at VEB revealed that, at around the time of this telephone call, BURYAKOV conducted the following internet searches: “sanctions Russia consiquences” [sic] and “sanctions Russia impact.”

Two days later, on April 4, 2014, BURYAKOV called Sporyshev and, in an intercepted conversation, stated that he “wrote you an order list,” and suggested that they meet.  Approximately 20 minutes later, Sporyshev met BURYAKOV in the driveway of BURYAKOV’s home.  Their encounter, which was captured by a video surveillance camera located near BURYAKOV’s residence, lasted approximately two minutes.  On the video footage, the defendants appeared to exchange a small object.

Clandestine Meetings and Communications

During the course of their work as covert SVR agents in the United States, BURYAKOV, Sporyshev, and Podobnyy regularly met and communicated using clandestine methods and coded messages, in order to exchange intelligence-related information while shielding their associations with one another as SVR agents.  These efforts were designed, among other things, to preserve their respective covers as an employee of VEB (BURYAKOV), a Trade Representative of the Russian Federation in New York (Sporyshev), and an Attaché to the Permanent Mission of the Russian Federation to the United Nations (Podobnyy).

During the investigation, the FBI intercepted numerous calls between BURYAKOV and Sporyshev in which one of the men told the other that he needed to meet for some purpose, such as to transfer an item (such as a “ticket,” “book,” or “list,”) or for a purported social purpose.  In fact, BURYAKOV and Sporyshev used this coded language to signal that they needed to exchange intelligence information.

FBI surveillance revealed that, at some of these meetings between BURYAKOV and Sporyshev, they exchanged documents or other small items.  Notably, despite discussing on approximately one dozen occasions the need to meet to transfer “tickets,” BURYAKOV and Sporyshev were – other than one occasion where they discussed going to a movie – never observed attending, or discussing in any detail, events that would typically require tickets, such as a sporting event or concert.

BURYAKOV’s Receipt of Purported Official United States Government Documents

In the summer of 2014, BURYAKOV met multiple times with a confidential source working for the FBI (“CS-1”) and an FBI undercover employee (“UCE-2”).  Both CS-1 and UCE-2 purported to be working on a casino development project in Russia.

During a conversation recorded on July 22, 2014, Sporyshev warned BURYAKOV that meeting with UCE-2 might be a “trap” but authorized BURYAKOV to go ahead so he could make a better assessment.

During the course of the subsequent meetings, and consistent with his interests as a Russian intelligence agent, BURYAKOV demonstrated his strong desire to obtain information about subjects far outside the scope of his work as a bank employee.  During these meetings, BURYAKOV also accepted documents that were purportedly obtained from a U.S. government agency and which purportedly contained information potentially useful to Russia, including information about United States sanctions against Russia.

*                *                *

In addition to the prison sentence, Judge Berman ordered BURYAKOV, 41, to pay a $10,000 fine and a $100 special assessment.  BURYAKOV was also sentenced to three years of supervised release.  Judge Berman also ordered that BURYAKOV be removed from the United States to the Russian Federation promptly upon the completion of his prison sentence. 

For their alleged roles in the conspiracy, Sporyshev, 41, and Podobnyy, 28, are charged in two counts.  The first count charges Sporyshev and Podobnyy with a conspiracy to act in the United States as agents of a foreign government without first notifying the Attorney General, and carries a maximum penalty of five years in prison.  The second count charges Sporyshev and Podobnyy with aiding and abetting BURYAKOV’s actions in the United States as an agent of a foreign government without first notifying the Attorney General, and carries a maximum penalty of 10 years in prison.  These 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 a judge.  Sporyshev and Podobnyy no longer live in the United States and have not been arrested.  By virtue of their prior positions in the United States on behalf of Russia, both of them were afforded diplomatic immunity from arrest and prosecution while in the United States.  The charges against Sporyshev and Podobnyy are merely accusations, and these defendants are presumed innocent unless and until proven guilty.

Mr. Bharara praised the investigative work of the FBI’s Counterintelligence Division.                       

The prosecution has being handled by the Office’s Terrorism and International Narcotics Unit.  Assistant U.S. Attorneys Stephen J. Ritchin, Emil J. Bove III, Brendan F. Quigley, Anna M. Skotko, and Ian McGinley are in charge of the prosecution, with assistance provided by Deputy Chief Richard Scott and Trial Attorney Heather Schmidt of the Counterintelligence and Export Control Section of the Department of Justice’s National Security Division. 

Romanian Citizen Agreed to Provide Military-Grade Weapons to be Used to Shoot Down American Aircraft in Colombia

Virgil Flaviu Georgescu, 43, of Romania, was convicted by a federal jury today of conspiring to sell large quantities of military-grade weaponry to the Fuerzas Armadas Revolucionarias de Colombia (the FARC), a designated foreign terrorist organization, to be used to kill Americans in Colombia.  Georgescu’s conviction followed a 10-day trial before U.S. District Judge Ronnie Abrams of the Southern District of New York.

The conviction was announced by Assistant Attorney General for National Security John P. Carlin and U.S. Attorney Preet Bharara of the Southern District of New York.

“As the jury swiftly found, Virgil Flaviu Georgescu conspired to kill American officers and provide material support to the FARC,” said U.S. Attorney Bharara.  “In concert with his co-defendants, Georgescu conspired to obtain and sell to the FARC military weapons, including anti-aircraft cannons and rocket propelled grenades, to be used against American personnel and aircraft in Colombia.  Having sought to profit from the murder of U.S. officers abroad, Georgescu has now been convicted in the U.S. by a unanimous jury.”

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

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

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

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

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

Georgescu was arrested by Montenegrin authorities on the charges in the indictment on Dec. 15, 2014, and extradited to the United States on Feb. 25, 2015.

Georgescu was convicted of one count of conspiracy to kill U.S. officers or employees, which carries a maximum sentence of life in prison, and one count of conspiracy to provide material support or resources to a designated foreign terrorist organization, which carries a maximum sentence of 15 years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.  Georgescu is scheduled to be sentenced by Judge Abrams on Sept. 16, 2016, at 3:00 p.m. EDT.

Assistant Attorney General Carlin joined U.S. Attorney Bharara in praising the outstanding investigative efforts of the DEA’s Special Operations Division, the DEA’s Bucharest Country Office, the DEA’s Rome Country Office, the Montenegrin National Police and the Romanian Authorities.  Assistant Attorney General Carlin and U.S. Attorney Bharara also thanked the Department of Justice’s Office of International Affairs.

This case is being prosecuted by Assistant U.S. Attorneys Andrea Surratt and Ilan Graff of the Southern District of New York, with assistance from Trial Attorney Josh Parecki of the National Security Division’s Counterterrorism Section.

Preet Bharara, the United States Attorney for the Southern District of New York, and John P. Carlin, Assistant Attorney General for National Security, announced that VIRGIL FLAVIU GEORGESCU was convicted today by a jury of conspiring to sell large quantities of military-grade weaponry to the Fuerzas Armadas Revolucionarias de Colombia (the “FARC”) – a designated foreign terrorist organization – to be used to kill Americans in Colombia.  GEORGESCU’s conviction followed a 10-day trial in Manhattan before U.S. District Judge Ronnie Abrams.

Manhattan U.S. Attorney Preet Bharara said: “As the jury swiftly found, Virgil Flaviu Georgescu conspired to kill American officers and provide material support to the FARC.  In concert with his co-defendants, Georgescu conspired to obtain and sell to the FARC military weapons, including anti-aircraft cannons and rocket propelled grenades, to be used against American personnel and aircraft in Colombia.  Having sought to profit from the murder of U.S. officers abroad, Georgescu has now been convicted in the U.S. by a unanimous jury.”

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

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

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

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

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

GEORGESCU was arrested by Montenegrin authorities on the charges in the Indictment on December 15, 2014, and extradited to the United States on February 25, 2015.

*                      *                      *

GEORGESCU, 43, of Romania, was convicted of one count of conspiracy to kill United States officers or employees, which carries a maximum sentence of life in prison, and one count of conspiracy to provide material support or resources to a designated foreign terrorist organization, which carries a maximum sentence of 15 years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.  GEORGESCU is scheduled to be sentenced by Judge Abrams on September 16, 2016, at 3:00 p.m.

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

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

Preet Bharara, the United States Attorney for the Southern District of New York, Angel Melendez, Special Agent in Immigration and Customs Enforcement’s Homeland Security Investigation in New York (“HSI”), Robert E. Perez, Director of the U.S. Customs and Border Protection New York Field Office (“CBP”), and William J. Bratton, the Commissioner of the New York City Police Department (“NYPD”), announced that PATRICK BADAL, KAIUM SHAH, KENNY NI, ABUL KASHEM, and PARVEZ SHAZZED were arrested today for participating in a scheme to distribute counterfeit name brand perfumes in New York and around the United States.  The defendants were presented this afternoon in Manhattan federal court before U.S. Magistrate Judge Gabriel W. Gorenstein. 

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

From December 2014 to May 2016, the defendants and others (collectively, the “Counterfeit Perfume Ring”) imported generic liquid fragrances from China, separately imported boxes and packaging bearing counterfeit trademarks from China, packaged the generic liquid fragrances into the branded and trademarked packaging, and then sold counterfeit perfumes to wholesalers in New York and at least six other states, including out of a store located in or around Lafayette Street in New York City.

Based on physical surveillance conducted by NYPD and HSI, the Counterfeit Perfume Ring used seven primary locations to receive, prepare, and distribute its products:

The Port. Inbound shipping containers arrived at the Port of Newark and were transported to a bonded warehouse in Elizabeth, New Jersey, (the “Port”) regulated by CBP.

The Temporary Warehouse. Once shipping containers had been released by CBP, members of the Counterfeit Perfume Ring arranged for the containers to be moved from the Port to a temporary warehouse located in Elizabeth, New Jersey (the “Temporary Warehouse”).  The Temporary Warehouse was operated by a trucking company (the “Trucking Company”).

Packaging Facilities. From the Temporary Warehouse, the Trucking Company typically delivered the containers to premises in Queens, New York, for packaging (the “Packaging Facilities”). 

The Storage Facility. The Counterfeit Perfume Ring then transferred the goods from the Packaging Facilities to a self-storage facility located in Queens, New York (the “Storage Facility”).

The Freight Forwarder. The Counterfeit Perfume Ring distributed certain of its goods to wholesalers located outside the New York City area.  To accomplish this, the Counterfeit Perfume Ring used a freight forwarding service (the “Freight Forwarder”) to pick up pallets of goods from the Storage Facility.  The Freight Forwarder, in turn, delivered parcels to out-of-state addresses.  In addition to distributing its products out-of-state, the Counterfeit Perfume Ring distributed its products throughout New York City.  SHAZZED operated one of these locations, a store located in or around Lafayette Street in New York City.

*          *          *

BADAL, SHAH, NI, KASHEM, and SHAZZED are each charged with one count of conspiracy to traffic in counterfeit goods and one count of trafficking in counterfeit goods, each of which carries a maximum penalty of 10 years in prison.  BADAL, SHAH, NI, and KASHEM are also each charged with one count of trafficking in counterfeit packaging, which carries a maximum penalty of five years in prison.  BADAL and SHAH are also charged with smuggling goods into the United States, 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 outstanding work of HSI, CBP, and NYPD for their investigative efforts and ongoing support and assistance with the case.

The prosecution of this case is being overseen by the Office’s General Crimes Unit.  Assistant U.S. Attorneys Andrew M. Thomas and Michael C. McGinnis are in charge of the case.

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

 

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

Sajmir Alimehmeti, aka Abdul Qawii, 22, of the Bronx, New York, was arrested today for attempting to provide material support to the Islamic State of Iraq and the Levant (ISIL), a designated foreign terrorist organization, as well as for making a false statement in an application for a U.S. passport.  Alimehmeti is expected to be presented later today before U.S. Magistrate Judge Gabriel W. Gorenstein of the Southern District of New York.

The arrest was announced by Assistant Attorney General for National Security John P. Carlin, U.S. Attorney Preet Bharara of the Southern District of New York, Assistant Director in Charge Diego Rodriguez of the FBI’s New York Field Office and Commissioner William J. Bratton of the New York City Police Department (NYPD).

“Alimehmeti was charged for his attempt to provide material support to ISIL by assisting a person who he believed was traveling to Syria to join ISIL,” said Assistant Attorney General Carlin.  “The National Security Division will continue to work with our partners to identify, disrupt and hold accountable those who seek to provide material support to designated foreign terrorist organizations.”

“As alleged, Sajmir Alimehmeti, a Bronx man and an ISIL sympathizer, took steps to travel overseas to support ISIL’s terror campaign,” said U.S. Attorney Bharara.  “As the complaint alleges, Alimehmeti also bought military-type weapons and helped someone he believed to be a fellow ISIL supporter get travel documents, equipment and encryption technology purportedly to get to Syria to fight with ISIL.  Alimehmeti is charged today with actions that show a clear intention to support a terrorist organization that is hell-bent on murder and mayhem.  For that, thanks to the incredibly dedicated work of the FBI-NYPD Joint Terrorism Task Force, Alimehmeti is under arrest and facing federal criminal charges.”

“The subject in this case was allegedly having a hard time getting overseas to fight with ISIL,” said Assistant Director in Charge Rodriguez.  “But when he couldn’t leave, he allegedly seemed more than willing to help others tread the same path to join an insidious and deadly terrorist organization.  Cases like this keep the FBI JTTF and our partners at the NYPD going day in and day out, protecting our city from individuals who plot to help murderers.”

“As alleged, Alimehmeti continued his quest to support ISIL’s deadly terrorist agenda, after being denied entry into Europe with a bag full of military gear,” said Commissioner Bratton.  “When he returned home, to the Bronx, he allegedly turned to helping others join the terrorist organization as he built his own arsenal of weapons.  Today’s case is the latest example of collaboration at its best, a case worked through the Joint Terrorism Task Force with undercover officers from the NYPD’s Intelligence Bureau.”

As alleged in the criminal complaint, unsealed today in federal court:

In October 2014, Alimehmeti attempted to enter the United Kingdom but was denied entry after U.K. authorities found camouflage clothing and nunchucks in his luggage.  In December 2014, Alimehmeti was again denied entry into the United Kingdom, this time after U.K. authorities found that his cellphone contained images of ISIL flags and improvised explosive device attacks.  Further forensic examination of images on the cellphone and Alimehmeti’s laptop computer showed numerous indications of Alimehmeti’s support for ISIL, including a picture of Alimehmeti with an ISIL flag in the background, pictures of ISIL fighters in the Middle East, a picture of Alimehmeti making a gesture of support for ISIL and numerous audio files relating to jihad and martyrdom.

After returning to the United States, Alimehmeti continued to express his support for -ISIL by displaying an ISIL flag in his apartment in the Bronx, among other things.  In meetings with undercover law enforcement employees, Alimehmeti played multiple ISIL-related videos on his computer and his phone, including videos of ISIL decapitating prisoners.

Over the last 11 months, Alimehmeti made multiple purchases of military-style knives and other military-type equipment, including masks, handcuffs, a pocket chain-saw and steel-knuckled gloves.

In October 2015, Alimehmeti applied for a new U.S. passport, claiming his previous passport had been lost.  However, Alimehmeti later told an undercover law enforcement employee that his prior passport had not been lost and, instead, that he was applying for a new passport because he believed rejection stamps on his old passport, including rejection stamps from his attempted entries into the United Kingdom, would make it difficult to travel.

In May 2016, Alimehmeti attempted to assist an individual who was purportedly traveling from New York to Syria to train and fight with ISIL but who was actually an undercover law enforcement employee (UC).  On May 17, 2016, Alimehmeti met with the UC in Manhattan, New York, where the UC was purportedly en route to John F. Kennedy International Airport to take an overseas flight later that night in order to join ISIL.

Alimehmeti agreed to help the UC with several tasks before the UC went to the airport, including by locating stores so that the UC could purchase supplies to use while traveling to and fighting with ISIL, including a cellphone, boots, a compass, a bag and flashlight, among other items.  Alimehmeti provided the UC with advice and suggestions on the best boots to purchase and on which items to purchase.  The defendant also advised the UC on the use of different kinds of encrypted communications apps, including an app that Alimehmeti stated was currently being used by “the brothers,” and downloaded three encrypted communications apps onto the UC’s new cellphone.

Further, Alimehmeti assisted the UC in traveling from Manhattan to a hotel in Queens, New York, so that the UC could purportedly meet with an individual who was preparing travel documents that the UC would use to travel to Syria (document facilitator).  Alimehmeti, who had repeatedly expressed his own desire to travel to join ISIL, gave the UC a piece of paper with his name and contact information so that the UC could provide that information to the supposed document facilitator.  In voicing his interest in joining ISIL, Alimehmeti stated, excitedly, “I’m ready to . . . go with you man . . . you know I would.  I’m done with this place.”  After leaving the hotel in Queens, Alimehmeti brought the UC to Kennedy International Airport via public transportation.

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

If convicted, Alimehmeti faces a maximum sentence of 20 years in prison for providing material support and a maximum sentence of 10 years in prison for making a false statement in an application for a U.S. passport.  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.

Assistant Attorney General Carlin joined U.S. Attorney Bharara in praising the outstanding efforts of the FBI’s New York Joint Terrorism Task Force.  Assistant Attorney General Carlin and U.S. Attorney Bharara also thanked the Department of Justice’s Office of International Affairs and British authorities for their assistance.

The case is being prosecuted by Assistant U.S. Attorneys Brendan F. Quigley and Emil J. Bove III of the Southern District of New York with assistance from Trial Attorney Kiersten Korczynski of the National Security Division's Counterterrorism Section.

Alimehmeti Complaint

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 Charles Gardner, the Commissioner of the Yonkers Police Department, announced the unsealing of a Complaint charging GIOVANNY MARTE, a/k/a “Gio,” with robbing a Wells Fargo Bank branch in October 2013 and discharging a firearm in furtherance of the robbery.  MARTE was arrested yesterday morning in the Bronx and was presented yesterday before U.S. Magistrate Judge Lisa Margaret Smith in White Plains federal court.

U.S. Attorney Preet Bharara stated:  “As alleged, Giovanny Marte committed a dangerous, violent bank robbery in broad daylight.  Together with his co-conspirators, he allegedly entered a Wells Fargo branch carrying a loaded firearm.  Marte allegedly fired two shots during the robbery – and fortunately did not hit anyone – before making off with more than $300,000 in cash.  This frightening crime occurred more than two years ago, but thanks to the tireless efforts of the FBI, the Yonkers Police Department, and the NYPD, this defendant will now be held to account in federal court.”

FBI Assistant Director-in-Charge Diego Rodriguez stated:  “The subject in this case was so intent on allegedly getting his hands on money that wasn’t his that he put lives in danger.  He’s accused of firing his weapon several times in his rush to get into the vault.  No bag of cash is worth a life.”

Yonkers Police Commissioner Charles Gardner stated:  “This case demonstrates that we will work with our federal and local partners to make sure those who choose to engage in violent crime in our city are held accountable. I would like to thank the F.B.I., the U.S. Attorney’s Office, and the N.Y.P.D. for their persistence in this lengthy investigation.”

According to the allegations in the Complaint[1]:

On or about October 29, 2013, at approximately 3:17 p.m., MARTE and three co-conspirators (“CC-2,” “CC-3,” and “CC-4”) approached a Wells Fargo Bank branch located at 500 Odell Avenue in Yonkers, New York (the “Wells Fargo Branch”).  MARTE, CC-2, and CC-3 entered the bank, while CC-4 remained in their vehicle.  The robbers all wore gloves and clothing hiding their faces.  MARTE and CC-3 each brandished a handgun, and CC-2 brandished a wood saw.  The robbers ordered everyone to the ground.  MARTE climbed onto the teller counter and pointed his gun at one of the tellers.  He then entered the vault room and demanded that the manager assist him in opening the vault.  As the manager tried to open the vault, MARTE fired two shots.  No one was hit.  Ultimately, MARTE accessed the vault, filled a bag with approximately $303,500 in cash, and fled the Wells Fargo Branch with CC-2 and CC-3.  The robbers re-entered their vehicle, and CC-4 drove them away.

*                      *                      *

The Complaint charges GIOVANNY MARTE, a/k/a “Gio,” age 25, of the Bronx, New York, with conspiring to rob the Wells Fargo Branch in or about October 2013, robbing the Wells Fargo Branch on or about October 29, 2013, and carrying and discharging a firearm in furtherance of a violent crime.  The maximum and mandatory minimum sentences are as follows: a maximum of five years in prison on Count One (conspiracy); a maximum of 20 years in prison on Count Two (bank robbery); and a maximum of life in prison, with a mandatory minimum of 10 years in prison, on Count Three (firearm offense).  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

Mr. Bharara praised the outstanding investigative work of the FBI’s Westchester Violent Crimes Task Force, which comprises agents and detectives of the FBI, United States Probation, the City of Yonkers Police Department, the City of Peekskill Police Department, the New York City Police Department, the Westchester County Police, and the Westchester County District Attorney’s Office.

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

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

 

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

 

Preet Bharara, the United States Attorney for the Southern District of New York, John P. Carlin, Assistant Attorney General for National Security, Diego Rodriguez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and William J. Bratton, the Commissioner of the Police Department for the City of New York (“NYPD”), announced that SAJMIR ALIMEHMETI, a/k/a “Abdul Qawii,” was arrested today in the Bronx, for attempting to provide material support to the Islamic State of Iraq and the Levant (“ISIL”), a designated foreign terrorist organization, as well as for making a false statement in an application for a United States passport.  ALIMEHMETI is expected to be presented later today before U.S. Magistrate Judge Gabriel W. Gorenstein in Manhattan federal court.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Sajmir Alimehmeti, a Bronx man and an ISIL sympathizer, took steps to travel overseas to support ISIL’s terror campaign.  As the Complaint alleges, Alimehmeti also bought military-type weapons and helped someone he believed to be a fellow ISIL supporter get travel documents, equipment, and encryption technology purportedly to get to Syria to fight with ISIL.  Alimehmeti is charged today with actions that show a clear intention to support a terrorist organization that is hell-bent on murder and mayhem.  For that, thanks to the incredibly dedicated work of the FBI-NYPD Joint Terrorism Task Force, Alimehmeti is under arrest and facing federal criminal charges.”

Assistant Attorney General John P. Carlin said: “Alimehmeti was charged for his attempt to provide material support to ISIL by assisting a person who he believed was traveling to Syria to join ISIL.  The National Security Division will continue to work with our partners to identify, disrupt and hold accountable those who seek to provide material support to designated foreign terrorist organizations.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “The subject in this case was allegedly having a hard time getting overseas to fight with ISIL.  But when he couldn’t leave, he allegedly seemed more than willing to help others tread the same path to join an insidious and deadly terrorist organization.  Cases like this keep the FBI JTTF and our partners at the NYPD going day in and day out, protecting our city from individuals who plot to help murderers.”

NYPD Commissioner William Bratton said: “As alleged, Alimehmeti continued his quest to support ISIL’s deadly terrorist agenda, after being denied entry into Europe with a bag full of military gear.  When he returned home, to the Bronx, he allegedly turned to helping others join the terrorist organization as he built his own arsenal of weapons. Today’s case is the latest example of collaboration at its best, a case worked through the Joint Terrorism Task Force with undercover officers from the NYPD’s Intelligence Bureau.”

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

In October 2014, ALIMEHMETI attempted to enter the United Kingdom but was denied entry after U.K. authorities found camouflage clothing and nunchucks in his luggage.  Two months later, in December 2014, ALIMEHMETI was again denied entry into the United Kingdom, this time after U.K. authorities found that his cellphone contained images of ISIL flags and improvised explosive device attacks.  Further forensic examination of images of the cellphone and ALIMEHMETI’s laptop computer showed numerous indicia of ALIMEHMETI’s support for ISIL, including a picture of ALIMEHMETI with an ISIL flag in the background, pictures of ISIL fighters in the Middle East, a picture of ALIMEHMETI making a gesture of support for ISIL, and numerous audio files relating to jihad and martyrdom.

After returning to the United States, ALIMEHMETI continued to express his support for ISIL, by displaying an ISIL flag in his apartment in the Bronx, among other things.  In meetings with undercover law enforcement employees, ALIMEHMETI played multiple ISIL videos on his computer and his phone, including videos of ISIL decapitating prisoners. 

Further, over the last 11 months, ALIMEHMETI made multiple purchases of military-style knives and other military-type equipment, including masks, handcuffs, a pocket chain-saw, and steel-knuckled gloves.

In October 2015, ALIMEHMETI applied for a new United States passport, claiming his previous passport had been lost.  However, ALIMEHMETI later told an undercover law enforcement employee that his prior passport had not been lost and, instead, that he was applying for a new passport because he believed rejection stamps on his old passport, including rejection stamps from his attempted entries into the United Kingdom, would make it difficult to travel.

In May 2016, ALIMEHMETI attempted to assist an individual who was purportedly traveling from New York to Syria to train and fight with ISIL but who was actually an undercover law enforcement employee (the “UC”).  On May 17, 2016, ALIMEHMETI met with the UC in Manhattan, where the UC was purportedly en route to John F. Kennedy International Airport to take an overseas flight later that night in order to join ISIL.

ALIMEHMETI agreed to help the UC with several tasks before the UC went to the airport, including by locating stores so that the UC could purchase supplies to use while traveling to, and fighting with, ISIL, including a cellphone, boots, a compass, a bag, and flashlight, among other items.  ALIMEHMETI provided the UC with advice and suggestions on the best boots to purchase and on which items to purchase.  The defendant also advised the UC on the use of different kinds of encrypted communications applications, including an application that ALIMEHMETI stated was currently being used by “the brothers,” and downloaded three encrypted communications applications onto the UC’s new cellphone.

Further, ALIMEHMETI assisted the UC in traveling from Manhattan to a hotel in Queens, so that the UC could purportedly meet with an individual who was preparing travel documents that the UC would use to travel to Syria (“Document Facilitator”).  ALIMEHMETI, who had repeatedly expressed his own desire to travel to join ISIL, gave the UC a piece of paper with his name and contact information so that the UC could provide that information to the supposed Document Facilitator.  In voicing his interest in joining ISIL, ALIMEHMETI stated, excitedly, “I’m ready to . . . go with you man . . . you know I would.  I’m done with this place.”  After leaving the hotel in Queens, ALIMEHMETI brought the UC to John F. Kennedy International Airport via public transportation.

 

*                      *                      *

ALIMEHMETI, 22, of the Bronx, is charged with one count of provision of material support to a designated foreign terrorist organization, which carries a maximum sentence of 20 years in prison, and one count of making a false statement in an application for a United States passport, which carries a maximum sentence of ten years’ imprisonment.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.

Mr. Bharara praised the outstanding efforts of the FBI’s New York Joint Terrorism Task Force, which principally consists of agents from the FBI and detectives from the NYPD, and the NYPD’s Intelligence Division.  Mr. Bharara also thanked the Counterterrorism Section of the Department of Justice’s National Security Division, the Department of Justice’s Office of International Affairs, and British authorities for their assistance.

This prosecution is being handled by the Office’s Terrorism and International Narcotics Unit.  Assistant U.S. Attorneys Brendan F. Quigley and Emil J. Bove III are in charge of the prosecution, with assistance from Trial Attorney Kiersten Korczynski of the National Security Division's Counterterrorism Section.

The charges 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 below constitute only allegations, and every fact described should be treated as an allegation.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that DA’QUAN JOHNSON was sentenced on Friday, May 20, 2016, in White Plains federal court to a prison term of 30 years for crimes committed as part of a Yonkers-based street gang, the “Grimy Motherfuckers” (“GMF”), including the murder of Tyrone Arthur on December 27, 2013.  JOHNSON pled guilty on January 7, 2016, to participating in the GMF racketeering conspiracy and to conspiring to murder rival gang members, resulting in the death of Arthur.  JOHNSON pled guilty before U.S. District Judge Cathy Seibel, who imposed Friday’s sentence.

U.S. Attorney Preet Bharara stated:  “Da’Quan Johnson was a leader of a violent, vicious street gang that terrorized the streets of southwest Yonkers with shootings, assaults, and drug dealing.  On December 27, 2013, Johnson and his fellow gang members participated in a shooting that resulted in the senseless murder of an innocent man, Tyrone Arthur.  Thanks to the hard work of the FBI and Yonkers Police Department, Johnson and the other members of GMF have been brought to justice.”

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

GMF, formed in or about 2008, was based in the Schlobohm Housing Project.  GMF was initially aligned with the Strip Boyz, a different gang likewise based in the Schlobohm Housing Project.  Up until late June and early July 2012, when 20 members of the Strip Boyz were arrested and charged with narcotics and firearms offenses, GMF and the Strip Boyz together controlled crack cocaine and marijuana distribution in and around the Schlobohm Housing Project, including an area of Palisade Avenue known as the “Strip.”

Following the 2012 arrests of the Strip Boyz, GMF members continued to engage in acts of violence and intimidation to preserve GMF’s dominance within the Schlobohm Housing Project and the surrounding areas.  Members of GMF worked together to distribute narcotics, but above all, they were aligned in their disputes with rival gangs in southwest Yonkers.  GMF members had disputes with gang members from various nearby neighborhoods, including Cottage Place Gardens, Warburton Avenue, Highland Avenue, and Riverdale Avenue.  These disputes resulted in a number of violent incidents among the gangs, including assaults, stabbings, and shootings.

From approximately 2008 to 2014, GMF was engaged in a violent dispute with members of a rival gang from Highland Avenue known as “Highland.”  This dispute resulted in a lethal cycle of shootings and acts of violence.  The dispute culminated on the evening of December 27, 2013, when a shooting occurred in the vicinity of Palisade Avenue and Elm Street in Yonkers, which was territory controlled by GMF.  After the shooting, members of GMF received information that members of Highland were responsible for the shooting.  The same night, DA’QUAN JOHNSON obtained a loaded firearm and traveled with other GMF members to territory controlled by Highland with the intent of retaliating.  A GMF member then shot into a crowd that had congregated for a candlelight vigil at the intersection of Highland Avenue and Jackson Street.  One of the bullets hit Tyrone Arthur in the chest, killing him.

On July 16, 2014, a grand jury returned an indictment charging JOHNSON and two other defendants in connection with the murder of Tyrone Arthur.  On December 10, 2014, a grand jury returned a superseding indictment charging thirteen members and associates of GMF – including the initial three – with the same offenses as the original indictment, as well as additional racketeering, narcotics, and firearms offenses.  To date, all but one of the remaining defendants have pled guilty in satisfaction of the charges in the superseding indictment.

DA’QUAN JOHNSON, 25, of Yonkers, New York, was sentenced to 20 years in prison on the racketeering conspiracy and 10 years in prison on the murder conspiracy, to run consecutively, to be followed by three years of supervised release.

Mr. Bharara praised the outstanding investigative work of the FBI’s Westchester Violent Crimes Task Force, which comprises agents and detectives of the FBI, United States Probation, the City of Yonkers Police Department, the City of Peekskill Police Department, the New York City Police Department, the Westchester County Police, and the Westchester County District Attorney’s Office.

The prosecution is being handled by the Office’s White Plains Division.  Assistant U.S. Attorneys Scott Hartman and Douglas Zolkind are 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 New York Field Office of the Internal Revenue Service, Criminal Investigation Division (“IRS-CI”), and Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced that MORRIS E. ZUKERMAN, a Manhattan businessman who owns companies involved in energy investments, was charged today in a three-count Indictment with engaging in multi-year tax fraud schemes pursuant to which he evaded over $45 million in income and other taxes.  ZUKERMAN was presented earlier today in Manhattan federal court before U.S. Magistrate Judge Gabriel W. Gorenstein.

U.S. Attorney Preet Bharara said: “As alleged in the indictment, Morris Zukerman cheated on virtually all of his various tax obligations: he evaded tens of millions of dollars of corporate income taxes arising out of $130 million sale of an oil company; he prepared personal tax returns for himself and family members that claimed millions of false deductions; he evaded employment taxes based on personal employees; and he evaded New York sales and use taxes.  To top it off, when the IRS auditors examined his returns, Zukerman allegedly schemed to defraud and obstruct the IRS auditors who were examining his false tax returns.”

IRS-CI Special Agent in Charge Shantelle P. Kitchen said: “There is simply no excuse for a financially successful individual, clearly with the resources to meet his tax obligations, to defraud the tax system and ultimately cheat hard working, law abiding taxpayers who strive to do what is right.  As protectors of our nation’s tax system, IRS Criminal Investigation is committed to ensuring that everyone pays their fair share.  We will use our financial investigative expertise to dissect and unravel complex tax fraud schemes, especially those specifically designed to obstruct the Internal Revenue Service from carrying out its mission to serve American taxpayers.”

USPIS Inspector-in-Charge Philip R. Bartlett said: “Honest taxpayers should be offended by the actions of Mr. Zukerman who devised a scheme to avoid paying his fair share of taxes.  As citizens we have a legal obligation to pay taxes and when this doesn’t happen, law enforcement will be there to ensure these scofflaws are brought to justice.”  

According to the Indictment[1] unsealed today 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.            

In connection with the purchase of the Old Master paintings, ZUKERMAN schemed to defraud New York State of over $4.5 million of sales and use taxes by directing that the paintings, which were frequently purchased from galleries located blocks from ZUKERMAN’s Manhattan residence, be shipped by the galleries to ZUKERMAN’s corporate addresses located in Delaware and New Jersey, and transported immediately thereafter (sometimes within minutes), by ZUKERMAN and others, back to ZUKERMAN’s residence in New York – all without the payment to New York State of sales or use taxes.  ZUKERMAN further schemed to defraud New York State of sales and use taxes by using his corporate address in New Jersey to be falsely listed on a sales invoice for a $645,000 pair of diamond earrings he purchased in Europe from a jeweler who turned over possession of the earrings to a member of ZUKERMAN’s family in Manhattan but charged no sales tax, based on the out-of-state address provided by ZUKERMAN.           

ZUKERMAN also 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, Forms 1040, 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 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 (“the Conservation Entity”) that was seeking to orchestrate the purchase, for conservation purposes.  After considering making a charitable contribution to the Conservation Entity 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 Conservation Entity 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 utilized two attorneys from a law firm in Washington, D.C., to convey a false factual 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.                       

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ZUKERMAN, 71, of New York, New York, is charged with: one count of tax evasion, which carries a maximum sentence of five years in prison; one count of wire fraud, which carries a maximum sentence of 20 years in prison; and one count of obstructing the IRS, which carries a maximum sentence of three years in prison.  The three charges each 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 defendant will be determined by the judge.

ZUCKERMAN was released on a $2,500,000 secured bond.  The case was assigned to United States District Judge Analisa Torres, and a conference is set for June 8, 2016, before Judge Torres. 

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.

 

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

Ali Reza Parsa, 45, a Canadian-Iranian dual citizen and resident of Canada, was sentenced to three years in prison for his participation in a conspiracy to violate the International Emergency Economic Powers Act (IEEPA) and the Iranian Transactions and Sanctions Regulations (ITSR). 

The sentence was announced by Assistant Attorney General for National Security John P. Carlin and U.S. Attorney Preet Bharara of the Southern District of New York.

“Over the course of six years, Parsa repeatedly violated export control laws and aided Iranian entities in procuring high-tech electronic components that have both commercial and military uses,” said Assistant Attorney General Carlin.  “With this sentence, he will be held accountable for circumventing important U.S. laws designed to protect our national security interests.  One of our top national security priorities remains safeguarding our national assets from those who may wish to do us harm.”

“As he admitted in court, Ali Reza Parsa conspired to purchase high-tech electronic components – some used in the production of rockets and missiles – from American companies for eventual delivery to Iran through Canada,” said U.S. Attorney Bharara.  “He has now been sentenced to three years in prison for his violation of federal law.”

Parsa was arrested in October 2014 following an investigation by the FBI and U.S. Department of Commerce’s Bureau of Industry and Security (BIS).  He pleaded guilty on Jan. 20, 2016, before U.S. District Judge Ronnie Abrams of the Southern District of New York, who also imposed Friday’s sentence. 

According to the indictment filed against Parsa and other court documents publicly filed in this case and statements made in court proceedings, including at Friday’s sentencing hearing:

Between approximately 2009 and 2015, Parsa conspired to obtain high-tech electronic components from American companies for transshipment to Iran and other countries for clients of Parsa’s procurement company in Iran, Tavan Payesh Mad, in violation of U.S. economic sanctions.  To accomplish this, Parsa used his Canadian company, Metal PM, to place orders with U.S. suppliers and typically had the parts shipped to him in Canada or to a freight forwarder located in the United Arab Emirates, and then shipped from these locations to Iran or to the location of his Iranian company’s client.  Parsa provided the U.S. companies with false destination and end-user information about the components in order to conceal the illegality of these transactions.

Parsa’s criminal scheme targeted numerous American technology companies.  The components that Parsa attempted to procure included cryogenic accelerometers, which are sensitive components that measure acceleration at very low temperatures.  Cryogenic accelerators have both commercial and military uses, including in applications related to ballistic missile propellants and in aerospace components such as liquid-fuel rocket engines.

In addition, following his arrest and while incarcerated, Parsa continued to violate the IEEPA and the ITSR by conducting business for Metal PM and Tavan Payesh Mad, including by ordering parts from German and Brazilian companies for Iranian customers.  Parsa subsequently directed a relative to delete email evidence of his ongoing business transactions while in jail and emphasized the need for secrecy in their dealings.

Neither Parsa nor any other individual or entity involved in transactions that gave rise to his conviction applied for or obtained a license from the U.S. Department of the Treasury’s Office of Foreign Assets Control for the transactions.      

Assistant Attorney General Carlin joined U.S. Attorney Bharara in praising the outstanding investigative work of the FBI and BIS.

This case was prosecuted by Assistant U.S. Attorneys Michael D. Lockard and Anna Skotko of the Southern District of New York, with assistance provided by Trial Attorney Mariclaire Rourke of the National Security Division’s Counterintelligence and Export Control Section.

Preet Bharara, the United States Attorney for the Southern District of New York, and John P. Carlin, Assistant Attorney General for National Security, announced that ALI REZA PARSA, a Canadian-Iranian dual citizen and resident of Canada, was sentenced on Friday, May 20, 2016, to three years in prison for his participation in a conspiracy to violate the International Emergency Economic Powers Act (“IEEPA”) and the Iranian Transactions and Sanctions Regulations (“ITSR”).  PARSA was arrested in October 2014 following an investigation by the Federal Bureau of Investigation (“FBI”) and United States Department of Commerce, Bureau of Industry and Security (“BIS”).  PARSA pled guilty on January 20, 2016, before U.S. District Judge Ronnie Abrams, who imposed Friday’s sentence. 

Manhattan U.S. Attorney Preet Bharara said: “As he admitted in court, Ali Reza Parsa conspired to purchase high-tech electronic components – some used in the production of rockets and missiles – from American companies for eventual delivery to Iran through Canada.  He has now been sentenced to three years in prison for his violation of federal law.”

Assistant Attorney General John P. Carlin said: “Over the course of six years, Parsa repeatedly violated export control laws and aided Iranian entities in procuring high-tech electronic components that have both commercial and military uses.  With this sentence, he will be held accountable for circumventing important U.S. laws designed to protect our national security interests.  One of our top national security priorities remains safeguarding our national assets from those who may wish to do us harm.”

According to the Indictment filed against PARSA and other court documents publicly filed in this case and statements made in court proceedings, including Friday’s sentencing:

Between approximately 2009 and 2015, PARSA conspired to obtain high-tech electronic components from American companies for transshipment to Iran and other countries for clients of PARSA’s procurement company in Iran, Tavan Payesh Mad, in violation of U.S. economic sanctions.  To accomplish this, PARSA used his Canadian company, Metal PM, to place orders with U.S. suppliers and typically had the parts shipped to him in Canada or to a freight forwarder located in the United Arab Emirates, and then transshipped from these locations to Iran or to the location of his Iranian company’s client.  PARSA provided the U.S. companies with false destination and end-user information about the components in order to conceal the illegality of these transactions. 

PARSA’s criminal scheme targeted numerous American technology companies.  The components that PARSA attempted to procure included cryogenic accelerometers, which are sensitive components that measure acceleration at very low temperatures.  Cryogenic accelerators have both commercial and military uses, including in applications related to ballistic missile propellants and in aerospace components such as liquid-fuel rocket engines.

In addition, following his arrest and while incarcerated at the Metropolitan Detention Center, PARSA continued to violate the IEEPA and the ITSR  by conducting business for Metal PM and Tavan Payesh Mad, including by ordering parts from German and Brazilian companies for Iranian customers.  PARSA subsequently directed a relative to delete email evidence of his ongoing business transactions while in jail, emphasizing the need for secrecy in their dealings.

Neither PARSA nor any other individual or entity involved in transactions that gave rise to his conviction applied for or obtained a license from the U.S. Department of the Treasury’s Office of Foreign Assets Control for the transactions. 

*          *          *

In addition to the 36-month prison term, PARSA, 45, was ordered to pay a $100 special assessment.

Mr. Bharara praised the outstanding investigative work of the FBI and BIS.  He also thanked the U.S. Department of Justice’s National Security Division’s Counterintelligence and Export Control Section.

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

Preet Bharara, the United States Attorney for the Southern District of New York, and Angel M. Melendez, the Special Agent-in-Charge of the New York Office of the United States Immigration and Customs Enforcement (“ICE”), Homeland Security Investigations (“HSI”), announced today the voluntary surrender of NICHOLAS SZUCS for transporting, receiving, and possessing child pornography.  SZUCS, a private violin teacher, surrendered today at the White Plains federal courthouse and was presented before United States Magistrate Judge Judith C. McCarthy.

Manhattan U.S. Attorney Preet Bharara stated: “The allegations in this case are particularly disturbing and sad.  A private violin teacher, who works with children, stands accused of allegedly victimizing children.  Thanks to the efforts of the Westchester County District Attorney’s Office and Homeland Security Investigations, SZUCS’s alleged illicit conduct was brought to light, and he will now have to answer to these serious charges.”

HSI Special Agent-in-Charge Angel M. Melendez stated:  “This music teacher allegedly violated his position of trust and robbed the victims of their innocence.  HSI agents will continue to police the cyber space to investigate and bring to justice those individuals who exploit the most vulnerable segment of our society- our children.”

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

From at least 2012 to 2015, SZUCS possessed, transported, and received images and videos containing child pornography.  According to the Complaint, SZUCS used a peer to peer file sharing network to download child pornography.  Searches of an external hard drive and a laptop belonging to SZUCS revealed hundreds of images and videos of child pornography.  SZUCS also attempted to have the laptop destroyed before law enforcement could seize it.

SZUCS is charged with one count each of transporting and of receiving child pornography, each of which carries a mandatory minimum sentence of five years in prison and a maximum sentence of 20 years in prison, and one count of possessing child pornography, which carries a maximum sentence of 10 years in prison.  Each of the three counts also carries a maximum fine of $250,000 or twice the gross gain or loss from the offense.  The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the outstanding investigative work of Homeland Security Investigations.  He also thanked the Westchester County District Attorney’s Office, including their High Tech Squad, for their assistance in the investigation.

HSI encourages the public to report suspected child predators and any suspicious activity through its toll-free hotline at 1-866-DHS-2ICE.  Investigators staff this hotline around the clock. Suspected child sexual exploitation or missing children may also be reported to the National Center for Missing and Exploited Children, an Operation Predator partner, at 1-800-843-5678 or http://www.cybertipline.com.

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

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

 

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

Preet Bharara, United States Attorney for the Southern District of New York, announced today that ROBERT LEES, a former senior executive of Universal Forest Products, Inc. (“UFP”) was convicted a jury of conspiracy, mail fraud, money laundering and making false statements in a loan application following a seven-day trial in White Plains before United States District Judge Kenneth M. Karas.

Manhattan U.S. Attorney Preet Bharara said: “Today, a jury unanimously found that Robert Lees, a senior executive at Universal Forest Products, participated in a kickback scheme that defrauded both HUD and a mortgage lender.  This verdict should serve as a warning to other corporate executives tempted by fraud.”

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

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

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

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

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

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

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

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

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

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

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

LEES, 62, of Lititz, Pennsylvania, is scheduled to be sentenced by Judge Karas on November 4, 2016.  LEES faces a maximum sentence of five years in prison on the conspiracy count, 20 years in prison on the mail fraud count, 30 years in prison for making false statements in a loan application, and 10 years in prison on the money laundering count.  The maximum potential sentences are prescribed by Congress and are provided here for informational purposes, as any sentencing of the defendant will be determined by the judge.

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Mr. Bharara praised the investigative work of the HUD-OIG. 

 The prosecution is being handled by the Office's White Plains Division.  Assistant U.S. Attorneys Michael D. Maimin and Won S. Shin 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 arrest of WILLIAM T. WALTERS, a/k/a “Billy,” on charges of participating in a scheme, from in or about 2008 through in or about 2014, to commit insider trading principally relating to securities of Dean Foods Company (“Dean Foods” or the “Company”).  In addition, Mr. Bharara announced the unsealing of charges against THOMAS C. DAVIS, who pled guilty and admitted to his participation in the scheme earlier this week.  On a number of occasions beginning in 2008, DAVIS, who routinely possessed material, nonpublic information through his service on the Dean Foods’ Board of Directors, betrayed his duty of confidentiality to the Company by providing this information to WALTERS before it was publicly announced.  As alleged in the charging documents, WALTERS, in turn, used the confidential information to execute profitable trades in Dean Foods that netted him realized and unrealized gains and avoided losses of more than $40 million.  In exchange, WALTERS provided DAVIS with substantial pecuniary benefits, including, among other things, capital for joint business ventures and two loans of nearly $1 million that DAVIS largely did not repay.

WALTERS, who is charged with conspiracy, securities fraud, and wire fraud, was arrested yesterday in Las Vegas, Nevada, and will be presented later today before a United States Magistrate Judge in the District of Nevada.  His case is before United States District Judge P. Kevin Castel in the Southern District of New York.  On Monday, DAVIS pled guilty before Judge Castel to conspiracy, securities fraud, wire fraud, obstruction of justice, and perjury.

In a separate action, the Securities and Exchange Commission (“SEC”) filed civil charges against WALTERS and DAVIS. 

U.S. Attorney Preet Bharara said: “Tom Davis has admitted that, over five years as a Dean Foods board member, he repeatedly and systematically fed material nonpublic information about the company to Billy Walters, who we allege benefited handsomely by trading on that information.  With a direct channel into Dean Foods’ boardroom, Walters allegedly traded in advance of good news and bad news alike.  As alleged, it was all good news for Walters, because he had the information before everyone else – he had tomorrow’s headlines today.  Brazen insider trading continues to be a blot on our securities markets, and so the integrity of our markets continues to be a priority for this office.  When the board member of a Fortune 500 company feeds inside information to a professional gambler who makes a fortune on well-timed trades in that company’s stock, that is a form of corruption – the corruption of our markets.  And we don’t let corruption stand.  We intend to prove every one of these allegations in a court of law.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “Trading on inside information for personal gain causes untold devastation in the stock and commodities markets. This kind of criminal behavior keeps wealth concentrated among the powerful, prevents everyday investors from turning a profit, and undermines public confidence in the integrity of the marketplace.  The FBI and our federal partners will continue to work to protect Americans from the devastating consequences of these deceptive practices.”

USPIS Inspector-in-Charge Philip R. Bartlett said: “These individuals were more concerned with their ‘high-roller’ image and the continuation of their lavish lifestyles than they were with adhering to fair and equitable investment regulations.  This arrest should send a message to all that no matter how much money you accrue, no one is above the law and all will be prosecuted equally for their illegal investment practices.”   

According to the allegations in the charging documents unsealed today in Manhattan federal court, including the Indictment,[1] and statements made in court proceedings:

From in or about 2008 through in or about 2014, WALTERS and DAVIS, among others, participated in a scheme to commit insider trading principally related to securities of Dean Foods, a Fortune 500 company that is the largest processor and distributor of fresh milk in the United States.  From in or about 2001 until on or about August 7, 2015, DAVIS served as a member of the Board of Directors of Dean Foods (the “Board”), in which role he regularly possessed material, nonpublic information about Dean Foods, including about the Company’s financial performance and results, including quarterly earnings results; contemplated and actual corporate transactions; and other significant corporate and strategic developments (the “Inside Information”).  In furtherance of the scheme, DAVIS violated his duties of trust and confidence to Dean Foods by providing Inside Information to WALTERS in advance of public announcements.  WALTERS, knowing that DAVIS owed duties of trust and confidence to the Company, used the Inside Information to execute profitable trades in Dean Foods stock.  In total, WALTERS’s trading on the basis of Inside Information netted realized and unrealized profits of approximately $32 million and avoided additional losses of approximately $11 million.  In return for DAVIS providing the Inside Information to WALTERS, WALTERS, among other things, provided capital to DAVIS for joint business ventures and made two loans to DAVIS for approximately $1 million in total, which DAVIS largely did not repay.

In furtherance of the scheme, and to avoid detection by law enforcement, WALTERS provided DAVIS with a prepaid cellular phone to use when passing Inside Information to WALTERS.  Moreover, WALTERS further instructed DAVIS to use code words when discussing the Inside Information, including by referring to Dean Foods as the “Dallas Cowboys.”

Specific Examples of WALTERS’s Insider Trading in Dean Foods

On June 25, 2008, in an unanticipated announcement near the end of the second quarter, Dean Foods informed the public that it had revised upwards its earnings guidance for that quarter.  From June 19 to June 23, 2008, WALTERS purchased nearly four million shares of Dean Foods – which constituted between 29 and 37 percent of the daily trading volume of Dean Foods stock on those days – on the basis of tips provided to WALTERS by DAVIS about the second-quarter financial performance.  As a result of trading on the Inside Information provided by DAVIS, WALTERS earned realized and unrealized profits of approximately $6 million.

On or about Friday, April 9, 2010, WALTERS and DAVIS met in Las Vegas, Nevada.  During that meeting, WALTERS agreed to provide DAVIS with a loan of $625,000, and DAVIS provided Inside Information to WALTERS about Dean Foods’ recent engagement of investment bankers to investigate strategic possibilities related to the separation of WhiteWave-Alpro (the “WhiteWave Spinoff”), a segment of Dean Foods that produced and distributed organic and other branded food and beverage products.  On Monday, April 12, 2010, the next trading day, and up through April 15, WALTERS purchased approximately 1.5 million shares of Dean Foods.  Less than three weeks later, DAVIS tipped WALTERS about Dean Foods’ forthcoming first-quarter earnings announcement, which DAVIS knew did not meet Wall Street’s expectations.  On the following two days, Monday, May 3, and Tuesday, May 4, WALTERS sold the approximately 1.5 million shares of Dean Foods he had purchased in April, which sales constituted 29 and 16 percent, respectively, of the daily trading volume for those days.  On May 10, 2010, Dean Foods publicly announced its poor earnings results for the first quarter of 2010 and suspended full-year guidance, which caused the stock to decrease by approximately 28 percent that day.  As a result of his timely sales of Dean Foods stock the prior week, WALTERS avoided losses of $7.3 million.  Moreover, beginning on May 10, 2010, and continuing through May 14, 2010, WALTERS purchased approximately 1.5 million shares of Dean Foods stock, thereby re-establishing his previous position in the stock at a reduction in cost of $9.5 million.  

In addition, on or about May 8, 2012, DAVIS provided Inside Information to WALTERS about Dean Foods’ positive first-quarter earnings and its intention to pursue the WhiteWave Spinoff, on the basis of which WALTERS purchased 1.2 million shares of Dean Foods on May 8 and 9, 2012.  On May 9, 2012, Dean Foods announced its earnings results for the first quarter of 2012, which were positive, and that the Company was “mindful of the opportunity . . . to perhaps accrete value for our shareholder.”  After this announcement, Dean Foods stock rose by approximately 10 percent.  In the ensuing months, DAVIS repeatedly provided WALTERS with additional Inside Information about the WhiteWave Spinoff, including the expected timing of the Spinoff announcement on August 7, 2012.  From July 13 through July 31, 2012, WALTERS purchased an additional 2.8 million shares of Dean Foods to raise his total position to 4 million shares. 

On August 7, 2012, Dean Foods announced and that it intended to spin off WhiteWave through an initial public offering (“IPO”), and that the Company would maintain ownership over more than 80 percent of WhiteWave stock following the IPO.  On August 8, 2012, the day after the announcement, Dean Foods’ stock price increased by approximately 40 percent, netting WALTERS unrealized profits of approximately $17.1 million on his 4 million shares of Dean Foods stock.

After the announcement of the WhiteWave Spinoff, DAVIS continued to provide WALTERS with Inside Information about the forthcoming WhiteWave IPO.  By October 25, 2012, the day the IPO was priced above expectations at $17 per share, WALTERS had increased his position in Dean Foods stock to more than 5.3 million shares, which were worth approximately $100 million.  By the end of August 2013, after WALTERS received shares of WhiteWave stock in a dividend made to Dean Foods shareholders in May 2013, WALTERS had sold all of his securities in Dean Foods and WhiteWave for gross proceeds of approximately $110 million.

WALTERS’s Insider Trading in Darden Restaurants, Inc. 

In or about August 2013, DAVIS received, pursuant to a non-disclosure agreement, a confidential investment plan (the “Investment Plan”) from an investment firm in New York, New York (“Investment Firm A”) related to Darden Restaurants, Inc. (“Darden”), a holding company that owned a number of restaurants.  The Investment Plan outlined Investment Firm A’s desire to separate one or more of Darden’s restaurant businesses to unlock additional value in the stock (the “Darden Inside Information”).  DAVIS provided this information to WALTERS, who, on August 20 and 21, 2012, purchased 625,000 shares of Darden worth approximately $30 million.

On October 9, 2013, a national newspaper published an article about a significant investment in Darden by Investment Firm A, among others, with the intent to separate Darden into two companies.  At the end of the trading day, Darden’s stock price had increased from $46.28 per share to $49.57, resulting in unrealized profits for WALTERS of approximately $1 million.

*                      *                      *

WALTERS, 69, is charged with one count of conspiracy to commit securities fraud, four counts of securities fraud, one count of conspiracy to commit wire fraud, and four counts of wire fraud.  Count One carries a maximum sentence of five years in prison.  Counts Two through Ten each carry a maximum sentence of 20 years in prison.  The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense.

On May 16, 2016, DAVIS, 67, pled guilty before Judge Castel to one count of conspiracy to commit securities fraud, one count of conspiracy to commit wire fraud, four counts of securities fraud, four counts of wire fraud, one count of obstruction of justice, and one count of perjury.  Counts One and Twelve each carry a maximum sentence of five years in prison.  Counts Two through Eleven each carry a maximum sentence of 20 years in prison.  The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense.

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

Mr. Bharara praised the work of the FBI and the Postal Inspection Service, and thanked the SEC and the Financial Industry Regulatory Authority (“FINRA”) for their assistance.  He also thanked the Las Vegas offices of the FBI and the Internal Revenue Service, Criminal Investigation Division.

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 Brooke E. Cucinella and Daniel S. Goldman are in charge of the prosecution.  

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

 

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

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 Office of the Internal Revenue Service-Criminal Investigation (“IRS-CI”), announced that DAVID S. YOUNGER, a neurologist with a private medical practice in Manhattan, pled guilty today in Manhattan federal court to one count of tax fraud for falsely classifying personal expenses as business expenses attributable to his medical professional corporation.  In total, in 2007 and 2008, YOUNGER falsely classified over $580,000 in expenses.  YOUNGER pled guilty before U.S. District Judge Jed S. Rakoff.

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

YOUNGER, a resident of Westchester County, is a board-certified neurologist engaged in private medical practice in Manhattan through the David S. Younger M.D., P.C., professional corporation (the “Younger P.C.”).  In 2007 and 2008, Younger filed both personal tax returns on behalf of himself and his wife, and corporate tax returns on behalf of the Younger P.C.  In 2007, YOUNGER used approximately $250,000 of corporate funds to pay personal expenses, and in 2008, YOUNGER used approximately $335,000 of corporate funds to pay personal expenses.  YOUGNER caused all of these expenses falsely to be recorded as business expenses such as medical supplies, office expenses, and professional fees in the books and records of the Younger P.C.  YOUNGER caused these expenses falsely to be deducted from income on tax returns of the Younger P.C., and YOUNGER also fraudulently omitted these personal expenses as income on his personal tax returns.

Among the personal expenses that YOUNGER falsely categorized as business expenses and deducted on his corporate tax returns in 2007 and 2008 are the following:  approximately $100,000 in fees to a private golf and country club, approximately $53,000 in property taxes for YOUNGER’s residence, a $4,300 placement fee for a nanny/housekeeper, approximately $17,000 for the construction of an electric gate at YOUNGER’s residence, $345 for a Mickey Mantle baseball card, approximately $26,000 for the restoration of a piano that was picked up from and delivered to YOUNGER’s residence, approximately $37,000 for a vendor to perform construction work at YOUNGER’s residence, approximately $18,000 for furniture delivered to YOUNGER’s residence, and at least approximately $20,000 of airfare for members of YOUNGER’s family.

*                      *                     *

YOUNGER, 61, of Scarsdale, New York, faces a maximum sentence of three years in prison.  As part of his plea agreement, YOUNGER is also required to pay restitution to the IRS.  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.  YOUNGER is scheduled to be sentenced by Judge Rakoff on September 19, 2016, at 4:00 p.m.

Mr. Bharara praised the work of the Internal Revenue Service, Criminal Investigation.

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

 

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Preet Bharara, the United States Attorney for the Southern District of New York, announced that CHARLES A. BENNETT was sentenced today in Manhattan federal court to five years in prison for securities and wire fraud charges stemming from his scheme to defraud over 30 investors of more than $5 million through a Ponzi scheme that he perpetrated for more than five years.  Among other false and misleading statements, BENNETT lied to investors by claiming to have exclusive access to a highly successful privately held investment fund in which he would purportedly invest the investors’ money.  BENNETT solicited millions of dollars from over 30 investors, including his close friends and family members, but never actually invested any of the money in the investment fund or any other investment vehicle.  Instead, BENNETT used the investors’ money for his own personal benefit and to pay back other investors.  BENNETT pled guilty on October 28, 2015, to one count of securities fraud and one count of wire fraud before United States District Judge Laura Taylor Swain, who imposed today’s sentence.

U.S. Attorney Preet Bharara said: “Charles Bennett lied to dozens of investors, including family and friends, to solicit millions of dollars for a purported investment vehicle.  Then, rather than invest their money as he said he would, he spent most of it on himself.  Today, he received a sentence reflecting the seriousness of his crimes.”

According to the Complaint, the Indictment, and other statements made in open court:

From 2008 through November 2014, BENNETT, a former corporate lawyer at a law firm based in New York City, engaged in a multimillion-dollar Ponzi scheme, during which he solicited money from investors based on materially false and misleading representations.  Specifically, BENNETT told the investors that he himself had invested money in a highly successful privately held investment fund, and that, should they choose to invest, the investors’ money would be held in BENNETT’s account.  BENNETT communicated by email and telephone with many of the investors in order to tell them about the purported status of their investments, including their purported returns.  BENNETT also led most of the investors to believe that they were the only individuals to whom he had extended the offer to invest with him. 

BENNETT created false and misleading paperwork in furtherance of the scheme, including “promissory notes” that he provided to the investors as a record of the amounts of money they had given to BENNETT to invest.  BENNETT also provided certain investors with account statements that purported to show the amount that BENNETT (and the investors, through BENNETT) had invested.  In fact, BENNETT never invested any of the investors’ money in the investment fund or in any other investment vehicle, but instead spent the money on his own personal expenses and to repay other investors.

During the course of the fraudulent scheme, BENNETT solicited more than $5 million from more than 30 investors.

*                      *                      *

In addition to the five-year prison sentence, BENNETT, 58, formerly of Manhattan, was sentenced to three years of supervised release.  The Court further ordered BENNETT to forfeit the proceeds of the scheme and to pay restitution in amount to be determined.

Mr. Bharara praised the 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 Amy Lester is in charge of the prosecution.

           

16-128            

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 Division of the Federal Bureau of Investigation (“FBI”), and William J. Bratton, the Commissioner of the New York City Police Department (“NYPD”), announced the return of a Superseding Indictment charging TERRILL STATON with the October 29, 2013, home-invasion robbery and murder of Erwin Elliot, 44, in the Bronx, New York.   

Manhattan U.S. Attorney Preet Bharara stated: “As alleged, the defendant went into Erwin Elliot’s home with a gun, robbed him, and murdered him.  Thanks to the dogged efforts of the FBI and the NYPD, the defendant is now being held accountable for his alleged brutal crimes.”

FBI Assistant Director-in-Charge Diego Rodriguez stated: “Today, Terrill Staton faces justice for his alleged role in the brutal home-invasion robbery and murder of a Bronx resident. The FBI would like to thank our law enforcement partners for their assistance with this case.”

NYPD Commissioner William Bratton said: “I want to commend the NYPD detectives and our law enforcement partners who were integral to this indictment, which we hope will offer some consolation to the family who lost their loved one to this violent act.”

As alleged in the Superseding Indictment,[1] on October 29, 2013, STATON carried out a home-invasion robbery of Erwin Elliot, a marijuana dealer, at 642 East 221st Street in the Bronx.  In the course of the robbery, STATON shot and killed Elliot.

*                      *                     *

STATON was already in federal custody, and will be arraigned on the Superseding Indictment before U.S. District Judge Naomi Reice Buchwald at a date to be determined.                                   

A chart containing the charges and maximum penalties is below.  The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge.

Mr. Bharara praised the outstanding investigative work of the FBI and the NYPD.  Mr. Bharara also thanked the Bronx District Attorney’s Office for its assistance in the case.

The case is being handled by the Office’s Violent and Organized Crime Unit.  Assistant United States Attorneys Hadassa Waxman and Michael Gerber are in charge of the prosecution.

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

 

CHARGE

MAXIMUM PENALTY

Robbery conspiracy

 

20 years in prison

 

 

Robbery

20 years in prison

 

 

Murder

 

Life in prison

Mandatory minimum: 5 years in prison, to be imposed consecutively to any other sentence

 

 

 

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