Southern District of New York

Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the filing of an Information against OWEN LI, charging him with 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 surrendered this morning and pled guilty to the charges before United States Magistrate Judge Frank Maas shortly after the filing of the Information.

In a separate action, the SEC announced civil charges against LI and Canarsie.

U.S. Attorney Preet Bharara said:  “As Owen Li has now admitted, he lied to his investors and lied to the SEC.  His conduct led to crippling losses for his fund and its investors.  Crimes like Owen Li’s taint the entire marketplace and make honest investors wary of investing in securities markets.  Thanks to the investigative efforts of the FBI in collaboration with the SEC, Li will be held to account for his deception.”

FBI Assistant Director-in-Charge Diego Rodriguez said:  “Owen Li’s multiple unlawful actions as a trader finally caught up with him today as he pleaded guilty to securities fraud and making false statements. The FBI will continue to work with our partners in an effort at ensuring that our financial markets are legal, fair, and equitable.”

According to the two-count Information filed today in Manhattan federal court[1]:

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 cancelling “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, forbade 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 cancelled 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.

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LI, 29, pled guilty to one count of securities fraud and one count of making a false statement.  Count One carries a maximum sentence of 20 years in prison.  Count Two carries a maximum sentence of five 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 defendant will be determined by the judge.

Mr. Bharara praised the work of the FBI, 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.

[1] As the introductory phrase signifies, the entirety of the text of the Information, and the description of the Information 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 MARCELLO TREBITSCH was sentenced to two years in prison in connection with his operation of a Ponzi scheme that defrauded at least four investors of nearly $6 million over the course of seven years.  Among other things, TREBITSCH lied to two of his investors by telling them that he would invest their money through an investment fund that he controlled that would generate double-digit returns with very low risk.  To that end, TREBITSCH provided the investors with fake account statements and federal tax forms that reflected significant gains.  In reality, TREBITSCH invested only a portion of the investors’ money, suffered enormous trading losses, and used the remainder of the investors’ money for his own personal benefit and to pay back other investors.  TREBITSCH pled guilty to a one-count Information charging him with securities fraud on July 13, 2015, and was sentenced today before United States District Judge Vernon S. Broderick. 

U.S. Attorney Preet Bharara said:  “Marcello Trebitsch purported to be an expert investor, but in reality, he lost much of his victims’ money through poor trading and used the rest for personal gain and to pay old victims with new investors’ money.  Trebitsch’s conviction and sentence holds him accountable for his crimes and keeps him from victimizing anyone else.”

According to the Complaint, the Information, other submissions filed in Manhattan federal court, and other statements made in open court:

From 2007 through 2014, TREBITSCH engaged in a multimillion-dollar fraudulent investment scheme, during which he solicited money from investors based on materially false and misleading representations.  Specifically, TREBITSCH told the investors that he, through an investment fund that he created called Allese Capital LLC, would (a) create and perfect public shell companies to sell to private companies; (b) execute specific trades at the direction of an investor; and (c) purchase and sell stocks on a daily basis, with little or no money remaining invested in the market at the end of each trading day.  In fact, in all cases, TREBITSCH did not invest the money as he said he would, and instead principally used the investors’ money for his own personal benefit, including to repay other investors.  With respect to the portion of investor funds that he did use to purchase securities, TREBITSCH suffered net trading losses, which he did not disclose to the investors.

In 2007, TREBITSCH represented to an individual (“Victim-1”) that TREBITSCH would invest Victim-1’s money to perfect shell companies and sell them to private companies for a positive return.  TREBITSCH did create and perfect shell companies, but falsely represented to Victim-1 that he sold the shell companies, when, in fact, he had not and instead later used them to create bank accounts through which he wired and concealed proceeds of his scheme. 

In 2008, another individual (“Victim-2”) agreed to invest money with TREBITSCH after TREBITSCH promised to simply execute trades as instructed by Victim-2.  Instead, TREBITSCH did not invest Victim-2’s money as instructed, and further sent daily account updates by email that were entirely fabricated.  After Victim-2 requested a redemption of his investment and purported returns of approximately $3 million, TREBITSCH admitted his fraudulent scheme to Victim-2, informed Victim-2 that TREBITSCH had lost nearly all of the money, and agreed to repay some money to Victim-2 that TREBITSCH obtained from a subsequent investor.

In 2009, TREBITSCH obtained additional investments from another individual  (“Victim-3”) by promising to invest in large cap stocks and mitigate risk by selling the entire portfolio at the end of each trading day.  Further, TREBITSCH represented that Victim-3 would receive double-digit returns and falsely asserted that a major Wall Street bank had already invested $50 million with TREBITSCH.  Rather than invest the money as represented, TREBITSCH used some of Victim-3’s initial investment to repay Victim-2, and further failed to invest the money as promised.  Even though TREBITSCH used the money for personal gain, to repay other investors, or lost much of it through poor trading, TREBITSCH sent Victim-3 fake monthly account statements and tax forms, which falsely purported to show double-digit annual returns.  Based on these apparent positive returns, Victim-3 invested approximately $6.5 million with TREBITSCH over the course of four years.  Of that total investment, TREBITSCH only repaid approximately $2.2 million, some of which was obtained from a subsequent investor.

In 2014, after reviewing Victim-3’s account statements and federal tax forms related to Victim-3’s investment with TREBITSCH, Victim-3’s accountant (“Victim-4”) invested approximately $700,000 with TREBITSCH.  None of this money was invested as TREBITSCH promised; rather, it was immediately diverted to Victim-3 to satisfy Victim-3’s redemption request.  TREBITSCH never returned any of the $700,000 Victim-4 invested with TREBITSCH.  

*                      *                      *

As part of the sentence imposed today by Judge Broderick, TREBITSCH, 37, of Brooklyn, New York, was further sentenced to three years of supervised release and was ordered to pay forfeiture and restitution to the victims of the offense in the amount of $5,905,949. 

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. Attorneys Daniel S. Goldman and Amy Lester are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that LEONARD MARCHETTA, a physician’s assistant, was sentenced in Manhattan federal court to 11 years in prison for conspiring to distribute large quantities of oxycodone out of his Staten Island-based medical clinic.  MARCHETTA was charged in September 2014 and pled guilty in January 2015 before U.S. District Judge P. Kevin Castel, who also imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara said: “Leonard Marchetta was responsible for the illegal distribution of more than 125,000 medically unnecessary oxycodone pills.  With his criminal distribution of highly addictive and dangerous drugs, Marchetta helped fuel the prescription pill epidemic plaguing our community.”

According to the allegations contained in the Indictment and statements made in connection with sentencing:

As a physician’s assistant, MARCHETTA, under the supervision of a physician or surgeon, was able to diagnose and treat illnesses and prescribe medications.  From at least 2012 until the time he was arrested, MARCHETTA was employed by and oversaw the day-to-day operations of a Staten Island-based medical clinic (the “Clinic”), which advertised itself to the public as a family medical clinic.

During an approximately three-year period, MARCHETTA prescribed oxycodone to individuals claiming to be “patients,” who had no medical need for oxycodone and no legitimate medical record documenting an ailment for which oxycodone would be prescribed. MARCHETTA’s fee for his participation in the scheme was typically approximately $250 in cash for “doctor visits” that usually lasted just a minute or two, involved no actual physical examination, and consistently resulted in the issuance of a prescription for large doses of oxycodone, typically 150 30-milligram tablets.  MARCHETTA also received a separate fee of approximately $500 in cash for each medically unnecessary oxycodone prescription he issued. On a number of occasions, MARCHETTA issued prescriptions in the names of fictitious individuals or individuals whom MARCHETTA never saw in exchange for cash.  In total, MARCHETTA wrote medically unnecessary prescriptions for more than 125,000 30-milligram oxycodone pills during a period of approximately three years.

After MARCHETTA issued a medically unnecessary oxycodone prescription in the name of the “patient,” the “patient” was taken or referred to a pharmacy to fill the oxycodone prescription – that is, to obtain the oxycodone tablets – in part for distribution.  The patients were paid, typically $150 to $200 in cash, for obtaining and handing over the oxycodone tablets that MARCHETTA had prescribed to them.  At times, the “patients,” some of whom were addicted to oxycodone, were paid with oxycodone tablets for their services.

*                      *                      *

In addition to his prison term, MARCHETTA, 48, of Staten Island, New York, was sentenced to three years of supervised release, and ordered to pay forfeiture in the amount of $1,870,680.   MARCHETTA has been detained since his arrest in September 2014.

Two other defendants, Gregory Zaccagnino and William Tagliaferro, previously pled guilty for their roles in the oxycodone distribution scheme.  Zaccagnino was sentenced by Judge Castel to six years in prison.  Tagliaferro has yet to be sentenced. 

Mr. Bharara thanked the United States Department of Health and Human Services, the New York State Department of Financial Services, and the DEA Tactical Diversion Squad New York (TDS-NY), comprising agents and officers from the DEA, the New York City Police Department, Town of Orangetown Police Department and Westchester County Police Department, for their work in the investigation, which he noted is ongoing.

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

Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, the Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that ALEX HAXTON pled guilty today to orchestrating a fraudulent Internet-based investment scheme that victimized more than one hundred individuals.  HAXTON pled guilty before U.S. District Judge John G. Koeltl.

According to the allegations contained in the information to which HAXTON pled guilty and statements made during HAXTON’s plea proceeding:

HAXTON was the administrator of a website (the “Website”) that solicited investments on behalf of a company (the “Company”) that HAXTON effectively owned and controlled.  As administrator of the Website, HAXTON arranged for representations to be made on the Website advertising its purported investment program.  HAXTON also opened and maintained payment processor accounts to receive and disburse funds that individuals provided and expected to be invested in the purported investment program.  To incorporate the Company and create the Website, HAXTON used a false Internet protocol address in order to mask his identity because he sought to avoid detection by investors and law enforcement. 

Through the Website, HAXTON solicited investments from more than one hundred individuals across the United States and abroad based upon misrepresentations that the investors’ money would be invested in a “High Yield Investment Program,” or “HYIP,” which would invest in shares of start-up companies and generate a guaranteed rate of return of at least 1.8 percent per business day.  HAXTON further falsely represented to investors that they could withdraw their invested funds at any time.

In fact, and contrary to the representations that HAXTON made, investors’ funds were not used to invest in start-up companies and generate the “HYIP” investment returns that HAXTON falsely promised.  Instead, as HAXTON knew, a portion of the investors’ funds was used to make payments to earlier investors, as in a classic Ponzi scheme.  The majority of the investors’ funds were misappropriated by HAXTON to pay for expenses associated with advertising the Website and diverted to HAXTON’s personal bank account for his own personal use. 

In 2014, after victim investors began to complain on Internet blogs that they had not received the rates of return from the Website that they had been promised, HAXTON abruptly shut down the Website, a process known in the HYIP industry as “scamming.”  When HAXTON shut down the Website, hundreds of investors lost their money, a total of approximately $150,000, which HAXTON kept and spent on himself.

*                *                *

HAXTON, 27, of Atlanta, Georgia, 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.  HAXTON is scheduled to be sentenced on April 15, 2016, before Judge Koeltl.

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

Mr. Bharara praised the investigative work of the FBI.

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

            Preet Bharara, the United States Attorney for the Southern District of New York, announced that HARVEY NEWKIRK, formerly counsel at Bryan Cave LLC, the New York law firm, was found guilty today of wire fraud in connection with his participation in a scheme to fraudulently induce lenders to provide tens of millions of dollars toward the purchase of Maxim Magazine and related assets (“Maxim”). 

            Manhattan U.S. Attorney Preet Bharara said: “As a unanimous jury found, Harvey Newkirk, a lawyer and officer of the court, defrauded lenders out of millions of dollars by lying as part of a scheme to acquire Maxim Magazine.  Sworn to practice law ethically, Newkirk instead practiced deceit and dishonesty.  For that, the jury has convicted him of a serious federal crime.”

            As established by the evidence at trial:

            In connection with the potential purchase of Maxim by a company (the “Company”) controlled by Calvin Ramarro Darden (“Darden Junior”), from in or about August 2013 to on or about February 11, 2014, NEWKIRK told a series of lies to lenders to induce the lenders to provide tens of millions of dollars in capital toward the purchase of Maxim.  In order to mislead the lenders into believing that they would receive sufficient collateral for their loans, NEWKIRK falsely promised them that Calvin Darden (“Darden Senior”), the former Senior Vice President of U.S. Operations of UPS, and a member of the Board of Directors of Coca-Cola Enterprises, Target Corporation, and Cardinal Health, Inc., would pledge his personal stock holdings in the latter three companies as collateral for the loans.  In addition to knowingly making this false promise, NEWKIRK concealed from lenders that, as NEWKIRK knew, the stock owned by Darden Senior was subject to restrictions, and could not be pledged as collateral for any loans.  NEWKIRK further falsely promised at least six lenders that each would have a first and sole priority interest in the purported collateral when, as NEWKIRK well knew, only one lender could have any such interest. 

            NEWKIRK, who represented the Company in the attempted Maxim acquisition in his capacity as an attorney at Bryan Cave, engaged in the fraud in part because NEWKIRK secretly owned part of the Company’s parent company (the “Parent Company”), and would share in any of the Parent Company’s profits resulting from the acquisition.  NEWKIRK hid his partial ownership of the Parent Company from Bryan Cave and others.  NEWKIRK further lied to Bryan Cave about his relationship with Darden Senior, falsely claiming that Darden Senior had been NEWKIRK’s client for many years when, in truth and in fact, and as NEWKIRK well knew, NEWKIRK had never represented Darden Senior.  

            In the course of the fraud, NEWKIRK provided lenders with account statements that purported to show Darden Senior’s stock holdings.  In truth, however, the account statements were fake documents, and Darden Senior was not providing any financial support for the purchase of Maxim.  Also in the course of the fraud, NEWKIRK went to great lengths to hide from Darden Senior, and from Bryan Cave, the existence of a lawsuit filed by one lender in which that lender sought to obtain the collateral of Darden Senior that NEWKIRK had fraudulently pledged to the lender.  NEWKIRK deliberately caused a default judgment to be entered against Darden Senior in that lawsuit, knowing that he had concealed the existence of the lawsuit from both Darden Senior and Bryan Cave.

            Furthermore, after one of the lenders placed approximately $5.5 million in escrow at Bryan Cave, Darden Junior arranged for a fraudulent email to be sent to NEWKIRK that purported to have been authored by the lender.  In response to that fraudulent email, and with knowledge that the email was in fact fraudulent, NEWKIRK released approximately $4.9 million of the lender’s money from the escrow account to fund the purchase of Maxim.  Moreover, in an effort to close the deal, NEWKIRK also falsely represented to another individual that approximately $12 million, consisting of funds supposedly provided by, or secured by the personal assets of, Darden Senior, had been placed in escrow at Bryan Cave.  In truth and in fact, no funds were ever held in escrow at Bryan Cave in connection with the purchase of Maxim, other than the $5.5 million placed in escrow by the lender described above, which was subsequently misappropriated by NEWKIRK.  Lenders lost a total of $8 million in connection with the fraud.

            NEWKIRK was found guilty of one count of wire fraud, and found not guilty of one count of conspiracy to commit wire fraud and one count of aggravated identity theft.  Sentencing is scheduled for April 14, 2016, before United States District Judge Jed S. Rakoff, who presided over the trial.  NEWKIRK faces up to 20 years in prison on the wire fraud charge.  The statutory maximum penalty is prescribed by Congress and is provided here for informational purposes only, as any sentencing of NEWKIRK will be determined by the judge.

            Mr. Bharara praised the investigative work of the United States Secret Service and the Federal Bureau of Investigation.  

            The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit.Assistant U.S. Attorneys Andrew C. Adams and Sarah E. Paul are in charge of the prosecution.

            “The swift convictions of Sheldon Silver and Dean Skelos beg an important question – how many prosecutions will it take before Albany gives the people of New York the honest government they deserve?”

Preet Bharara, the United States Attorney for the Southern District of New York, today announced that CHARLES FAMILETTI, JR., a former Vice-President at HSBC Bank, was convicted Monday evening in Manhattan federal court of attempted sex trafficking of a minor, distribution of child pornography, transportation of child pornography, and possession of child pornography, following a five-day trial before Chief United States District Judge Loretta A. Preska.

U.S. Attorney Preet Bharara said:  “In addition to exploiting children through his possession, receipt, and distribution of child pornography, as the jury found, Charles Familetti tried to pay an undercover agent for sex with an 11-year-old child.  Thanks to our partners at the FBI, Familetti was arrested before he could personally harm any children.  The jury’s verdict should send a message to child predators that their crimes will be investigated and prosecuted to the fullest extent of the law.”

As established by the evidence at trial:

FAMILETTI was arrested in July 2013 following a Federal Bureau of Investigation (“FBI”) sting operation in which he agreed to pay an undercover FBI agent $500 in order to have sexual relations with an 11-year old boy.  During that operation, an FBI agent also downloaded several files containing child pornography from FAMILETTI via a publicly available peer-to-peer file sharing network.  On July 15, 2013, FAMILETTI met with the undercover agent to confirm the agreement and make the final arrangements to obtain the supposed 11-year old boy.  FAMILETTI then took the agent to an ATM, withdrew the money to cover the full $500 fee for the boy, and gave the agent $100 as a down payment.  After the meeting, FAMILETTI returned to his apartment in midtown Manhattan to await the boy’s arrival.  At the agreed-upon time for the boy to arrive, the FBI instead executed a search warrant at FAMILETTI’s apartment.  While executing the search warrant, the FBI located an SD card containing over 2,000 image files and over 500 video files of child pornography hidden inside a loaf of bread in FAMILETTI’s refrigerator.  It was further established at trial that FAMILETTI carried the SD card with him when he traveled.  

FAMILETTI, 48, of San Francisco, California, is set to be sentenced on March 15, 2016, before Judge Preska.  FAMILETTI faces a mandatory minimum sentence of 15 years in prison and a maximum sentence of life in prison on the attempted sex trafficking of a minor charge.  FAMILETTI faces a mandatory minimum term of five years in prison and a maximum sentence of 20 years in prison on each of the distribution and transportation of child pornography charges.  FAMILETTI faces a maximum sentence of 20 years in prison on the possession of child pornography charge.

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

Mr. Bharara praised the outstanding efforts of the FBI.

The prosecution is being handled by the Office’s General Crimes Unit.  Assistant United States Attorneys Patrick Egan, Jessica Fender, and Sarah Krissoff are in charge of the prosecution. 

The FBI encourages the public to report suspected child predators and any suspicious activity through their switchboard at (212) 384 -1000.  It is staffed around the clock by investigators.  Suspected child sexual exploitation or missing children may 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.

            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 the unsealing of a complaint charging KRISTOPHER ROCCHIO with computer fraud, stemming from his repeated unauthorized access of his former supervisor’s email account from at least August 2013 through in or about February 2015.  ROCCHIO was arrested this morning, and will be presented in Manhattan federal court before Magistrate Judge Ronald L. Ellis later today.

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

            From February 2008 through March 2012, ROCCHIO was employed by a global fixed-income financial services company with an office in New York, New York (the “Company”).  While employed by the Company, ROCCHIO had a direct supervisor (the “Supervisor”).  During ROCCHIO’s employment, the Supervisor never gave ROCCHIO permission to read the Supervisor’s email account at the Company (the “Supervisor’s Email”), and never knowingly gave ROCCHIO the password to the Supervisor’s Email.

            In March of 2012, ROCCHIO left the Company.  On or about February 25, 2015, the Supervisor received an email bounce back message to the Supervisor’s Email.  The message indicated that an email sent from the Supervisor’s Email could not be delivered (the “Failed Email”).  The Supervisor had not personally attempted to send the Failed Email.  The Supervisor then checked the sent mail folder of the Supervisor’s Email and noticed two emails in the folder that the Supervisor had not personally sent.  One email was the Failed Email.  The other email (the “February 25 Email”) was sent to another email address (the “Email Account”).  The content of both the Failed Email and the February 25 Email was the same, and included a password-protected attachment that detailed, among other things, the compensation and performance evaluations for numerous employees at the Company.  Later that same day, the Supervisor checked the sent mail folder of the Supervisor’s Email again, but both the Failed Email and the February 25 Email had been deleted by someone other than the Supervisor.

            FBI agents reviewed records from the Email Account and learned that the subscriber for the Email Account is ROCCHIO.  The Email Account contains the February 25 Email.  The Email Account also contains an earlier email from the Supervisor’s Email sent on or about December 21, 2013 (the “December 21 Email”).  The December 21 Email has an attachment, which is a PowerPoint presentation that contained internal metrics of the Company.  Also on or about December 21, 2013, the Email Account forwarded the December 21 Email to an email account associated with ROCCHIO (“Email Account-2”) at another financial services company in New York, New York (“Company-2”).  Email Account-2 then forwarded the December 21 Email to another employee at Company-2.  Company-2 employed ROCCHIO from May 2013 through July 2015. 

            Records of remote access to the Supervisor’s Email reveal a number of IP addresses used to access the Supervisor’s Email.  Three of the IP addresses – which collectively accessed the Supervisor’s Email at least 79 times – were assigned to ROCCHIO.  One of the IP addresses – which accessed the Supervisor’s Email at least 15 times – was assigned to Company-2.  One of the IP addresses that accessed the Supervisor’s Email was assigned to a hotel in Chicago, Illinois, where ROCCHIO was staying at the time of the access into the Supervisor’s Email.

*                *                *

            ROCCHIO, 38, of Staten Island, New York, is charged with two counts of computer fraud, in violation of Title 18, United States Code, Section 1030.  Each count carries a maximum penalty of five years in prison.  The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentence imposed on the defendant will be determined by the Court.           

            Mr. Bharara praised the outstanding efforts of the FBI and its New York Cyber Division.

            The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit.  Assistant United States Attorney Megan Gaffney is in charge of the prosecution.

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

[1] As the introductory phrase signifies, the entirety of the text of the Complaint, and the descriptions 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, Delano A. Reid, the Special Agent in Charge of the New York Division of the Bureau of Alcohol, Tobacco, Firearms, and Explosives (“ATF”), James J. Hunt, the Special Agent in Charge of the New York Field Division of the Drug Enforcement Administration (“DEA”), and William J. Bratton, the Commissioner of the New York City Police Department (“NYPD”), announced the unsealing today of two Indictments charging a total of 48 members and associates of two Bronx-based street gangs, the Young Gunnaz (“YGz”) and 18 Park, with various racketeering, narcotics, and firearms offenses, including three gang-related murders, and five gang-related attempted murders.

The YGz Indictment charges 22 members and associates of the YGz gang in the case of United States v. Ramel Matthews et al., which has been assigned to U.S. District Judge Valerie E. Caproni.  The 18 Park Indictment charges 26 members and associates of the 18 Park gang in the case of United States v. Jonathan Rodriguez et al., which has been assigned to U.S.  District Judge Paul A. Engelmayer.  Of the 48 defendants charged in both the YGz and 18 Park Indictments, 40 are currently in custody, including 23 defendants who were arrested earlier today as part of a coordinated takedown by ATF, DEA, and NYPD.   Most of these defendants will be presented today before United States Magistrate Judge Ronald L. Ellis. 

Manhattan U.S. Attorney Preet Bharara said:   “Today’s charges incapacitate four dozen alleged gang members who have wreaked havoc on Bronx streets for years.  As alleged, these defendants are members of gangs that have engaged in all manner of mayhem – three murders, five attempted murders, racketeering, drug dealing, and gun charges.  Thanks to the brave men and women of the ATF, DEA, and NYPD, these alleged criminals must now face justice in federal court.”

ATF Special Agent in Charge Delano A. Reid said:  "Today, the ATF along with the NYPD, DEA and HSI, successfully launched a large-scale arrest operation on two, Bronx based, violent street gangs who conducted their illegal narcotics and firearm trafficking operation in and around the Patterson Housing projects for several years. As alleged, the 18th Park and YGz gangs routinely conducted their street level narcotics trafficking of crack cocaine, heroin, and marijuana and in the course of these activities, committed various acts of violence, to include approximately 30 non-fatal shootings, three homicides, assaults and stabbings.  With nearly three dozen arrested thus far, I am confident that our efforts today will clearly illustrate that this type of gang activity will not be tolerated and there will be consequences for those who choose to illegally deal in firearms and commit acts of violence. I am hopeful that the residents of this area will wake up to a safer environment no longer plagued by the scourge of senseless gang violence.”

DEA Special Agent in Charge James J. Hunt said:  “Drug gangs plague our neighborhoods with gun violence.  The bottom line is, when there are gangs competing to sell poison for profit, gunfire, murder and violent crimes are inevitable consequences.  I commend law enforcement’s brave efforts to rid the unacceptable risks of violence to our neighborhoods by making these arrests today.”

Commissioner William J. Bratton said:  “As alleged, the numerous acts of violence perpetrated by these street gangs demonstrate an egregious and sustained disregard for the law and the safety of our community.  This investigation conducted by NYPD detectives and our federal and state partners is to be commended.  While the unfortunate correlation between narcotics trafficking and violence is well known, so is our commitment to stop these acts.”

As alleged in the Indictments unsealed today in Manhattan federal court and in other court papers[1]:

United States v. Ramel Matthews, et al.

The YGz was a criminal enterprise that operated mainly in and around several housing developments in the Bronx, New York,  from 2005 through December 2015.  Members and associates of the YGz enriched themselves by committing robberies and selling drugs, such as crack cocaine, heroin, and marijuana, and engaged in acts of violence, including murder and attempted murder of rival gang members, rival drug traffickers, and innocent bystanders.

For example, on June 27, 2009, YGz members RAMEL MATTHEWS, ANTHONY SCOTT, and HASWANI TYSON attempted to commit a gunpoint robbery near the Mott Haven Houses in the Bronx, and in the course of this attempted robbery, SCOTT shot and killed Darrel Ledgister, who was 21 years old.  

More recently, on April 16, 2012, a large group of YGz members, including WENDELL BELLE and WILLIAM BRACEY, stomped to death Moises Lora a/k/a “Noah,” a 16-year-old associate of a rival gang, in a courtyard in the Melrose Houses in the Bronx.         

Count One of the YGz Indictment charges RAMEL MATTHEWS, WENDELL BELLE, WILLIAM BRACEY, ANTHONY SCOTT, HASWANI TYSON, RASHAAD CONYERS, PAUL GILBERT, KAREEM LANIER, TERRANCE WILLIAMS, JASON MOYE, MICHAEL BROWN, BRIANT LAMONT MAYNOR, ANDY SEDA, DAVOUN MATTHEWS, JOSEPH ANDERSON, DAVAUGHN BROOKS, JOHN HUGHES, JOSEPH JEFFRIES, DONOVAN REYNOLDS, KYLE HINES, CHANEL LEON, and CHRISTOPHER MORALES with participating in a racketeering conspiracy for criminal involvement in the YGz gang.  Count Nine of the YGz Indictment charges 16 of those 22 defendants (namely, RAMEL MATTHEWS, BELLE, BRACEY, SCOTT, CONYERS, GILBERT, LANIER, WILLIAMS, MOYE, BROWN, MAYNOR, SEDA, DAVOUN MATTHEWS, HUGHES, JEFFRIES, REYNOLDS, and MORALES) with a related firearms offense.

Counts Two and Eight of the YGz Indictment charge RAMEL MATTHEWS, ANTHONY SCOTT, and HASWANI TYSON with the murder of Darrel Ledgister in aid of racketeering, and a related firearms offense.

Count Three of the YGz Indictment charges WENDELL BELLE and WILLIAM BRACEY with the murder of Moises Lora in aid of racketeering.

Count Four of the YGz Indictment charges WENDELL BELLE with aiding and abetting an assault with a deadly weapon and attempted murder in connection with a November 2013 shooting aimed at killing rival gang members near Courtlandt Avenue in the Bronx, resulting in a bystander being shot and wounded.

Count Five of the YGz Indictment charges PAUL GILBERT with assault with a deadly weapon and attempted murder in connection with a June 2014 shooting by the Mott Haven Houses in the Bronx aimed at killing an associate of a rival gang in the Bronx, resulting in an individual being shot and wounded.

Count Six of the YGz Indictment charges RASHAAD CONYERS with assault with a deadly weapon and attempted murder in connection with a May 2015 shooting near the Patterson Houses in the Bronx aimed at killing rival gang members in the Bronx.

Count Seven of the YGz Indictment charges RAMEL MATTHEWS, TERRANCE WILLIAMS, MICHAEL BROWN, ANDY SEDA, DAVOUN MATTHEWS, DAVAUGHN BROOKS, JOHN HUGHES, JOSEPH JEFFRIES, KYLE HINES, CHANEL LEON, and CHRISTOPHER MORALES with participating in a conspiracy to distribute crack cocaine, heroin, and marijuana.

United States v. Jonathan Rodriguez, et al.

18 Park was a criminal enterprise that operated mainly in and around the Patterson Houses and Mott Haven Houses in the Bronx, New York, from 2006 through 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 of rival gang members, rival drug traffickers, and innocent bystanders.

For example, on May 29, 2011, 18 Park member KEITH RUIZ and others, murdered Johnny Moore, a 16-year-old associate of a rival gang, in the Patterson Houses in the Bronx.

Count One of the 18 Park Indictment charges JONATHAN RODRIGUEZ, MARQUIS WRIGHT, WALI BURGOS, JASON BENJAMIN, JORDAN RIVERA, WILLIAM AMARAZIN, RAHEEM AMARAZIN, TJON MACOLL, COREY HEYWARD, JONATHAN HARRIS, WILLIAM KNOX, COREY COOKS, DAQUAN McBETH, JAHNOMI BENJAMIN, KEITH RUIZ, RYAN VALENTIN, MIGUEL ROMERO, KAYE ROSADO, ANDREW ECHEVARRIA, NAQUAN SIMMONS, DIQUINN LACEND, WILFREDO RIVERA, KENNETH JENKINS, VINCENT FIELDER, MIA DENTICO, and PAMELA BROWN with participating in a racketeering conspiracy for criminal involvement in the 18 Park gang.  Count Six of the 18 Park Indictment also charges 20 of those 26 defendants (RODRIGUEZ, WRIGHT, BURGOS, JASON BENJAMIN, RIVERA, WILLIAM AMARAZIN, RAHEEM AMARAZIN, MACOLL, HEYWARD, HARRIS, KNOX, COOKS, McBETH, JAHNOMI BENJAMIN, VALENTIN, ROMERO, ECHEVARRIA, SIMMONS, LACEND, and DENTICO) with a related firearms offense.

Count Two of the 18 Park Indictment charges KEITH RUIZ with aiding and abetting the murder of Johnny Moore in aid of racketeering.

Count Three of the 18 Park Indictment charges WALI BURGOS, JORDAN RIVERA, and COREY COOKS with assault with a dangerous weapon and attempted murder in connection with an October 2014 shooting in the Patterson Houses aimed at killing a rival gang member.

Count Four of the 18 Park Indictment charges WILLIAM AMARAZIN and TJON MACOLL with assault with a dangerous weapon and attempted murder in connection with a December 2011 shooting aimed at killing an associate of a rival gang.

Count Five of the 18 Park Indictment charges MARQUIS WRIGHT, WALI BURGOS, JASON BENJAMIN, JORDAN RIVERA, WILLIAM AMARAZIN, RAHEEM AMARAZIN, TJON MACOLL, COREY HEYWARD, JONATHAN HARRIS, WILLIAM KNOX, DAQUAN McBETH, JAHNOMI BENJAMIN, MIQUEL ROMERO, KAYE ROSADO, ANDREW ECHEVARRIA, NAQUAN SIMMONS, DIQUINN LACEND, KENNETH JENKINS, VINCENT FIELDER, MIA DENTICO and PAMELA BROWN with conspiring to distribute crack cocaine, heroin, and marijuana.

*                      *                     *     

Charts containing the names, ages, residences, charges, and maximum penalties for the defendants are set forth below.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

Mr. Bharara praised the outstanding investigative work of ATF, the DEA, and the NYPD.  He also thanked the United States Attorney’s Office for the Northern District of New York and Bronx County District Attorney’s Office for their participation and support in this ongoing investigation.

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

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

###

15-316

 United States v. Ramel Matthews et al.

COUNT

CHARGE

DEFENDANTS

MAX. PENALTIES

1

Racketeering conspiracy

18 U.S.C. § 1962(d)

RAMEL MATTHEWS WENDELL BELLE

WILLIAM BRACEY

ANTHONY SCOTT

HASWANI TYSON

RASHAAD CONYERS

PAUL GILBERT

KAREEM LANIER

TERRANCE WILLIAMS

JASON MOYE

MICHAEL BROWN

BRIANT LAMONT MAYNOR

ANDY SEDA

DAVOUN MATTHEWS

JOSEPH ANDERSON

DAVAUGHN BROOKS JOHN HUGHES

JOSEPH JEFFRIES DONOVAN REYNOLDS

KYLE HINES

CHANEL LEON CHRISTOPHER MORALES

Life in prison

2

Murder in aid of racketeering activity

18 U.S.C. § 1959(a)(1)

RAMEL MATTHEWS

ANTHONY SCOTT

HASWANI TYSON

Death penalty, or life in prison

3

Murder in aid of racketeering activity

18 U.S.C. § 1959(a)(1)

WENDELL BELLE

WILLIAM BRACEY

Death penalty, or life in prison

4

Assault and attempted murder in aid of racketeering activity

18 U.S.C. §§ 1959(a)(3) and 1959 (a)(5)

WENDELL BELLE

20 years in prison

5

Assault and attempted murder in aid of racketeering activity

18 U.S.C. §§ 1959(a)(3) and 1959 (a)(5)

PAUL GILBERT

20 years in prison

6

Assault and attempted murder in aid of racketeering activity

18 U.S.C. §§ 1959(a)(3) and 1959 (a)(5)

RASHAAD CONYERS

20 years in prison

        7

Narcotics conspiracy

21 U.S.C. § 846

RAMEL MATTHEWS

TERRANCE WILLIAMS, MICHAEL BROWN

ANDY SEDA

DAVOUN MATTHEWS, DAVAUGHN BROOKS, JOHN HUGHES

JOSEPH JEFFRIES

KYLE HINES

CHANEL LEON CHRISTOPHER MORALES

Life in prison

8

Murder through use of a firearm

18 U.S.C. § 924(j)

RAMEL MATTHEWS

ANTHONY SCOTT

HASWANI TYSON

Death penalty, or life in prison

9

Using or carrying a firearm during and in relation to, or possessing a firearm in furtherance of, a crime of violence or drug trafficking crime

924(c)(1)(A)(iii)

RAMEL MATTHEWS

WENDELL BELLE

WILLIAM BRACEY

ANTHONY SCOTT

RASHAAD CONYERS, PAUL GILBERT

KAREEM LANIER

TERRANCE WILLIAMS, JASON MOYE

MICHAEL BROWN

BRIANT LAMONT MAYNOR

ANDY SEDA

DAVOUN MATTHEWS,

JOHN HUGHES

JOSEPH JEFFRIES

DONOVAN REYNOLDS, CHRISTOPHER MORALES

Life in prison

DEFENDANT

AGE

RESIDENCE

RAMEL MATTHEWS,

a/k/a “Rah”

26

Bronx, NY

WENDELL BELLE,

a/k/a “Delly Dell”

23

Bronx, NY

WILLIAM BRACEY,

a/k/a “Rel”

21

Bronx, NY

ANTHONY SCOTT,

a/k/a “Tyson”

22

Bronx, NY

HASWANI TYSON,

a/k/a “Swani”

23

Bronx, NY

RASHAAD CONYERS,

a/k/a “Houle”

25

Bronx, NY

PAUL GILBERT,

a/k/a “Too Fly Tay”

a/k/a “Don Tay”

25

Bronx, NY

KAREEM LANIER,

a/k/a “Black”

24

Bronx, NY

TERRANCE WILLIAMS,

a/k/a “TA”

23

Bronx, NY

JASON MOYE,

a/k/a “Tall Jay”

27

Bronx, NY

MICHAEL BROWN,

a/k/a “Mighty”

27

Bronx, NY

BRIANT LAMONT MAYNOR,

a/k/a “Binky”

27

Bronx, NY

ANDY SEDA,

a/k/a “Ant White”

23

Bronx, NY

DAVOUN MATTHEWS,

a/k/a “Juice”

24

Bronx, NY

JOSEPH ANDERSON,

a/k/a “Jojo”

26

Bronx, NY

DAVAUGHN BROOKS,

a/k/a “Day Day”

a/k/a “Dolla”

23

Bronx, NY

JOHN HUGHES,

a/k/a “Pino”

22

Bronx, NY

JOSEPH JEFFRIES,

a/k/a “Joey”

20

Bronx, NY

DONOVAN REYNOLDS,

a/k/a “Donnie G”

22

Bronx, NY

KYLE HINES

22

Bronx, NY

CHANEL LEON,

a/k/a “Black Gums”

23

Bronx, NY

CHRISTOPHER MORALES,

a/k/a “Yayo”

26

Bronx, NY

United States v. Jonathan Rodriguez, et al.

COUNT

CHARGE

DEFENDANTS

MAX. PENALTIES

1

Racketeering conspiracy

18 U.S.C. § 1962(d)

JONATHAN RODRIGUEZ

MARQUIS WRIGHT

WALI BURGOS

JASON BENJAMIN

JORDAN RIVERA

WILLIAM AMARIZAN

RAHEEM AMARIZAN

TJON MACOLL

COREY HEYWARD

JONATHAN HARRIS

WILLIAM KNOX

COREY COOKS

DAQUAN McBETH

JAHNOMI BENJAMIN

KEITH RUIZ

RYAN VALENTIN

MIGUEL ROMERO

KAYE ROSADO

ANDREW ECHEVARRIA

NAQUANN SIMMONS

DIQUINN LACEND

WILFREDO RIVERA KENNETH JENKINS

VINCENT FIELDER

MIA DENTICO

PAMELA BROWN

Life in prison

2

Murder in aid of racketeering activity

18 U.S.C. § 1959(a)(1)

KEITH RUIZ

Death penalty, or life in prison

3

Assault and attempted murder in aid of racketeering activity

18 U.S.C. §§ 1959(a)(3) and 1959 (a)(5)

WALI BURGOS

JORDAN RIVERA

COREY COOKS

20 years in prison

4

Assault and attempted murder in aid of racketeering activity

18 U.S.C. §§ 1959(a)(3) and 1959 (a)(5)

WILLIAM AMARIZAN

TJON MACOLL

20 years in prison

5

Narcotics conspiracy

21 U.S.C. § 846

MARQUIS WRIGHT

JASON BENJAMIN

JORDAN RIVERA

WILLIAM AMARIZAN

RAHEEM AMARIZAN

TJON MACOLL

COREY HEYWARD

JONATHAN HARRIS

WILLIAM KNOX

DAQUAN McBETH

KAYE ROSADO

ANDREW ECHEVARRIA

NAQUANN SIMMONS

DIQUINN LACEND

WILFREDO RIVERA KENNETH JENKINS

VINCENT FIELDER

MIA DENTICO

PAMELA BROWN

Life in prison

6

Using or carrying a firearm during and in relation to, or possessing a firearm in furtherance of, a crime of violence or drug trafficking crime

924(c)(1)(A)(iii)

JONATHAN RODRIGUEZ, MARQUIS WRIGHT WALI BURGOS

JASON BENJAMIN JORDAN RIVERA

WILLIAM AMARIZAN RAHEEM AMARIZAN TJON MACOLL

COREY HEYWARD

JONATHAN HARRIS WILLIAM KNOX

COREY COOKS

DAQUAN McBETH

JAHNOMI BENJAMIN

RYAN VALENTIN

MIGUEL ROMERO

KAYE ROSADO

ANDREW ECHEVARRIA

NAQUANN SIMMONS

DIQUINN LACEND

WILFREDO RIVERA

KENNETH JENKINS VINCENT FIELDER

MIA DENTICO

Life in prison

DEFENDANT

AGE

RESIDENCE

JONATHAN RODRIGUEZ,

a/k/a “Bebo”

27

Bronx, NY

MARQUIS WRIGHT,

a/k/a “Mark”

28

Bronx, NY

WALI BURGOS,

a/k/a “Guy Fisher”

21

Bronx, NY

JASON BENJAMIN,

a/k/a “JC”

25

Bronx, NY

JORDAN RIVERA

20

Bronx, NY

WILLIAM AMARIZAN,

a/k/a “Will Dollars”                                                                                    a/k/a “Will Dollars,”

a/k/a “Spanish Will”

24

Bronx, NY

RAHEEM AMARIZAN,

a/k/a “Rah Rah”

22

Bronx, NY

TJON MACOLL,

a/k/a “TJ”

24

Bronx, NY

COREY HEYWARD

29

Bronx, NY

JONATHAN HARRIS,

a/k/a “Eggy”

20

Bronx, NY

WILLIAM KNOX,

 a/k/a “Mills Gunna”

23

Bronx, NY

COREY COOKS

20

Bronx, NY

DAQUAN McBETH,

a/k/a “Day Day”

25

Bronx, NY

JAHNOMI BENJAMIN,

a/k/a “Jamroc”

23

Bronx, NY

KEITH RUIZ,

a/k/a “Keefy”

23

Bronx, NY

RYAN VALENTIN

20

Bronx, NY

MIGUEL ROMERO,

a/k/a “Mikey”

22

Bronx, NY

KAYE ROSADO,

a/k/a “Trippa”

30

Bronx, NY

ANDREW ECHEVARRIA,

 a/k/a “Drew”

26

Bronx, NY

NAQUANN SIMMONS,

a/k/a “Young Money”

23

Bronx, NY

DIQUINN LACEND,

a/k/a “Naughty”

21

Bronx, NY

WILFREDO RIVERA,

 a/k/a “Cito”

19

Bronx, NY

KENNETH JENKINS,

28

Bronx, NY

VINCENT FIELDER,

 a/k/a “DJ”

29

Bronx, NY

MIA DENTICO

48

Bronx, NY

PAMELA BROWN

28

Bronx, NY

[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, and 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 New York City Police Department (“NYPD”), announced today the unsealing of an indictment charging RANDY CROWELL, a/k/a “Roger,” with fraudulently distributing, through his Utah-based wholesale distribution company, more than $100 million worth of prescription drugs obtained through a nationwide black market – drugs that were then dispensed by pharmacies to unsuspecting customers.  This scheme was not only profitable for CROWELL, but also dangerous to the thousands of patients who ultimately took these black market medications not knowing that they had been previously prescribed to others and then resold and trafficked, often in unsafe conditions.  CROWELL was arrested at his home in Henderson, Nevada, and will be presented before U.S. Magistrate Judge Cam Ferenbach this afternoon in the U.S. District Court for the District of Nevada.  The case has been assigned to Judge Edgardo Ramos in U.S. District Court for the Southern District of New York.

            Manhattan U.S. Attorney Preet Bharara said: “As alleged, Randy Crowell perverted the system designed to ensure patients receive safe and effective medication, making millions in the process.  Crowell’s alleged crime victimized not only benefit programs like Medicaid, but also countless everyday people suffering from illnesses who had no idea their medicine had been diverted from the legitimate stream of commerce and could be dangerous to consume.”

            FBI Assistant Director-in-Charge Diego Rodriguez said: “The crime alleged today details an insatiable desire to generate revenue at the expense of those in need of true medical care. Targeting the most vulnerable sources of supply, namely Medicaid patients and others with subsidized benefits, scheme participants encouraged sick people with serious illnesses to forego medical treatment in exchange for profit. This put others at risk of unknowingly purchasing mishandled medication. While many social benefit programs are subject to fraud, estimates of fraudulent billings to public health care programs are in the tens of billions. It’s essential that all levels of law enforcement work together as closely as possible in an effort to eradicate drug distribution on the black market and combat fraud to taxpayer-funded programs.”

            Police Commissioner William J. Bratton said: “This investigation demonstrates the relentless efforts of the Healthcare Fraud Task Force to bring to justice those who would profit from the distribution of illegal medications.  I commend the efforts of the investigators involved in this case whose work resulted in this arrest.”

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

            From early 2010 until at least July 2012, CROWELL, who was the owner and operator of a licensed wholesale distributor of prescription medications based in St. George, Utah (“Wholesaler-1”), participated in a sophisticated scheme to defraud health insurance companies and Government programs such as Medicaid out of hundreds of millions of dollars by trafficking prescriptions through a nationwide black market.  CROWELL, through Wholesaler-1, purchased, for more than $100 million, prescription medications from this black market at a fraction of the legitimate prices for these drugs, before selling the same as new, legitimate bottles of medication to pharmacies all over the country.

            To maximize their profits, CROWELL and his co-conspirators focused on some of the most expensive medications on the market, including those used to treat HIV/AIDS.  The scheme was not only profitable but potentially dangerous to the tens of thousands of patients ultimately receiving and taking these prescription drugs.  As detailed below, many of the bottles purchased through the underground market and then distributed as safe, legitimate medications by CROWELL and Wholesaler-1 had in fact been previously dispensed to others, including individuals based in the Southern District of New York.  To conceal the fact that they had been previously dispensed, the bottles were typically “cleaned” with hazardous chemicals such as lighter fluid before being transported and stored in conditions that were frequently unsanitary and insufficient to ensure the safety and efficacy of the medication.      

            In total, between 2010 and July 2012, CROWELL and Wholesaler-1 paid more than $100 million to buy medications from illegitimate sources of supply, with CROWELL personally earning, during that time period, nearly $16 million from his operation of Wholesaler-1.

THE SCHEME TO DEFRAUD

            The fraudulent scheme charged in the Indictment operated by distorting the legitimate flow of medications from manufacturer to pharmacy.  Rather than purchasing medications from manufacturers or legitimate authorized distributors at full price, scheme participants, including CROWELL, created and exploited an underground market for these same prescription drugs.  Scheme participants targeted the cheapest possible source of supply for these drugs – Medicaid patients and other individuals who received these prescription drugs on a monthly basis for little or no cost, and who were then willing to sell their medicines rather than taking them as prescribed (the “Insurance Beneficiaries”). 

            Insurance Beneficiaries had prescriptions filled for medications each month at pharmacies across the country, including in Manhattan and the Bronx, and then sold their medications to low-level participants (“Collectors”) in the scheme who worked on street corners and bodegas and would pay cash – typically as little as $40 or $50 per bottle.  Every major health care benefit program, including Medicaid, expressly prohibits a beneficiary from seeking care under such circumstances, and health care benefit programs would not have paid for the medications issued by pharmacies to the Insurance Beneficiaries had these health care benefit programs known that the Insurance Beneficiaries were selling their drugs to others, rather than taking them as prescribed.

            Because the ultimate goal of the scheme was to resell these medications as new at full price, Collectors and other scheme participants used lighter fluid and other potentially hazardous chemicals to remove the patient labels affixed when the bottles were initially dispensed to the Insurance Beneficiaries.  This process, referred to as “cleaning” the bottles, was dangerous, as these hazardous chemicals could infiltrate the bottles rendering the medication unfit for human consumption. 

            Collectors then sold these second-hand drugs to higher-level scheme participants (“Aggregators”) who bought dozens, and sometimes hundreds, of bottles at a time from multiple collectors before selling them to higher-level scheme participants with direct access to legitimate distribution channels, including corrupt wholesale companies like Wholesaler-1.  The corrupt wholesale companies, including Wholesaler-1, then resold the bottles as new to pharmacies, including potentially the very same pharmacies that initially dispensed these medications, at full price.  In so doing, and as described below, CROWELL and other corrupt wholesale companies intentionally misrepresented where these medications were coming from and, in particular, concealed the fact that these prescription drugs had been obtained from an illegal and illegitimate black market.

CROWELL AND WHOLESALER-1

            Central to the scheme’s success was the participation of corrupt, licensed wholesale distributors willing to buy the “second hand” medications at a fraction of their legitimate price and then resell them as new to pharmacies that would in turn dispense these medications to unsuspecting patients.  CROWELL and Wholesaler-1 were among the largest of these corrupt wholesalers.

            Between 2010, when Wholesaler-1 was created by CROWELL, and July 2012, Wholesaler-1 had no legitimate sources of supply.  Instead, CROWELL caused Wholesaler-1 to purchase exclusively from illegitimate sources – including the so-called “Aggregators” – who sold to CROWELL at substantially reduced rates, sometimes as much as 50 percent less than the price of acquiring these medications from legitimate sources.  Consistent with their illegitimate origins, inbound shipments of prescription drugs frequently arrived at Wholesaler-1 improperly packaged in unsealed, unsecure cardboard boxes.  On some occasions, bottles of medication arrived at Wholesaler-1 with the initial patient labels still affixed to them.  On other occasions, bottles arrived having already been opened, or containing what appeared to be the wrong medication.  At the direction of CROWELL, employees of Wholesaler-1 then inventoried these bottles, attempted to remove any bottles that still had patient labels affixed to them or were otherwise visibly used or damaged, and then arranged for the medications to be shipped out to Wholesaler-1’s customers – i.e., pharmacies all over the country, including pharmacies in Manhattan and the Bronx.

            To effectuate the scheme – and, in particular, to convince pharmacies to buy these medications, and health care benefit programs to pay for them, CROWELL and others made false and fraudulent representations about the origins of these medications.  Specifically, CROWELL and others acting at his direction created false and fraudulent documents known as “pedigrees” for these medications, which purported to document the legitimate movement of these medications bought and sold by Wholesaler-1 from a manufacturer to the pharmacy.  In truth, and as CROWELL well knew, none of the medications purchased or distributed by Wholesaler-1 had come from legitimate sources of supply, and the pedigrees created by Wholesaler-1 and signed by CROWELL were intentionally fabricated so that the medications could be sold, as new, to pharmacies and so that health care benefit programs would be duped into paying for these illegitimate second-hand drugs.

            In order to evade detection, CROWELL took additional steps to conceal the unlawful nature of his activities, including using the name “Roger,” frequently changing or “dropping” the phones he used to communicate with co-conspirators, and paying co-conspirators through front or “sham” companies. 

*                *                *

            CROWELL is charged with one count of conspiracy to commit health care fraud, which carries a maximum sentence of 10 years in prison, one count of conspiracy to commit mail and wire fraud, which carries a maximum sentence of 20 years in prison, one count of conspiracy to violate the Food, Drug and Cosmetics Act, which carries a maximum sentence of five years in prison, and one count of conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

            Mr. Bharara praised the investigative work of the New York FBI’s Health Care Fraud Task Force, which comprises agents, officers and investigators from the FBI, the NYPD, the New York State Insurance Fraud Bureau, U.S. Department of Labor, U.S. Office of Personnel Management's Inspector General, U.S. Food and Drug Administration, U.S. Health and Human Services Office of Inspector General, New York State Office of Medicaid Inspector General, New York Health and Hospitals Corporation Inspector General, and the National Insurance Crime Bureau.

            The prosecution of this case is being overseen by the Office’s Money Laundering and Asset Forfeiture Unit.Assistant U.S. Attorneys Edward B. Diskant and Matthew Podolsky are in charge of the prosecution.

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

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

            Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced the arrest of XU JIAQIANG for theft of a trade secret, in connection with XU’s theft of proprietary source code from XU’s former employer.  XU was arrested yesterday by the FBI in White Plains and was presented today in White Plains federal court before U.S. Magistrate Judge Judith C. McCarthy. 

            U.S. Attorney Preet Bharara stated:  “As alleged, Xu Jiaqiang cheated his former employer through a scheme to steal valuable proprietary source code and sell it to other companies.  Theft of trade secrets of the type alleged against Xu drains the lifeblood of innovation and competition, and is rightly a serious federal crime.  I would like to thank the FBI for its determined efforts in this investigation, and the U.S. Department of Justice’s National Security Division for its assistance and support.”

            Assistant Director-in-Charge Diego Rodriguez stated: “Proprietary software is proprietary for a reason – a company invests in its development, safeguards it and it generates revenue.  It is not for employees to take the information they’ve been entrusted with and profit themselves.  As alleged, Xu attempted to sell his former employer’s proprietary software code to others.  The FBI is committed to enforcing laws that protect U.S. companies from trade secret thefts.”

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

            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 only be accessed by 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 the copy of the Proprietary Software that 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. 

*                *                *

            The Complaint charges XU, 29, with one count of theft of a trade secret, in violation of Title 18, United States Code, Section 1832, which carries a maximum sentence of ten years in prison.  The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.

            Mr. Bharara praised the FBI’s outstanding investigative efforts.  XU’s arrest 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 and Trial Attorney David Aaron of the National Security Division’s Counterintelligence and Export Control Section are involved in the prosecution.

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

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that ANDY SOSA – the former leader of the “Trinitarios,” a violent street and prison gang composed primarily of individuals of Dominican descent – was sentenced in Manhattan federal court to 10 years in prison for his participation in a massive conspiracy to distribute narcotics and use and possess firearms.  SOSA previously pled guilty before U.S. Magistrate Judge James L. Cott and was sentenced today by U.S. District Judge Shira A. Scheindlin.

Manhattan U.S. Attorney Preet Bharara said: “Andy Sosa is responsible for funneling massive quantities of heroin, marijuana, prescription drugs and cocaine onto the streets of the Bronx, using violence to intimidate anyone who stood in his way. Thanks to the concerted, combined, and coordinated efforts of federal and local law enforcement, Sosa’s brutal reign has ended.”

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

From approximately 2009 until his arrest in July 2014, SOSA was immersed in activity with the Trinitarios street gang, which has terrorized certain neighborhoods of the Bronx.  He led the “Greenbridge” chapter of the Trinitarios, which controlled the drug markets in the area of Kingsbridge Road and Webb Avenue.  Undeterred by the arrests of his fellow Trinitarios in a 2011 sweep, SOSA filled the void, and continued to  sell drugs – cocaine, marijuana, pills and what amounted to kilogram quantities of heroin over the years – in that area of the Bronx.  Because of SOSA’s leadership rank in the gang, other Trinitario members and associates sold drugs in that area only with his permission or at his direction.  SOSA’s drug distribution network also extended beyond the Bronx; the investigation revealed that he gave hundreds of grams of heroin to others to sell for him in Connecticut. 

SOSA also kept firearms at his apartment in the Bronx, for use by Trinitarios to protect their drug distribution territory and themselves from rival gang members, or for use in retaliation against other neighborhood gangs.  Indeed, SOSA was shot by members of a rival gang, known as “Dominicans Don’t Play” (or “DDP”).  He carried a 9mm firearm for protection, and his apartment was used to store guns (including, at various times, a .45 caliber handgun, a .38 caliber handgun, a .357 magnum, and a 9mm) and to stash drugs for gang members.  SOSA ran Trinitario meetings at his apartment on a number of occasions.

Mr. Bharara praised the work of the New York City Police Department (“NYPD”), the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), the Drug Enforcement Administration (“DEA”), and the Department of Homeland Security (“HSI”).

The case is being handled by the Office’s Violent and Organized Crime Unit.  Assistant U.S. Attorneys Justina Geraci, Rebecca Mermelstein, and Rachel Maimin 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 the New York Field Office of the Federal Bureau of Investigation (“FBI”), James M. Gibbons, Acting Special Agent-in-Charge of Homeland Security Investigations Chicago (“HSI”), James J. Hunt, Special Agent in Charge of the New York Field Division of the Drug Enforcement Administration (“DEA”), and Shantelle P. Kitchen, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today the unsealing of a complaint charging ROGER THOMAS CLARK, a senior adviser to Ross Ulbricht, a/k/a “Dread Pirate Roberts,” a/k/a “DPR,” the owner and operator of the “Silk Road” website, an online illicit black market that operated from January 2011 until October 2, 2013.  CLARK is alleged to have been a close confidante of Ulbricht’s who advised him on all aspects of Silk Road’s operations and helped him grow the site into an extensive criminal enterprise.  CLARK was arrested in Thailand on December 3, 2015, and is pending extradition to the United States.

            Manhattan U.S. Attorney Preet Bharara said: “Silk Road was a secret online marketplace for illegal drugs, hacking services, and a whole host of other criminal activity.  Like a consigliere, Roger Thomas Clark allegedly served as a trusted confidante to Silk Road founder and operator Ross Ulbricht, advising him on all aspects of this illegal business, including how to maximize profits and use threats of violence to thwart law enforcement.  Thanks to the investigative work of our fellow law enforcement agencies and our international partners, Clark is in custody and awaits American justice.”

            FBI Assistant Director Diego Rodriguez said: “The arrest of Roger Thomas Clark shows again that conducting criminal activities on the Dark Web does not keep a criminal out of law enforcement’s reach. As alleged, Clark was paid at least hundreds of thousands of dollars to act as a counselor to Ross Ulbricht’s black-market bazaar, Silk Road. Clark may have thought residing in Thailand would keep him out of reach of U.S authorities, but our international partnerships have proven him wrong.  We thank our law enforcement partners who have worked with the FBI on this case.”

            HSI Chicago Acting Special Agent-in-Charge James M. Gibbons said: “Roger Clark, a high-ranking Silk Road operator, served as Ross Ulbricht’s closest adviser and confidante as together they facilitated an anonymous global black market for all things illegal.  As this arrest proves, the ‘long arm of the law’ has a great reach – even in cyberspace.  Our HSI special agents continue to work closely with our federal and international law enforcement partners around the world to patrol the darknet and protect public safety.”

            DEA Special Agent in Charge James J. Hunt said: “Anonymity is what Roger Thomas Clark believed he attained posing as ‘Variety Jones’ while allegedly committing crimes; but handcuffed and pending extradition is not anonymity. I command and thank law enforcement's tenacious investigative skills and coordination throughout this investigation.”

            IRS-CI Special Agent in Charge Shantelle P. Kitchen said: “Although the conviction of Ross Ulbricht effectively brought an end to the operation of the Silk Road site, this complaint represents another step in bringing full closure to the investigation of this criminal enterprise.  IRS Criminal Investigation remains committed to bringing our expertise in conducting complex financial investigations to the investigation of narcotics organizations of all types, including those operating in the anonymity of cyberspace.”

            According to the allegations contained in the criminal complaint[1] unsealed today in Manhattan federal court, and evidence submitted at trial and in court filings during the prosecution of Ross Ulbricht:

            Ulbricht created Silk Road in approximately January 2011, and owned and operated the underground website until it was shut down by law enforcement authorities in October 2013.  During that time, Silk Road emerged as the most sophisticated and extensive criminal marketplace on the Internet, serving as a sprawling black-market bazaar where unlawful goods and services, including illegal drugs of virtually all kinds, were bought and sold regularly by the site’s users.  While in operation, Silk Road was used by thousands of drug dealers and other unlawful vendors to distribute hundreds of kilograms of illegal drugs and other unlawful goods and services to well over a hundred thousand buyers, and to launder hundreds of millions of dollars deriving from these unlawful transactions.      

            Silk Road enabled its users to buy and sell drugs and other illegal goods and services anonymously and outside the reach of law enforcement.  Silk Road was operated on what is known as “The Onion Router” or “Tor” network, a special network of computers on the Internet, distributed around the world, designed to conceal the true IP addresses of the computers on the network and thereby the identities of the networks’ users.  Silk Road also included a Bitcoin-based payment system that served to facilitate the illegal commerce conducted on the site, including by concealing the identities and locations of the users transmitting and receiving funds through the site.

            CLARK, who went by the online nicknames “Variety Jones,” “VJ,” “Cimon,” and “Plural of Mongoose,” was described by Ulbricht as a trusted “mentor,” who regularly advised him on the management of the Silk Road enterprise.  Among other things, CLARK counseled Ulbricht on the improvement and expansion of Silk Road’s technical infrastructure, including helping Ulbricht hire and manage a computer programmer to assist with these projects.  CLARK also helped Ulbricht develop and enforce the rules governing how Silk Road vendors and users could do business on the site, which were designed to maximize the commissions that Ulbricht received from Silk Road sales.  CLARK further advised Ulbricht on how to conceal his involvement in, and hide his profits from, the operation of Silk Road, including helping Ulbricht devise cover stories to tell others and make plans to obtain foreign citizenship and offshore bank accounts.  Finally, CLARK also advised Ulbricht on tactics to thwart efforts by law enforcement to investigate Silk Road.  In that vein, CLARK repeatedly advocated the use of intimidation and violence to keep members of the Silk Road support staff from cooperating with law enforcement.  In one such conversation, in which CLARK and Ulbricht discussed “track[ing] down” a certain Silk Road employee to ensure that he had not gone “[o]ff the rails,” CLARK commented, “[D]ude, we’re criminal drug dealers – what line shouldn’t we cross?”

            CLARK was paid at least hundreds of thousands of dollars for his assistance in operating Silk Road.

*                *                *

            CLARK, 54, a citizen of Canada, is charged with one count of narcotics conspiracy, which carries a maximum sentence of life in prison and a mandatory minimum sentence of 10 years, and one count of money laundering conspiracy, which carries a maximum sentence of 20 years in prison.  The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentence imposed on the defendant will be determined by the Court.

            Mr. Bharara praised the outstanding joint efforts of the FBI and its New York Special Operations and Cyber Division, HSI Chicago-O’Hare, the DEA’s New York Field Division, and IRS-CI’s New York Field Office.  Mr. Bharara also thanked the HSI Attache Bangkok, Thailand, for its assistance and support.  Mr. Bharara also thanked the Royal Thai Police and the U.S. Department of Justice’s Office of International Affairs for their support and assistance.

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

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

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

Preet Bharara, the United States Attorney for the Southern District of New York, Delano A. Reid, Special Agent in Charge of the New York Field Division 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 charges against three individuals for the December 28, 2014, murder of Rashaun Nicholson, which occurred in Lower Manhattan.  Specifically, CORY HARRIS, a/k/a “Hop,” a/k/a “P,” FRANK JENKINS, a/k/a “Frizz” and RAHEEM MALDONADO, were charged with participating in a conspiracy to commit murder for hire; murder for hire; and murder in connection with a narcotics trafficking conspiracy.  In addition, HARRIS, JENKINS, and MALDONADO, along with eight others, were charged with participating in a conspiracy to transport large quantities of crack cocaine and heroin from locations in New York City, to Bennington, Vermont, for resale in Bennington.  Eight of the defendants, including HARRIS, JENKINS and MALDONADO, were also charged with possessing and using firearms in connection with the narcotics trafficking offense.  All 11 defendants were previously taken into custody on charges contained in a previous indictment. The 11 defendants charged in the Superseding Indictment will be arraigned in Manhattan federal court today at 4:30 p.m.

Manhattan U.S. Attorney Preet Bharara said:  “As alleged, these defendants not only fueled drug addiction and violence in Manhattan and the Bronx, but spread it to small towns and communities outside of New York, like Bennington, Vermont.  The defendants did everything in their power, including allegedly using deadly violence, to protect their interests.  Thanks to the dedicated investigators of the ATF and the NYPD, these alleged criminals are now off the street.”  

ATF Special Agent in Charge Delano A. Reid said:  “As has been evidenced in this case, an investigation – when conducted in a thorough and logical manner – can take a considerable amount of time and effort before all of its layers are ultimately revealed.  The exhaustive pursuit for the truth by the investigators and prosecutors involved has uncovered yet another alleged crime perpetrated by Harris et al.  I hope that this serves as a clear illustration to the criminal element that law enforcement will enthusiastically pursue all leads until all illegal activities are uncovered and all those responsible be deprived of their freedom.”

Police Commissioner William J. Bratton said: “The litany of charges alleged against these individuals demonstrates an ongoing and flagrant disregard for the law.  I commend the NYPD investigators and our federal partners for disrupting this violent criminal operation; one that potentially extended well beyond New York and would have put countless innocent people in harm’s way.”

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

On December 28, 2014, in connection with a narcotics trafficking offense, FRANK JENKINS, in exchange for a payment from CORY HARRIS and RAHEEM MALDONADO, shot and killed Rashaun Nicholson in the vicinity of 78 Catherine Street, New York, New York. 

In addition, from at least in or about 2014, up to and including in or about 2015, CORY HARRIS, 31, DANIEL HERRING, 25, FRANK JENKINS, JR., 21, JARON LANGHORNE, 20, MITCHELL MALDONADO, 24, RAHEEM MALDONADO, 23, UNIQUE NEWELL, 22, ADAM PHILLIPS, 32, KRYSTAL PINSONNEAULT, 32, MIGUEL ROBLES, 31, and LUIS ZABALA, 31, conspired to sell controlled substances, including crack cocaine and heroin, in Vermont and elsewhere.  Specifically, the Indictment charges (1) HARRIS, HERRING, JENKINS, LANGHORNE, MITCHELL MALDONADO, RAHEEM MALDONADO, NEWELL, and ZABALA with conspiring to distribute at least 280 grams of crack cocaine, and at least 100 grams of heroin;  (2) MIGUEL ROBLES with conspiring to distribute at least 100 grams of heroin; (3) PHILLIPS with conspiring to distribute at least 280 grams of crack cocaine; and (4) PINSONNELAULT with conspiring to distribute mixtures and substances containing crack cocaine and heroin.  HARRIS, HERRING, JENKINS, LANGHORNE, MITCHELL MALDONADO, RAHEEM MALDONADO, NEWELL, and ZABALA are charged with using and possessing firearms between 2014 and 2015, in furtherance of the narcotics trafficking conspiracy.  HARRIS is also charged with using firearms in April 2012 in furtherance of a separate marijuana trafficking conspiracy. 

During the time period charged in the Indictment, members of the conspiracy obtained crack and heroin from locations in New York City, including Manhattan and the Bronx, and then transported the crack and heroin to Vermont, for distribution in and around Bennington, Vermont.  The members of the conspiracy sold crack and heroin from private apartments and certain motels in the Bennington area.  Many of the members of the conspiracy used firearms in connection with their narcotics trafficking.

Members of the conspiracy also provided heroin, crack, and other controlled substances to certain women in and around Bennington, who were addicted, or became addicted, to those controlled substances.  These women assisted members of the conspiracy with the transportation, storage, and distribution of crack and heroin in exchange for additional controlled substances, or in exchange for cash that the women used, in part, to purchase additional controlled substances.

*                      *                     *

Apart from PINSONNEAULT, all of the defendants face mandatory minimum prison terms ranging from five years to 35 years, and maximum prison terms ranging from 40 years to life.  PINSONNEAULT faces a maximum term of 20 years 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, 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, the New York City Police Department, the United States Marshals, the Vermont State Police, and the Bennington Police Department.  Mr. Bharara also thanked the United States Attorney’s Office for District of Vermont for assisting his Office at all stages of the investigation.

The prosecution is being handled by the Office’s Violent and Organized Crime Unit.  Assistant U.S. Attorneys Michael Gerber and Hadassa Waxman 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, and 100 grams and more of heroin.

CORY HARRIS, DANIEL HERRING, FRANK  JENKINS JR., JARON LANGHORNE, MITCHELL MADONADO, RAHEEM MALDONADO, UNIQUE NEWELL, and LUIS ZABALA

Life in prison

Mandatory minimum: 10 years in prison

Conspiracy to distribute and possess with intent to distribute 100 grams and more of heroin

MIGUEL ROBLES.

Life in prison

Mandatory minimum: 5 years in prison

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

ADAM PHILLIPS

Life in prison

Mandatory minimum: 10 years in prison

Conspiracy to distribute and possess with intent to distribute crack cocaine and heroin

KRYSTAL PINSONNEAULT

20 years in prison

Possession of a firearm in furtherance of a narcotics trafficking offense

CORY HARRIS (2 counts), DANIEL HERRING, FRANK  JENKINS JR., JARON LANGHORNE, MITCHELL MADONADO, RAHEEM MALDONADO, UNIQUE NEWELL, and LUIS ZABALA

Life in prison

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

Conspiracy to commit murder for hire, and murder for hire

CORY HARRIS, FRANK JENKINS, and RAHEEM MALDONADO

Mandatory life in prison

Discharging a firearm in furtherance of a narcotics trafficking offense resulting in death

CORY HARRIS, FRANK JENKINS, and RAHEEM MALDONADO

Life in prison

Mandatory 25 years in prison

Murder in furtherance of a narcotics trafficking offense

CORY HARRIS, FRANK JENKINS, and RAHEEM MALDONADO

Life in prison

[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, Mark G. Peters, Commissioner of the New York City Department of Investigation (“DOI”), Catherine Leahy Scott, Acting Inspector General of the New York State Office of Welfare Inspector General (“State IG”), and Diego Rodriguez, Assistant Director-In-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the filing of criminal charges against  CHERISSE WATSON-JACKSON, a/k/a “Reesie,” a current New York City Human Resources Administration (“HRA”) supervisor, along with eleven others, with corruption offenses involving the theft of approximately $1.5 million from two public assistance programs. U.S. Attorney Bharara and Commissioner Peters simultaneously announced separate charges against PETRONILA PERALTA, a/k/a “Petra,” a former HRA employee, in a separate scheme involving the theft of approximately $600,000 more in public funds. 

WATSON-JACKSON and PERALTA were arrested this morning in Queens, New York, and the Bronx, New York, respectively, and are scheduled to appear before U.S. Magistrate Judge Sarah Netburn in Manhattan federal court later today.  GERARD STOKES, VERNECKA PETERSEN-FOWLER, KEVIN WILLIAMS, BEVERLY LORD, JARON ANNUNZIATA, and BEVERLY FRANKLIN were also arrested this morning, and are scheduled to appear before U.S. Magistrate Judge Sarah Netburn in Manhattan federal court later today.  DERRICK WILLIAMS, a/k/a “Blood,” is in state custody on an unrelated charge, and is expected to appear in Manhattan federal court later this week.  ISAAC ALLEN is in custody in Vermont on an unrelated charge, and is expected to appear in Manhattan federal court at a later date.  COREY BROCK, a/k/a “Cee,” MAURICE CROMWELL, a/k/a “Reece,” and YESENIA DEPENA remain at large.

U.S. Attorney Preet Bharara said:  “As alleged, one current and one former HRA employee abused their positions of trust as administrators of public funds to enrich themselves.  Cherisse Watson-Jackson and Petronila Peralta allegedly diverted more than $2 million in public funds designed to assist the most needy in our community for their own personal use.  I thank our partners in this investigation for their work in rooting out public corruption.”

Commissioner Mark G. Peters said: “During a season when we are reminded about hunger’s prevalence, these defendants are charged with shamelessly stealing the funds that assist in feeding that basic need. Vulnerabilities like those exposed in these arrests and in DOI’s Report breed corruption and must be dealt with swiftly to prevent further fraud of this magnitude from occurring.  I thank our law enforcement partners and HRA for their partnership on these important cases.”

New York State Inspector General Catherine Leahy Scott said: “Cherisse Watson-Jackson was entrusted to provide government assistance to New York’s neediest families but instead abused that trust and her authority, steering $1.5 million in public funds to herself and her accomplices.  Today’s arrests should send a clear message that my law enforcement partners and I will not tolerate the use of public office and public resources for criminal activity.  We will investigate and bring to justice those who corrupt the system, and will continue to work together to find solutions to curtail systemic theft and abuse of public funds.”

FBI Assistant Director-In-Charge Diego Rodriguez said:  “Watson-Jackson and Peralta are accused of abusing their positions to commit fraud through theft from a program designed to support the most in need.  They not only allegedly took from the needy, but they conspired to defraud the tax-payers.  Their actions jeopardized the foundation of the programs set up to help the community.  This fraudulent scheme not only profited Watson-Jackson and Peralta, but it also lined the pockets of their co-conspirators. The FBI continues to work alongside our partners in the New York City Department of Investigation and New York State Office of Welfare Inspector General to ensure confidence in the government and its programs.”      

According to the allegations contained in the Complaints[1] unsealed today in Manhattan federal court and publicly-available documents:

HRA is an agency of the City of New York responsible for administering various public assistance programs.  Among other things, HRA provides temporary help to individuals and families with social service and economic needs to assist them in reaching self-sufficiency.  Its services include, among other things, administering the federally-funded Supplemental Nutrition Assistance Program (“SNAP”) (more commonly known as “food stamps”), the federally-funded Temporary Aid to Needy Families Program (“TANF”), and providing rental assistance to low-income families and individuals.

The Watson-Jackson Scheme

Since 1993, WATSON-JACKSON has worked at HRA, most recently as a supervisor in a job center in Queens, New York.  In that capacity, she supervised a group of other supervisors who in turn were responsible for teams of employees who review and determine eligibility for public assistance clients.  Since at least early 2012, and continuing until at least December 2013, WATSON-JACKSON abused her position by engaging in a scheme to defraud two of the public assistance programs that she was charged to help administer.  The first of the two schemes involved WATSON-JACKSON fraudulently loading electronic benefit transfer (“EBT”) cards with funds from SNAP, which funds were then spent by co-conspirators throughout the New York City area, including by ALLEN, DERRICK WILLIAMS, BROCK, STOKES, and ANNUNZIATA.  The second scheme involved WATSON-JACKSON fraudulently causing rental assistance checks to be mailed to co-conspirators who posed as “landlords” of low-income tenants.  Co-conspirators, including CROMWELL, KEVIN WILLIAMS, ANNUNZIATA, FRANKLIN, and PETERSON cashed and/or assisted others to cash the fraudulently-obtained checks, including with the assistance of DEPENA, a teller at a check-cashing business who knowingly cashed more than 200 fraudulent checks in different names.  The two schemes led by WATSON-JACKSON resulted in the loss of more than approximately $1.5 million in public funds.

The Peralta Scheme

Between 2005 and August 2014, PERALTA worked at HRA, most recently as a Job Opportunity Specialist in a different job center in Queens, New York.  In that capacity, PERALTA was supposed to provide economic support and employment-related services to persons in need.  Starting by approximately 2009, PERALTA abused her position by fraudulently issuing more than approximately 800 supplemental issuances to individuals who were not entitled to such payments.  A “supplemental issuance” is a supplemental transmission of funds to a public assistance beneficiary who did not receive the amount of funds he or she was due previously.  Between approximately 2009 and May 2011, PERALTA repeatedly issued such funds not to individuals who were entitled to them, but to co-conspirators, and took steps to seek to conceal her conduct, including by using the computer system log-in information of a former employee of HRA, rather than her own.  The scheme led by PERALTA resulted in the loss of more than approximately $600,000 in public funds.

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WATSON-JACKSON, 44, of Queens, New York; CROMWELL, 39, of Staten Island, New York; ALLEN, 39, of Brooklyn, New York, DERRICK WILLIAMS, 34, of Queens, New York; BROCK, 35, of Queens, New York; STOKES, 32, of Queens, New York; PETERSEN-FOWLER, 44, of Brooklyn, New York; KEVIN WILLIAMS, 27, of Queens, New York; DEPENA, 24, of Brooklyn, New York; LORD, 53, of Queens, New York; ANNUNZIATA, 35, of Brooklyn, New York; and FRANKLIN, 37, of Queens, New York, are each charged in a complaint with conspiracy to commit mail and wire fraud, which carries a maximum penalty of 20 years in prison.  WATSON-JACKSON, CROMWELL, DERRICK WILLIAMS, BROCK, STOKES, KEVIN WILLIAMS, and DEPENA are also each charged with aggravated identity theft, which carries a mandatory penalty of two years in prison, to be served consecutively to any penalty imposed for the mail and wire fraud conspiracy.

PERALTA, 51, of Bronx, New York, is charged in a separate complaint with conspiracy to commit wire fraud, which carries a maximum penalty of 20 years in prison, and aggravated identity theft, which carries mandatory penalty of two years in prison, to be served consecutively to any penalty imposed for the wire fraud conspiracy.

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

U.S. Attorney Bharara praised the work of DOI, the State IG, and the FBI, and noted that both investigations are ongoing. 

These cases are being prosecuted by the Office’s Public Corruption Unit.  Assistant U.S. Attorneys Daniel C. Richenthal, Andrew D. Beaty, and Shawn G. Crowley are in charge of the prosecutions.

The charges contained in the Complaints 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 Complaints and the description of the Complaints set forth below constitute only allegations, and every fact described should be treated as an allegation.

 “Today, Sheldon Silver got justice, and at long last, so did the people of New York.”

            Preet Bharara, United States Attorney for the Southern District of New York, announced that Constance Post, former Commissioner of the Mount Vernon Department of Planning and Community Development as well as Executive Director of the Mount Vernon Urban Renewal Agency (“MVURA”), and Wayne Charles were found guilty today in White Plains federal court on charges stemming from their diversion of more than $1.2 million in federal funds from the U.S. Department of Housing and Urban Development (“HUD”) that were administered by the MVURA.

            U.S. Attorney Preet Bharara said: “As the jury unanimously found, Constance Post abused her position of public trust to conspire with Wayne Charles to enrich themselves.  Their corruption victimized the citizens of Mount Vernon, HUD, and U.S. taxpayers.  Now, the defendants await sentencing for their crimes.”

            As established by the evidence at trial:

            Post and Charles, who had a romantic relationship, arranged to steer a computer services contract to a company secretly owned by Charles.  Using the name of a defunct computer services company that a friend had operated, Charles concealed from the City of Mount Vernon that he had no computer expertise, no employees, and no ability to perform under the contract.  Post hired and directed people to work for Charles’s company, which enriched Charles, between 1998 and 2002, but ultimately cost the City and HUD more than twice what it would have paid if the employees had worked directly for the City.  Post also disregarded the monetary restrictions placed upon her by the MVURA board that approved the computer services contract, and she steered hundreds of thousands of dollars to Charles beyond her authorization.

            Separately, in connection with a $500,000 loan of HUD funds awarded by the MVURA Board to renovate property in Mt. Vernon, Charles, with the approval of Post, falsely stated that he had not used any other names, and falsely certified that he had no other business with the City of Mount Vernon and the MVURA.  In fact, Charles used several false names with the approval and assistance of Post in order to conceal his involvement with the computer services contract.  Then, after renovations were complete on the property in 2003, another lender, in accordance with the terms of the MVURA=s loan, repaid $250,000 of the loan, leaving an unpaid balance of $250,000.  Post took steps to conceal the existence of the loan and the fact that Charles still owed the MVURA the $250,000, ensuring that Charles was not required to repay the loan to Mount Vernon.  In 2005, when federal investigators were examining the MVURA=s financial records, Post retroactively recorded the unpaid balance of the Charles loan on the books of the MVURA.  Shortly thereafter, Charles made a few payments on the loan, which otherwise remains unpaid. 

            The evidence also established that, during the course of their scheme, Charles paid Post $30,000.           

            Post and Charles were each convicted of one count of conspiracy to commit mail fraud and one count of mail fraud.  Charles was also previously convicted at an earlier trial of making false statements to federal agents who interviewed him in 2006 about the subject matter of this case.

            Sentencing is scheduled for March 1, 2016, before United States District Judge Kenneth M. Karas.  Post and Charles each face up to 20 years in prison on the conspiracy charge and up to 20 years in prison on the mail fraud charge of the Indictment.  Charles also faces up to five years in prison on the false statement charge.  The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

           Mr. Bharara praised the joint efforts of the United States Department of Housing and Urban Development - Inspector General and the Federal Bureau of Investigation.

            The prosecution is being handled by the Office's White Plains Division.  Assistant U.S. Attorneys Andrew Dember and Daniel Filor are in charge of the prosecution.

            Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriquez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the indictment of DAVID KEITH, a/k/a “David Wright,” a/k/a “David Lee Keith,” for four counts stemming from his sexual exploitation and enticement of minors and his receipt of child pornography.

            Manhattan U.S. Attorney Preet Bharara said:  “David Keith is charged with preying on some of the most vulnerable members of our community in the way parents fear most.  He allegedly approached young girls under the guise of working in modeling, and then coerced and tricked the victims into engaging in sexually explicit conduct with him, capturing it on video.  Together with our partners at the FBI, we are committed to protecting children from those who seek to sexually exploit them.” 

            FBI Assistant Director-in-Charge Diego Rodriquez said:  “As alleged, David Keith targeted young girls as they walked in public.  He preyed on their vulnerabilities, giving them praise and attention. With twisted tongue, he allegedly told them he could make them models, tricking them into sexually explicit conduct with him, captured on video.  He then allegedly threatened them if they revealed the truth.  The FBI continues to work on this, and other similar cases, to stop predatory activity that steals the innocence of childhood and threatens our community.”

            According to the Indictment[1]:

            On October 13, 2013, KEITH, who lives in the vicinity of the University Heights, Morris Heights, Mount Hope, and Mount Eden neighborhoods in the Bronx, New York, approached three girls, approximately 12 to 14 years old, on the street, presented himself as part of the modeling industry, and encouraged the girls to model for him.  KEITH induced one of the girls to enter his vehicle, a gray Yukon Denali, where he video recorded, among other things, himself engaging in forcible sexual conduct with her.  KEITH threatened the victim not to tell anyone and told her that he had been watching her.

            On or about October 12, 2013, KEITH, also in his gray Yukon Denali, video recorded the exposed genitals of a second victim, approximately 8 to 9 years of age. 

            In addition, KEITH’s computer contained images and videos of child pornography downloaded from the Internet.

            KEITH is scheduled to be arraigned before Judge Alison J. Nathan, on December 4, 2015, at 2:00 p.m.

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            KEITH, 38, of the Bronx, New York, was arrested on November 17, 2015, in the Bronx, New York, and has been in Federal custody since.  KEITH is charged with two counts of sexual exploitation of a child, each of which carries a maximum sentence of 50 years in prison; one count of receipt of child pornography, which carries a maximum sentence of 40 years in prison; and one count of possession of child pornography, which carries a maximum sentence of 20 years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

            Any individuals who believe they have information concerning DAVID KEITH that may be relevant to the investigation should contact the Federal Bureau of Investigation at 1-212-384-1000 or https://tips.fbi.gov/.

            Mr. Bharara praised the efforts of the FBI in this investigation.  He added that the investigation is continuing.

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

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

[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment 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, Craig Rupert, the Northeast Field Office Special Agent of the Department of Defense-Office of Inspector General (“DoD-OIG”), Andrew Traver, the Director of the Naval Criminal Investigative Service (“NCIS”), and Frank Robey, the Major Procurement Fraud Unit Director of the U.S. Army Criminal Investigation Command  (“CID”), announced today that the United States filed and simultaneously settled a civil fraud lawsuit under the False Claims Act and common law against L-3 COMMUNICATIONS EOTECH, INC. (“EOTECH”); its parent company, L-3 COMMUNICATIONS CORPORATION (“L-3”); and EOTECH’s president PAUL MANGANO (“MANGANO”) (collectively, “Defendants”).  As alleged in the complaint, for years, EOTECH sold defective holographic weapon sights to the U.S. Department of Defense (“DOD”), the U.S. Department of Homeland Security (“DHS”), and the Federal Bureau of Investigation (“FBI”).  These sights were designed to allow users to quickly acquire and hit targets, and to return fire in a range of extreme environmental conditions.  Defendants knew that the sights failed to perform as represented in cold temperatures and humid environments, but delayed disclosure of these defects for years.  In connection with the settlement, approved today by United States District Judge Richard Sullivan EOTECH and L-3 have agreed to pay the United States $25,600,000, and all three defendants have made admissions of conduct alleged in the complaint.

Manhattan U.S. Attorney Preet Bharara said: “The defendants, L-3,  EOTech, and EOTech’s senior executive Paul Mangano, engaged in fraudulent double dealing by selling defective products to the men and women who risk their lives to protect our country.  With their own sights focused exclusively on corporate profits, the defendants let our soldiers fight with defective sights on their weapons.  We will continue to pursue and hold accountable corporations and their executives who put profits over honesty and fair dealing, particularly when it comes to dealings that affect our service men and women.”   

DoD-OIG Northeast Field Office Special Agent in Charge Craig Rupert said: “This settlement illustrates the seriousness of the harm to the Defense Department and other federal agencies from defective products.  The safety of our warfighters and law enforcement who depend on these products is paramount in the fight against terror and crime.  DCIS remains vigilant for and vigorously pursues all similar complaints in our effort to shield America's investment in our national defense.”

NCIS Director Andrew Traver said:  “American service members not only deserve the highest quality equipment, American taxpayers deserve the highest integrity suppliers, who do not take millions of dollars and squander public trust.  Holographic Weapons Sights are used in combat; a sight that 'almost works' is not acceptable.  It is gratifying that NCIS could be part of the joint investigation to hold EOTECH accountable.”

U.S. Army CID Major Procurement Fraud Unit Director Frank Robey said: “We are pleased with today's settlement; however, there is no monetary substitute great enough for the safety and required tactical advantage that the young men and women serving in our armed forces in harm's way deserve.  It is imperative that when someone contracts with the U.S. Army, they provide only their very best with no exceptions.”

According to the complaint filed in Manhattan federal court:

EOTECH has earned tens of millions of dollars through its sales of sights to DOD, DHS, and the FBI.  In 2004, and again in 2010, EOTECH contracted with DOD to supply holographic weapon sights for use in close quarter urban combat as well as longer range target acquisition.  EOTECH represented to DOD that its sights could operate in temperatures ranging from -40 degrees to 140 degrees Fahrenheit, as well as in humid and other extreme environmental conditions.  Those representations were important because EOTECH’s combat optical sights were used by operators in Iraq and Afghanistan, as well as by special operations forces around the world. 

By early 2006, Defendants knew that their sights failed to perform as represented.  At hot and cold temperatures, the sights experienced a condition known as “thermal drift,” meaning that the sight’s point of aim differed from its point of impact.  EOTECH’s own internal tests showed that some models experienced drift of 6 to 12 minutes of angle (“MOA”), i.e., 6 to 12 inches per 100 yards.  Even though EOTECH’s contracts with DOD required disclosure of any information concerning the reliability of the sights, EOTECH did not disclose this defect to DOD until 2015, after the FBI discovered the problem and presented its findings to EOTECH. 

In 2007, Defendants became aware of a separate performance failure in cold temperature, known internally as “cold weather distortion.”  At around 32 degrees Fahrenheit, the sight’s aiming dot became distorted, affecting accuracy by 12 MOA, increasing to 20 MOA at 5 degrees Fahrenheit. Defendants did not disclose this defect from DOD for more than a year, until EOTECH had a fix in place.  EOTECH then presented the fix as an upgrade to a product that conformed to specifications, and did not disclose that the entire stock of sights that DOD had purchased since 2004 was defective.

By 2008, Defendants also knew that EOTECH’s sights failed in humid environments, a defect known internally as “moisture incursion.”  Although EOTECH represented that the sights passed humidity and other testing, Defendants knew that the seals leaked, allowing moisture to enter the sight, resulting in dimming of the circle and aiming dot necessary for acquiring a target.  Over the next several years, EOTECH’s internal tests repeatedly confirmed these leaks.  Nevertheless, EOTECH did not notify DOD of the problem until 2013, when it once again presented a fix as an upgrade to a product that conformed to specifications.

MANGANO, as president of EOTECH, was ultimately responsible for disclosing quality issues to customers.  MANGANO was apprised of each of the defects with the sights and yet did not recommend disclosing any of the defects until he believed either a fix was in place or that DOD would find out about the defect from another source.

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As part of today’s settlement, EOTECH and L-3 admitted that EOTECH knew that its holographic weapon sights experienced thermal drift, cold weather distortion, and moisture incursion.  EOTECH and L-3 also admitted that despite EOTECH’s representations to DOD that the sights performed in hot, cold, and humid conditions, and despite EOTECH’s contractual obligation to disclose to DOD any performance-related data affecting the reliability of the sights, EOTECH continued to sell the sights to the Government for more than one year without disclosing cold weather distortion, and for several years without disclosing thermal drift or moisture incursion.  MANGANO, who has been the president of EOTECH since 2006, admitted that he knew that the sights experienced cold weather distortion and moisture incursion, but EOTECH continued to sell the sights to the Government for over one year (in the case of cold weather distortion) or several years (in the case of moisture incursion) without a disclosure.        

Mr. Bharara praised the DOD’s Defense Criminal Investigative Service, Naval Criminal Investigative Service, and Army Criminal Investigation Command; DHS Homeland Security Investigations; and the FBI for their investigative efforts and ongoing support and assistance with the case.

The case is being handled by the Office’s Civil Frauds Unit.  Assistant United States Attorneys Jaimie L. Nawaday and Joseph N. Cordaro are in charge of the case.

            Preet Bharara, the United States Attorney for the Southern District of New York, and Carl J. Kotowski, Special Agent in Charge of the Drug Enforcement Administration’s New Jersey Division (“DEA”), announced today that RICHARD GALIMI, 46, was arrested yesterday and charged in a criminal complaint for his role in distributing bulk quantities of synthetic cannabinoids, commonly known as “Spice,” and synthetic cathinones containing Alpha-PVP, commonly known as “Flakka.”  GALIMI arranged for the importation of synthetic controlled substances from China, arranged for them to be processed and packaged, and was responsible for the distribution of packets of Spice for individual use.  A search of a Brooklyn warehouse maintained by GALIMI resulted in the seizure of approximately 2,000 packets of pre-packaged Flakka and approximately 2,000 grams of pre-packaged Spice, as well as approximately 25 grams of bulk synthetic chemicals and 200 pounds of leafy substances that are used to manufacture Spice.

            GALIMI was arrested in Brooklyn and will be presented in Manhattan federal court today. 

            Manhattan U.S. Attorney Preet Bharara said: “As alleged, Richard Galimi was responsible for the distribution of potentially lethal synthetic cannabinoids and cathinones.  Peddlers of these dangerous drugs – marketed as Spice and Flakka – target young people who are lured by the packaging and pricing.  But the product is always unsafe and it can be deadly.”

            According to the Complaint[1] and publicly available documents:

            Beginning in at least 2011, GALIMI made unsolicited phone calls to the owners of smoke shops in order to sell a powerful chemical Spice with the brand name “Hydro” to the smoke shop owners, which was then sold to retail customers.  Beginning in early 2015, GALIMI met with individuals cooperating with the DEA (the “CSs”) and began providing Spice and Flakka to the CSs.  During the course of the investigation, the DEA purchased approximately $6,500 worth of Spice and Flakka from GALIMI. 

            In order to manufacture the Spice, GALIMI arranged for leaves in bulk quantities to be brought to a warehouse in Brooklyn.  In the warehouse, GALIMI employed at least five individuals who were responsible for packaging the Spice in retail packages.  GALIMI also manufactured a synthetic cannabinoid that he marketed as being three times stronger than typical Spice.           

            In addition, GALIMI used brokers to import capsules of Flakka and packaging materials from China to New York via Hong Kong, using various forms of international mail services.  GALIMI was involved in importing approximately 3,000 capsules of Flakka to the United States on a regular basis. 

            Spice is the street name applied to a synthetic cannabinoid.  Spice is popular among teenagers and young adults, and is widely accessible because it is inexpensive and commonly sold at otherwise legitimate retail locations.  The colorful logos used on the Spice retail packets and the flavors used, such as lime, strawberry, and blueberry, make Spice attractive to teenagers and young adults.  The physical effects of Spice can include agitation, rapid heart rate, confusion, dizziness, nausea and vomiting, paranoia, panic attacks, and acute kidney injury.       

            Flakka is the street name applied to a synthetic cathinone that is a derivative of the synthetic drug commonly known as “bath salts.”  Flakka is intended to mimic the effects of an amphetamine.  Flakka can come in a rocky crystalline form and often comes in capsules.  Flakka typically contains Alpha-PVP, which is a Schedule I controlled substance.  Flakka is frequently sold to consumers in small packets that have colorful logos.  A tenth-gram quantity, or one standard dose, of Flakka typically sells for as little as $3.00.  The physical effects of Flakka can include aggression, paranoia, and hallucinations.

            After the United States Attorney’s Office for the Southern District of New York charged 10 defendants involved in a Spice drug distribution ring in September 2015, Spice-related emergency room visits in New York City for the month of October 2015 were down 36 percent compared to their peak in July 2015, according to the New York City Department of Health and Mental Hygiene.

            GALIMI is charged with one count of conspiracy to distribute and possess with intent to distribute a controlled substance, which carries a maximum potential sentence of 20 years in prison.  The statutory maximum penalty is prescribed by Congress and is provided her for informational purposes only, as any sentencing of the defendant would be determined by the judge.

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            U.S. Attorney Preet Bharara praised the outstanding work of the DEA’s New Jersey Division.            

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

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

[1] As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth 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 an agreement with Westchester County that resolves the United States’ long-running investigation into Westchester County Jail (the “Jail”) under the Civil Rights of Institutionalized Persons Act (“CRIPA”).  This agreement, approved today by the Westchester County Board of Acquisition and Contract, implements a resolution of the Government’s findings regarding the Jail’s use of force against inmates, its use of isolation as a method of discipline for minors incarcerated at the jail, and its provision of inadequate medical and mental health care to inmates.  The agreement requires the appointment of an independent monitor to ensure that the Jail complies with the agreement.  The agreement will last for three years, or until the time that the Jail has achieved substantial compliance with its terms.

The Jail, located in Valhalla, New York, houses pretrial detainees and sentenced inmates. The Jail also houses minors awaiting transfer to a juvenile detention facility and minors adjudicated as adults. 

Manhattan U.S. Attorney Preet Bharara said:  “As I have emphasized many times before, within the walls of a correctional facility does not mean outside the protection of the Constitution. Jails have a constitutional obligation to take reasonable steps to protect the safety of inmates and to provide humane conditions of confinement.  This agreement, and the commitment on the part of the County to comply with its terms, are important steps toward ensuring that inmates at Westchester County Jail are treated in a manner consistent with the Constitution.”

The agreement between the United States and the Jail resolves a long-running investigation into the Jail.  In 2009, the United States issued a letter setting forth the Government’s findings regarding constitutional violations at the Jail.  Key findings included that the Jail had failed to adequately protect inmates from physical harm caused by inappropriate and excessive force used by staff and failed to provide adequate medical and mental health care, particularly with respect to minors housed in isolation in the punitive segregation unit of the Jail, all resulting in unconstitutional living conditions. 

Since the Government issued its findings letter and during the ongoing investigation, the Jail has made progress in addressing various problematic conditions and has now agreed to implement all the corrective measures set forth in the parties’ agreement to ensure the Jail’s compliance with constitutional requirements. 

With respect to minors, the agreement requires that the Jail cease its practice of placing minors under 18 years old in isolation or punitive segregation, and that it develop systems to address disciplinary issues in a manner that is consistent with minors’ needs and that does not deprive them of access to certain programs and services. The agreement also requires the development and implementation of alternative approaches to discipline for 18-year-old inmates.  The Jail has agreed to measures designed to ensure that its use of force is not excessive and is consistent with the law, and has agreed to implement appropriate policies and practices concerning review of all uses of force, training of staff, and supervision of inmates.  The agreement also puts in place requirements concerning the provision of medical and mental health care for both minors and adults.

Finally, the agreement mandates the appointment of an independent monitor to assist the County in achieving compliance with the provisions of the agreement, to make reports concerning the status and progress of compliance, and to provide the County with technical assistance to comply with the provisions of the agreement.  The United States and the monitor will have full access to the Jail and its records, staff, and inmates for the life of the agreement.  The agreement will terminate in three years if the United States agrees that the County is in substantial compliance with all provisions and has maintained substantial compliance with all provisions for 24 months.

The case is being handled by the Office’s Civil Rights Unit.  Assistant U.S. Attorneys Rebecca C. Martin and Tara M. La Morte are in charge of the case.                                                     

            Preet Bharara, United States Attorney for the Southern District of New York, announced today that New York State Senator THOMAS W. LIBOUS was sentenced to six months of house arrest for making false statements to the Federal Bureau of Investigation (“FBI”).  LIBOUS was convicted on July 22, 2015, following a seven-day trial in White Plains federal court before the Hon. Vincent L. Briccetti, United States District Judge, who also imposed today’s sentence.

            The evidence at trial proved that a federal grand jury in White Plains was investigating allegations that THOMAS LIBOUS had obtained a job for a his son Matthew Libous at a Westchester law firm (“the Law Firm”) in exchange for a promise to refer business to the firm, and had arranged for an Albany lobbying firm that regularly lobbied him to secretly pay the law firm $50,000 per year to defray the cost of Matthew Libous's salary and lease of a Range Rover.  The lobbying firm specialized in transportation issues and THOMAS LIBOUS served as the Chairman of the Senate's Transportation Committee at the time.  The evidence also showed that THOMAS LIBOUS told a partner of the Law Firm that the firm would have to “build a new wing” to accommodate the business he would refer to it if it hired the member of his family.

            Special Agents of the FBI interviewed THOMAS LIBOUS on June 24, 2010, as part of the grand jury's investigation.  The evidence at trial showed THOMAS LIBOUS made the following false statements to the agents during the interview:

1. he could not recall how Matthew Libous began to work at the Law Firm;

2. no deals were made to get Matthew Libous the job at the Law Firm;

3. he was not aware that the lobbying firm had paid any part of Matthew Libous's salary at the Law Firm;

4. he never promised to refer work to the Law Firm;

5. he was not involved in Matthew Libous's decision to work at the Law Firm;

6. he had no business or personal relationship with the Law Firm; and

7. he did know of any relationship between the lobbying firm and the Law Firm.

*            *            *

              In imposing sentence, Judge Briccetti said LIBOUS’s conduct in lying to the FBI was “disgraceful” and took note of LIBOUS’s “total lack of remorse.”  He called the monthly payments totaling $50,000 from the lobbying firm to the Law Firm the “elephant in the room” that LIBOUS had not explained.  Judge Briccetti said that ordinarily he would have imposed a sentence of six months in prison but he declined to send LIBOUS to prison given his terminal medical condition.

            In addition to the sentence of home confinement, LIBOUS, 62, of Binghamton, New York, was also sentenced to two years of supervised release and ordered to pay a fine of $50,000.

            Mr. Bharara praised the investigative work of the FBI. 

            The prosecution is being handled by the Office's White Plains Division.  Assistant U.S. Attorneys Benjamin R. Allee and James McMahon are in charge of the prosecution.

            Preet Bharara, the United States Attorney for the Southern District of New York, announced that JAMAL SMALLS, a/k/a “Poo Black,” a/k/a “Machiavelli,” a/k/a “Mack,” was found guilty today of the July 26, 2012, drug-related murder of Doneil White; leading a narcotics trafficking conspiracy that distributed powder cocaine, crack cocaine, and heroin in 2012 and 2013; and using and discharging firearms in connection with that narcotics conspiracy, following a two-week jury trial before United States District Judge Naomi Reice Buchwald. 

            U.S. Attorney Preet Bharara said: “Jamal Smalls led a violent drug trafficking crew and, as the jury found, was responsible for murder as well as other mayhem and drug peddling.  Thanks to the FBI and the NYPD, this threat to public safety is off the streets and awaiting sentencing for his crimes.” 

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

            JAMAL SMALLS, a/k/a “Poo Black,” a/k/a “Machiavelli,” a/k/a “Mack,” was a high-ranking member of the Bloods.  In 2012 and 2013, SMALLS ran a drug trafficking crew that operated in and around the John Adams Houses in the Bronx, New York.  SMALLS and his crew sold large quantities of powder cocaine, crack cocaine, and heroin in and around the housing project, as well as in North Carolina, South Carolina, and Virginia. 

            In 2000, SMALLS was convicted for first degree manslaughter in New York State.  Throughout SMALLS’s term of incarceration, he received narcotics from his brother and persons working on behalf of the crew to distribute within the state prison system.  In April 2012, SMALLS was released from New York State prison.  After his release, SMALLS began to lead the crew with his brother, participating in large-quantity narcotics transactions in the Bronx and out-of-state. 

            SMALLS was also involved in repeated violence committed in connection with the crew’s drug trafficking.  On July 18, 2012, SMALLS tried to shoot Doneil White, a rival drug dealer, but missed; SMALLS, however, hit a bystander in the back outside of the Johns Adams Houses.  A week later, on July 25, 2012, SMALLS again shot at Doneil White in the John Adams Houses, but missed.  Early the next morning, on July 26, 2012, SMALLS paid a member of his crew $10,000 to shoot Doneil White in a stairwell at the John Adams Houses.  White died a few days later as result of his severe injuries.

            Following his arrest in August 2012, and while in pre-trial detention, SMALLS continued to lead the narcotics conspiracy, by, among other things, giving directives to members of the crew through telephone calls and in-person visits. 

*                *                *

            SMALLS, 39, of the Bronx, New York, was convicted of (a) conspiracy to distribute and possess with the intent to distribute 280 grams and more of crack cocaine, one kilogram and more of heroin, and five kilograms and more of cocaine; (b) using, carrying, possessing, and discharging firearms in connection with that narcotics conspiracy; and (c) the drug-related murder of Doneil White.  In total, SMALLS faces a maximum sentence of life in prison and a mandatory minimum sentence of 45 years in prison.  SMALLS is scheduled to be sentenced on March 10, 2016, at 2:30 p.m., before Judge Buchwald.  The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

            U.S. Attorney Preet Bharara thanked the Federal Bureau of Investigation and the New York City Police Department for their continued outstanding work in this investigation.  Mr. Bharara also thanked the Bronx District Attorney’s Office for their valuable assistance with the investigation.

            The case is being prosecuted by the Office’s Violent & Organized Crime Unit.  Assistant U.S. Attorneys Kan M. Nawaday, Joshua A. Naftalis, and Drew Johnson-Skinner are in charge of the prosecution. 

Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), Gregory E. Demske, Chief Counsel to the Inspector General of the U.S. Department of Health and Human Services (“HHS-OIG”), and Scott J. Lampert, Special Agent in Charge of HHS-OIG’s New York Regional Office, announced a $390 million settlement against NOVARTIS Pharmaceuticals Corp. (“NOVARTIS”) in a civil fraud lawsuit based on claims that NOVARTIS gave kickbacks to specialty pharmacies in return for recommending two of its drugs, Exjade and Myfortic.  The settlement resolves claims under the federal False Claims Act, 31 U.S.C. § 3729 et seq., and numerous state false claims act claims.  The settlement also provides for resolution of claims against NOVARTIS under the federal civil forfeiture statute, 18 U.S.C. § 981 et seq.  This is the third settlement in this lawsuit – in January 2014 and April 2015, two specialty pharmacies, Bioscrip, Inc. (“Bioscrip”) and Accredo Health Group (“Accredo”), agreed to pay a total of $75 million to resolve federal and state claims against them based on the same allegations.  Together with today’s settlement, the federal and state governments will recover $465 million in total based on the kickback allegations in this lawsuit.

In April 2013, the Government first intervened as to NOVARTIS in this lawsuit, which was initially filed by a whistleblower, and asserted that NOVARTIS violated the False Claims Act and the Anti-Kickback Statute, 42 U.S.C. § 1370a-7b, by giving kickbacks to specialty pharmacies in return for recommending Exjade, an iron chelation drug, and Myfortic, an anti-rejection drug for kidney transplant recipients.  With respect to Exjade, the Government alleged that NOVARTIS gave kickbacks in the form of patient referrals and rebates to Bioscrip and Accredo to induce those pharmacies to recommend Exjade refills.  More specifically, the Government alleged that, to increase Exjade sales, Novartis incentivized and pressured the pharmacies to emphasize Exjade’s benefits to patients while understating the drug’s serious, potentially life-threatening, side effects.  With respect to Myfortic, the Government alleged that NOVARTIS gave rebate contracts to specialty pharmacies to induce the pharmacies to recommend to doctors that they switch patients to Myfortic from competitor drugs.

Today, U.S. District Judge Colleen McMahon approved a settlement to resolve the Government’s claims against NOVARTIS.  Under that settlement, NOVARTIS agrees to (i) pay $370,000,000 to resolve the federal and state false claims act claims, (ii) forfeit $20 million as proceeds from the scheme under the federal civil forfeiture statute, (iii) make extensive admissions concerning its relationship with specialty pharmacies, and (iv) amend its corporate integrity agreement with HHS-OIG to subject NOVARTIS’s specialty pharmacy relationships to independent review and extend the term of that agreement by five years.  Of the $370 million, $286,870,245.98 will be paid to the Government, and $83,129,754.02 will be paid to settling states.

Manhattan U.S. Attorney Preet Bharara said: “This is the third substantial settlement in connection with Novartis’s scheme to use kickbacks to co-opt healthcare providers’ independence.  The Anti-Kickback Statute was enacted to ensure that the medical treatment and advice patients receive, and federal programs pay for, are free from the taint of corporate kickbacks.  But that was not the case with Novartis here.  Novartis gave kickbacks to influence specialty pharmacies to provide patients one-sided advice about Exjade, without disclosing the drug’s serious side effects, and to recommend switching patients who were using other drugs to Myfortic.  Novartis turned pharmacies that should have been disinterested healthcare providers into a biased salesforce for the drug-maker.  Drug-makers and their relationships with healthcare providers – whether they are doctors, pharmacists, or nurses – must comply with the Anti-Kickback Statute.  If they don’t, we will bring all appropriate law enforcement tools to bear to ensure that they do.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “In the course of our investigation with the Health and Human Services Office of Inspector General, Novartis was found to be giving incentives to pharmacies to push certain drugs to patients. Today’s settlement with Novartis should serve as a warning to companies who choose to operate their businesses with kickbacks rather than honesty – those companies will pay more in the long run.  Doctors should be advising patients based on medical facts, not pharmacies based on dollar signs. The FBI is committed to working with our federal partners to protect our citizens from fraud and ensure everyone receives the quality medical care they need.”

HHS-OIG Chief Counsel Gregory E. Demske said: “Reliable information is essential for patients taking drugs on a long-term basis, and money should not distort the advice that patients receive about drugs with serious side effects.  OIG will continue to investigate kickback arrangements between pharmaceutical manufacturers and specialty pharmacies.”

HHS-OIG Special Agent in Charge Scott J. Lampert said: “Novartis’s kickbacks and other aggressive sales tactics, as alleged in this case, threatened the impartiality of medical decision-making and the financial integrity of Medicare and Medicaid.  Our agency will continue to investigate companies who step over the line to maximize their market share at the expense of federal health care programs.”

As the Government contended, evidence uncovered in the lawsuit shows that Exjade patient referrals were very valuable for pharmacies and that when it launched Exjade in 2005, NOVARTIS created a “closed distribution network” involving just three specialty pharmacies, BioScrip, Accredo, and US Bioservices.  This gave NOVARTIS control over how many Exjade patients would be assigned to the pharmacies.

The Government also contended that evidence shows, starting in early 2007, NOVARTIS saw Exjade sales were far below internal targets because of low refill rates due, in significant part, to side effects that were more frequent and more severe than initially expected.  To increase Exjade refills and hit its sales targets, NOVARTIS leveraged its control over patient referrals to pressure BioScrip, Accredo, and US Bioservices to hire or assign nurses to call Exjade patients and, under the guise of education or clinical counseling, encourage patients to order more refills. 

More specifically, as the Government contended, NOVARTIS knew that, when the pharmacies called patients, they emphasized the benefits of taking Exjade – for example, by telling patients that not taking Exjade would cause damage to their organs or lead to infertility – while understating the serious, potentially life-threatening risks of taking Exjade – for example, by not mentioning potential side effects like kidney and liver failure.  Indeed, NOVARTIS encouraged the pharmacies to promote Exjade refills in these ways even though FDA had characterized claims about Exjade preventing organ damage as “unsubstantiated.”

In addition, the Government contended that, to incentivize the pharmacies to intensify their efforts to promote Exjade refills, NOVARTIS devised a scheme under which it allocated more patient referrals and gave higher rebates to pharmacies that obtained higher refill rates.  Indeed, NOVARTIS went forward with this scheme – which operated from 2008 to 2012 – even though it knew that the scheme presented risks of violating the Anti-Kickback Statute. 

  Finally, with regard to Myfortic, the Government contended evidence shows that NOVARTIS offered lucrative rebate offers to five specialty pharmacies in return for the pharmacies’ promise to recommend to doctors that they switch patients to Myfortic from competitor drugs.  For example, in July 2011, NOVARTIS offered rebates to a specialty pharmacy in Mississippi once the pharmacy owner agreed to “create a letter to” doctors “with a recommendation of moving [ ] patients to Myfortic.”

As part of the settlement, NOVARTIS made extensive factual admissions about its relationships and interactions with specialty pharmacies in connection with distribution of Exjade and Myfortic and accepted responsibility for those admissions (those admissions, which are part of the settlement stipulation approved by the Court, are attached as an addendum).

*                      *                      *

The allegations of fraud stated in the Complaint were first brought to the attention of federal law enforcement by David Kester, the whistle-blower who filed a lawsuit under the False Claims Act.  The False Claims Act permits the Government to recover up to three times the amount of damages incurred by the United States, plus civil penalties ranging from $5,500 to $11,000 per violation.  Private parties who have knowledge of fraud committed against the Government may file suit on behalf of the Government and share in any recovery.  The United States may then intervene and file its own lawsuit for treble damages and penalties, as it did in this case.

Mr. Bharara praised the investigative work of the FBI, HHS-OIG, and the Medicaid Fraud Control Units for New York, Washington, California, and Ohio.  He also thanked the Commercial Litigation Branch of the U.S. Department of Justice’s Civil Division in Washington, D.C., including Laurie Oberembt, and the Office of Counsel to the Inspector General of HHS, including Mary Riordan and Geeta Kaveti, for their critical assistance in this case.

The case is being handled by the Office’s Civil Frauds Unit.  Mr. Bharara established the Civil Frauds Unit in March 2010 to bring renewed focus and additional resources to combating healthcare and other types of frauds.  Assistant U.S. Attorneys Li Yu, Rebecca C. Martin, David J. Kennedy, Jeffrey K. Powell, and Peter Aronoff are in charge of the case, and Assistant U.S. Attorney Alexander J. Wilson of the Money Laundering and Asset Forfeiture Unit is responsible for the forfeiture aspects of the case.  

            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 DAVID HOPE, a/k/a “Capo,” was arrested for his alleged role as the leader of a sex trafficking and prostitution enterprise, which exploited vulnerable minor girls and young women.  HOPE and KEMAR WILLIAMS were charged in a criminal Complaint with conspiracy to commit sex trafficking and sex trafficking of minors.  HOPE was also charged with the use of interstate facilities and interstate travel to promote a prostitution enterprise, and with possession of a firearm and ammunition by a previously convicted felon.  HOPE was presented before U.S. Magistrate Judge Debra Freeman in Manhattan federal court this afternoon.  WILLIAMS remains at large.

            Manhattan U.S. Attorney Preet Bharara said:  “As alleged, David Hope and Kemar Williams recruited vulnerable minor girls and adult women and then sold them for sex in order to profit from their exploitation.  Hope is also alleged to have possessed a firearm and to have used guns, threats, and violence to carry out his illegal operations.  The arrest of Hope today should make clear that the trafficking of girls and young women will be prosecuted to the fullest extent possible.”           

            FBI Assistant Director-in-Charge Diego Rodriguez said:  “As alleged, the defendants used violence and fear to prey upon girls and recruit them into a world of exploitation and brutality.  Operating out of his Bronx apartment, Hope acted as the leader, with Williams facilitating the prostitution enterprise.  The FBI will continue to investigate and bring to justice those who sexually exploit our children.”

            According to the allegations in the Complaint unsealed today in Manhattan federal

court[1]:

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

            Sex trafficking and prostitution enterprises often recruit vulnerable minor victims who lack education, a stable home, family support, and who have suffered past physical and emotional trauma, and exploit  those victims’ need for shelter, stability, and affection  for their own financial gain.  Sex traffickers also prey on young adult women with the same vulnerabilities.  Once these sex traffickers have recruited victims, they advertise them on websites dedicated to “escort” services and on classifieds websites.  To evade detection by law enforcement, advertisements are posted in the adult entertainment section of the website and purport to offer individuals as mere escorts, but the advertisements signal that they are, in fact, offering individuals for sale for commercial sex acts.

            HOPE recruited minors who looked up to him to participate in the Enterprise and other criminal activity, including robberies.  HOPE, who was known to carry a firearm, employed myriad tactics – including manipulation, intimidation, coercion, threats, and violence – to recruit and maintain the girls and young women he sold for sex.   For example, on at least two occasions, HOPE physically beat one of the adult women he prostituted using his upper body, and on at least one occasion, threatened that victim with a firearm. 

            At least three minor victims and at least three adults were prostituted by HOPE in the Hope Apartment. 

            HOPE regularly used the classifieds website Backpage.com (“Backpage”) to advertise young women and girls for commercial sex.  HOPE drafted advertisements, chose the sexually provocative photos used in the advertisements, and posted the advertisements using his personal email address and smartphone.  When a potential customer responded to an advertisement for commercial sex, HOPE instructed Adult Victim-1 to answer telephone calls or text messages from the customer, ask whether the customers “were affiliated with law enforcement,” and provide the rates that HOPE set for commercial sex.  Such rates were based on the length of time that a customer would engage in commercial sex and the number of women or girls involved.  For example, on at least two occasions, HOPE offered a “two-girl special” involving minor girls.

            When a customer arrived at the Hope Apartment, the customer was escorted by Adult Victim-1 to a room that was enclosed by a curtain and which contained condoms and alcohol and had music playing.  Adult Victim-1 then discussed with the customer the length and type of commercial sex acts requested.  In the event that such room of the Hope Apartment was occupied by a customer and another customer had arrived at the Hope Apartment, another room in the Hope Apartment was set aside as a waiting area with chairs and some alcohol.

            The customer was always required to pay the woman or girl who was prostituted by HOPE in advance of any sexual contact, and all money received from customers was given to HOPE.  Adult Victim-1 earned thousands of dollars for HOPE by being prostituted.  For example, Adult Victim-1 earned $6,000 over a four-day period for commercial sex, which she gave to HOPE.  The amount of money that Minor Victim-1 and Minor Victim-3 received from HOPE for being prostituted was at HOPE’s discretion.        

            HOPE typically was present in the Hope Apartment while women and girls were being prostituted.  HOPE was known to carry a firearm on his person and sometimes slept on top of firearms in the Hope Apartment.

            In October 2015, a law enforcement officer (the “UC”) conducted an undercover operation and responded to an advertisement that was posted in the New Haven, Connecticut, section of Backpage and that appeared to be offering minor females for commercial sex as part of a “two girl special” (the “CT Backpage Ad”).  The advertisement contained several photos of a female who appeared to be less than 18 years old in sexually provocative poses and had the following heading:  “2 freaks❤ . . . Freaky and ready for it.”  The UC texted the callback number listed in the advertisement, which instructed the UC to go to a specific room at a motel in Milford, Connecticut (the “Motel”).  When the UC approached the door to the room, it was opened by Minor Victim-2, who was prostituted by Hope earlier in 2015.  The UC also encountered Minor Victim-1, who was prostituted by HOPE since at least 2013, in the room. 

            According to records from the Motel, WILLIAMS paid for the Motel room in cash on several days, including on October 26, 2015, the day that the UC encountered Minor Victim-1 and Minor Victim-2.   Surveillance video from the Motel also shows WILLIAMS paying a Motel clerk and speaking with HOPE at the Motel.  Between August 1, 2015, and November 18, 2015, email addresses believed to have been used by HOPE posted the CT Backpage Ad as well as more than 60 advertisements for commercial sex on Backpage.  

            HOPE was also charged with possession of a firearm and ammunition by a previously convicted felon.  On January 16, 2015, when New York City Police Department (“NYPD”) officers were conducting a search warrant at the Hope apartment, HOPE instructed Minor Female-1 to throw a loaded firearm out of the rear window of the HOPE Apartment.  Before it was thrown out of the window, the firearm was in the bed where HOPE was sleeping.

*                *                *

            Attached are charts containing the charges against the defendants and the maximum penalties they face, as well as the defendants’ ages and residences.  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.

            Any individuals who believe they have information concerning DAVID HOPE, a/k/a “Capo,” or KEMAR WILLIAMS that may be relevant to the investigation should contact the Federal Bureau of Investigation at (212) 384-1000 or https://tips.fbi.gov/.  

            Mr. Bharara praised the outstanding investigative work of the FBI.  He thanked the NYPD for its assistance throughout the investigation, and the United States Attorney’s Office for the District of Connecticut, the Connecticut Child Exploitation Task Force, and the Milford, Connecticut, Police Department for their assistance with investigating the defendants’ operations in Connecticut.  Mr. Bharara also thanked the United States Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”) and the ATF/NYPD Joint Robbery Task Force (SPARTA) for its assistance in the early stages of the investigation, and noted that the investigation is continuing.

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

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

United States v. David Hope, et al.

COUNT

CHARGE

DEFENDANTS

MAXIMUM PENALTIES[2]

1

Sex Trafficking Conspiracy   

(18 U.S.C. § 1591(c))

DAVID HOPE a/k/a “Capo”

KEMAR WILLIAMS

Life

2

Sex Trafficking of Minor Victim-1

(18 U.S.C. § 1591(a) and (b)(2))

DAVID HOPE a/k/a “Capo”

KEMAR WILLIAMS

Life

3

Sex Trafficking of Minor Victim-2

(18 U.S.C. § 1591(a) and (b)(2))

DAVID HOPE a/k/a “Capo”

KEMAR WILLIAMS

Life

4

Use of Interstate Commerce to Promote a Prostitution Enterprise

(18 U.S.C. § 1952(a)(3))

DAVID HOPE a/k/a “Capo”

20 years in prison

5

Felon in Possession

(18 U.S.C. § 922(g))

DAVID HOPE a/k/a “Capo”

10 years in prison

DEFENDANT

RESIDENCE

AGE

DAVID HOPE a/k/a “Capo”

Bronx, New York

28

KEMAR WILLIAMS

Brooklyn, New York

29

[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.

[2] 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.

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 that MARC WIESELTHIER, a certified public accountant and partner at a New York accounting firm (the “Firm”), pled guilty today to participating in a scheme to obtain millions of dollars in loans by making false statements and providing false and fraudulent documents to two commercial banks based in New York (the “Banks”) concerning the financial condition of a Florida-based cosmetics company (the “Company”) that was a client of WIESELTHIER.  WIESELTHIER pled guilty before United States Magistrate Judge Debra Freeman.

Manhattan U.S. Attorney Preet Bharara said: “Marc Wieselthier has admitted to lying about the financial condition of a company to induce banks to lend the company millions of dollars.  Relying on false information, the banks made loans that ended up defaulting with nearly $5 million still owed.  Wieselthier now joins his co-conspirators in awaiting sentencing for his crime.”

FBI Assistant Director in Charge Diego Rodriguez said: “Wieselthier, with the knowledge of his co-conspirators, convinced lenders of his client’s affluence in an effort to mask the true nature of the company’s financial situation. In the end, the banks incurred a significant financial loss as a result of this type of fraud. Today’s plea serves as a reminder that engaging in illegal activity of this sort poses a significant risk to one’s personal freedom.”

According to the allegations contained in the information to which WIESELTHIER pled guilty and statements made during WIESELTHIER’s plea proceeding:

WIESELTHIER was a licensed certified public accountant at the Firm.  Since 2009, WIESELTHIER has been a partner at the Firm.  The Company and its chief executive officer (“CEO”) were clients of WIESELTHIER, who performed, among other things, year-end audits of financial statements for the Company.

From 2007 through 2014, the Company, through its officers, fraudulently induced the Banks into lending the Company millions of dollars by repeatedly making, and causing to be made, materially false and misleading statements about the Company’s financial condition.   Specifically, the Company falsely inflated its sales and accounts receivable on “borrowing base certificates” and in financial statements audited by WIESELTHIER, which were provided to the Banks pursuant to loan agreements between the Banks and the Company.  The Company used those falsely inflated sales and accounts receivable to mislead the Banks about the Company’s true financial performance so that the Company could secure and draw down millions of dollars in revolving loans from the Banks that the Company would not otherwise have been entitled to receive.

As a part of the scheme, on an annual basis, WIESELTHIER knowingly issued unqualified audit reports known as “clean opinions” falsely certifying that the Company’s financial statements fairly, and in all material respects, reflected the true financial condition of the Company and were in conformity with generally accepted accounting principles (“GAAP”).  In truth and in fact, at the time that WIESELTHIER issued those “clean opinions,” WIESELTHIER knew that the Company’s financial statements falsely overstated the Company’s accounts receivable and understood that the Banks would rely upon those false financial statements in loaning money to the Company.  WIESELTHIER hid his accounting work for the Company from his own partners and associates in an apparent effort to conceal the fraud. 

In March 2014, the Company defaulted on the loans at issue.  At that time, the Company’s outstanding balance on the loans was more than $4.8 million.

*                *                *

WIESELTHIER, 57, of Plainview, New York, pled guilty to one count of conspiracy to commit bank fraud, which carries a maximum sentence of 30 years in prison.  The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

WIESELTHIER is scheduled to be sentenced on March 23, 2016, at 2:30 p.m., before U.S. District Judge Lewis A. Kaplan.

Emanuel Cohen, 71, of Boca Raton, Florida, the former CEO of the Company, and Thomas Thompson, 42, of Coral Springs, Florida, the former sales manager of the Company, previously pled guilty for their roles in the scheme.  Cohen and Thompson are scheduled to be sentenced by Judge Kaplan on March 2, 2016 and February 17, 2016, respectively. 

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

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States has reached a settlement that resolves a federal civil rights lawsuit against THE DURST ORGANIZATION, INC. (“DURST”), a major real estate developer based in New York City, and DURST’s affiliates and subsidiaries.  The lawsuit alleges that DURST engaged in a pattern and practice of developing rental apartment buildings that are inaccessible to persons with disabilities.  Under the settlement, DURST agrees to establish procedures to ensure that its ongoing and future development projects, such as the 2,400-unit Halletts Point development in Queens and the 709-unit VIA 57 West development in Manhattan, will comply with the accessibility requirements of the federal Fair Housing Act (“FHA”).  DURST also agrees to make two apartment buildings in Manhattan containing more than 1,000 units – The Helena and The Epic – more accessible to individuals with disabilities.  Finally, DURST agrees to provide up to $515,000 to compensate aggrieved persons and pay a civil penalty of $55,000.  The settlement was reached after the court denied DURST’s motion to dismiss the government’s lawsuit and was approved yesterday by U.S. District Judge Ronnie Abrams.

Manhattan U.S. Attorney Preet Bharara said: “This is the ninth in a series of lawsuits that this office has brought against real estate developers and architects who fail to design and construct new apartment buildings accessible to people with disabilities.  When the government filed this lawsuit, Durst claimed that it should not be held responsible for inaccessible conditions at The Helena and other rental buildings – despite the fact that Durst’s own website trumpets its role in developing those buildings.  It was only after the Court rejected Durst’s argument that Durst finally accepted its obligations under the law.  Today’s settlement with Durst makes clear that real estate developers cannot hide behind opaque corporate structures to evade their obligation to comply with the Fair Housing Act or avoid liability for violating that Act.”                                                     

The FHA’s accessible design and construction provisions require new multi-family housing complexes constructed after January 1993 to have basic features accessible to persons with disabilities.  In April 2014, the United States filed this lawsuit against DURST and an architectural firm, alleging that past and ongoing rental projects designed and constructed by DURST and the architect, including The Helena, did not comply with the FHA’s accessibility requirements.  Inaccessible features at The Helena were first brought to the attention of the United States by testing performed by the Fair Housing Justice Center.

In September 2014, DURST moved to dismiss the government’s complaint on the grounds that DURST itself could not be held liable under the Fair Housing Act because it was not involved with developing any of the rental buildings at issue.  The government opposed that motion, noting that DURST’s public statements on its own website described its executives’ direct involvement with the design and construction of buildings like The Helena.  On January 9, 2015, the court denied DURST’s motion to dismiss.  Shortly thereafter, DURST pursued settlement discussions with the government.    

Under the settlement, DURST agrees that, for every multi-family housing project it constructs in the next three years, it will retain an FHA compliance consultant to ensure that the building, as constructed, will comply with the FHA’s accessibility requirements.  For example, the FHA consultant will advise DURST on the selection of fixtures and appliances and whether deviating from the architects’ drawings will affect accessibility.  The FHA consultant also will conduct a site visit to identify non-compliant conditions and recommend appropriate solutions prior to the completion of construction.  In addition, DURST agrees to institute policies and training to ensure that its own employees and agents will comply with the FHA’s accessibility requirements.

Further, the settlement also requires DURST to make extensive retrofits at The Helena, and to commit to additional retrofits at The Epic once that building has been inspected, to make these buildings accessible. 

Finally, the settlement requires DURST to provide up to $515,000 in funds to compensate aggrieved persons.  DURST also agrees to pay a civil penalty of $55,000. 

The government’s lawsuit also asserted claims against the architect of The Helena, FXFOWLE ARCHITECTS, P.C.  Those claims remain pending while FXFOWLE pursues settlement negotiations with the government.   

Aggrieved individuals may be entitled to monetary compensation from the fund created through today’s settlement.  Aggrieved individuals may include those who were:

• Injured by a lack of accessible features at The Helena, The Epic, or the other properties constructed by DURST;

• Discouraged from living at The Helena, The Epic, or the other properties constructed by DURST because of the lack of accessible features;

• Required to pay to have an apartment at The Helena, The Epic, or the other properties constructed by DURST made accessible,

• Prevented from having visitors because of a lack of accessible features at The Helena, The Epic, or the other properties constructed by DURST; or

• Otherwise injured or discriminated against on the basis of disability as a result of the design or construction of The Helena, The Epic, or the other properties constructed by Durst.

People who may be entitled to compensation should file a claim by contacting the Civil Rights Complaint Line at (212) 637-0840, using the Civil Rights Complaint Form available on the United States Attorney’s Office’s website http://www.justice.gov/usao/nys/civilrights.html, or sending a written claim to:

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

                        86 Chambers Street, 3rd Floor

                        New York, New York 10007

                        Attention:  Chief, Civil Rights Unit

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

            Preet Bharara, the United States Attorney for the Southern District of New York, announced today that STEVEN RAWLINS, a former Chief Financial Officer to two healthcare services companies based outside Nashville, Tennessee, was found guilty today of engaging in a scheme to defraud that yielded over $8 million in ill-gotten gains.  Following an 11-day trial conducted before U.S. District Judge Alison J. Nathan, a jury found that RAWLINS, as the acting Chief Financial Officer for both privately-held healthcare companies, abused his authority to withdraw company funds for payment of legitimate business expenses and tax obligations by, among other things, using such funds to pay personal expenses incurred by RAWLINS, his family, and his associates.

            Manhattan U.S. Attorney Preet Bharara said: “As a unanimous jury has found, Steven Rawlins abused his position of trust to steal from the companies whose finances he was entrusted to manage.  He siphoned off more than $8 million of company money and spent it lavishly on himself, his family, and his friends, paying for a 12,000-square-foot home, Tiffany jewelry, sports cars and Yankees luxury suites.  Now he stands convicted by a jury of federal crimes.”

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

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

            RAWLINS abused his authority to withdraw company funds and ultimately misappropriated more than $8 million, which he used to pay personal expenses incurred by himself, his family, and his associates.  For instance, as part of his responsibilities as a consultant to Company-1, RAWLINS represented that he would make the necessary tax payments owed by Company-1 to the State of Tennessee.  From 2011 to 2012, RAWLINS withdrew approximately $850,000 from Company-1’s bank accounts, purportedly in order to pay Company-1’s outstanding tax liabilities to Tennessee.  In reality, during that time period, Company-1 owed less than $85,000 in applicable Tennessee state taxes; RAWLINS converted the vast majority of the funds to his own use.  Moreover, from 2011 to 2013, RAWLINS caused approximately $4 million to be withdrawn from a Company-1 bank account in order to pay bills associated with RAWLINS’s American Express credit card accounts.  Those American Express accounts were in turn used to pay for numerous personal expenses incurred by RAWLINS, or those associated with him, including payments to a real estate development company that built RAWLINS a 12,000-square-foot home; payments for luxury suite access for the Tennessee Titans, Nashville Predators, and New York Yankees; payments for Tiffany jewelry; and payments to car dealerships including Ferrari, Porsche, Maserati, and Mercedes.

*                      *                      *

            RAWLINS, 58, of Brentwood, Tennessee, was convicted of one count of wire fraud, the sole count in the Information.  He faces a maximum sentence of 20 years in prison, a maximum term of three years of supervised release, and a fine of the greatest of $250,000, or twice the gross pecuniary gain derived from the offense or twice the gross pecuniary loss to the victim.  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.  RAWLINS is scheduled to be sentenced on March 18, 2016.

            Mr. Bharara praised the outstanding investigative work of the Federal Bureau of Investigation.  He added that the investigation is continuing.

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

            This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Andrew Bauer and Andrew J. DeFilippis are in charge of the prosecution, and Margaret S. Graham is in charge of the forfeiture aspects of the case.

            Preet Bharara, United States Attorney for the Southern District of New York, and Carl W. Hoecker, Inspector General of the United States Securities and Exchange Commission, Office of the Inspector General (“SEC-OIG”), announced charges against former SEC Compliance Examiner EUGENIA CANTIELLO for making false statements to the SEC regarding her and her husband’s ownership of various stocks they were prohibited from holding under SEC ethical rules.  It is alleged that CANTIELLO, while a Compliance Examiner in the SEC’s New York Regional Office, made false statements to the SEC in order to conceal her ownership of stocks that she, as an SEC employee, was prohibited from holding.  The Government and defendant have entered into a deferred prosecution agreement, which was approved in Manhattan Federal Court by U.S. Magistrate Judge James L. Cott today. 

            According to the allegations in the Criminal Complaint[1] unsealed today:

            CANTIELLO was, until 2014, a Compliance Examiner in the SEC’s New York Regional Office.  Among other duties, she was responsible for overseeing broker-dealers, investment advisers, investment companies, clearing agencies, and others in their compliance with the nation’s securities laws.  As an SEC employee, CANTIELLO was subject to rules issued by the SEC (“SEC Ethics Rules”) designed to prevent conflicts of interest that could arise when SEC employees hold stock in entities subject to routine SEC examinations.           

            The SEC Ethics Rules prohibit SEC employees from owning stock in entities directly regulated by the SEC, and require employees to submit any proposed personal transactions in such securities to the SEC prior to executing them.  The prohibited securities include those of several banks and broker-dealers, including banks with broker-dealer subsidiaries.  Individuals who owned stock at the time the changes were implemented were directed to divest their holdings, and provided with instructions on how to do so.  The SEC Ethics Rules apply, with equal force, to securities holdings in the names of spouses and immediate family members of SEC employees.

            CANTIELLO and her husband held approximately $50,000 in stock in one such prohibited company.  Despite warnings and reminders provided by the SEC, CANTIELLO did not divest her and her husband’s holdings as required.  Instead, she held on to much of the stock past deadlines imposed by the SEC and later, when the SEC-OIG investigated her holdings, she lied about her conduct in an investigation under oath, falsely claiming – among other things – that she had not been aware that her holdings were prohibited under the SEC Rules. 

            CANTIELLO, 46, of New Rochelle, New York, is charged with one count of making false statements, which carries a maximum sentence of five years in prison.  The statutory maximum penalty is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge. 

            CANTIELLO has entered into a deferred prosecution agreement which provides that the charges against her will be dismissed in three months if CANTIELLO complies with certain conditions and commits no further offenses.             

*              *             *

            Mr. Bharara praised the investigative work of the Securities and Exchange Commission, Office of the Inspector General, and the Criminal Investigators of the United States Attorney’s Office for the Southern District of New York.

            The case is being prosecuted by the Office’s Public Corruption Unit.  Assistant United States Attorney Martin S. Bell is in charge of the prosecution.

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

            Preet Bharara, United States Attorney for the Southern District of New York, announced that ERIC GIVENS, a former police officer with the National Railroad Passenger Corporation (“Amtrak”), and the former treasurer of the national union for Amtrak police officers, was sentenced in Manhattan federal court late yesterday to 16 months in prison for embezzling union funds.  GIVENS previously pled guilty before U.S. District Judge Analisa Torres, who imposed yesterday’s sentence.

            According to the Complaint, Indictment, public filings, and statements made during the sentencing proceeding:

            GIVENS was employed as a police officer with Amtrak since May 1997, and was most recently assigned to Penn Station, in New York, New York.  GIVENS served as the elected treasurer of the Amtrak Police Lodge 189 Labor Committee (the “Labor Committee”), the national union for Amtrak police officers, from 2003 through January 2010.  During the same period, and continuing until November 2013, GIVENS also served as the elected treasurer of Amtrak Police Lodge 189 Inc. (the “Lodge”), a fraternal organization affiliated with the Labor Committee.

            Starting in 2008, GIVENS stole more than $120,000 in total from the Labor Committee and Lodge by fraudulently charging personal expenses to the Labor Committee and Lodge and by withdrawing cash for his own purposes, and took steps to hide what he had done.  During this period, GIVENS used the debit card of the Labor Committee to pay for, among other things, gasoline and food, and used the debit card of the Lodge to pay for, among other things, travel, hotels in multiple cities, and entertainment in New York and New Jersey.  GIVENS also withdrew thousands of dollars in cash from Labor Committee and Lodge bank accounts.

*                      *                      *

            GIVENS, 53, of East Stroudsburg, Pennsylvania, pled guilty to one count of embezzlement of union funds.  In addition to the prison term, GIVENS was sentenced to three years of supervised release, and was ordered to pay approximately $127,000 in restitution, and to forfeit approximately $12,000.

            Mr. Bharara praised the outstanding work of the U.S. Department of Labor’s Office of Labor-Management Standards and its Office of Inspector General’s Office of Labor Racketeering and Fraud Investigations.  Mr. Bharara also thanked the Amtrak Police Department’s Office of Internal Affairs for its assistance.

            The case is being handled by the Office’s Public Corruption Unit.  Assistant U.S. Attorney Daniel C. Richenthal is in charge of the prosecution.

            Preet Bharara, the United States Attorney for the Southern District of New York, John C. Cruden, the Assistant Attorney General for the Environment and Natural Resources Division of the Department of Justice, and Dan Ashe, the U.S. Fish and Wildlife Service Director, announced that LINXUN LIAO was sentenced yesterday in Manhattan federal court to two years in prison for his role in a wildlife trafficking scheme in which he purchased and smuggled 16 “libation cups” carved from rhinoceros horns and worth more than $1 million from the United States to China. LIAO previously pled guilty to two counts of illegally smuggling rhinoceros horn objects from the United States.  U.S. District Judge Lorna G. Schofield imposed yesterday’s sentence.

            Manhattan U.S. Attorney Preet Bharara said: “This defendant flouted the laws established to protect endangered wildlife.  Willfully failing to declare the nature of the shipments or obtain required permits, Liao broke laws that protect rhinoceros and other magnificent species threatened with extinction.  He has learned the cost of his illegal conduct.”

            Assistant Attorney General John C. Cruden said: “This prosecution is the result of a vigorous and ongoing investigation into traffickers profiting from endangered and precious wildlife species.  We must ensure that the market for antiques and alleged antiques does not also contribute to the extinction of these iconic animals, which could disappear in our lifetimes if we do not act now to stop this illegal trade.”            

            U.S. Fish and Wildlife Service Director Dan Ashe said: “Each of the ceremonial cups that Liao trafficked represents one step closer to extinction for the rhinoceros, which are steadily being wiped out by poachers for the illegal rhino horn market. The seriousness of this crime and others like it and their consequences for the world’s most imperiled species are what drives our efforts to root out and shut down illegal operators like Mr. Liao. This sentence will serve as a strong warning that we are going to find, arrest and prosecute anyone engaged in this sort of activity and make sure they are no longer able to deprive our children and grandchildren of their wildlife inheritance.”

            According to the Information, other documents filed in Manhattan federal court, and statements made at various proceedings in this case, including today’s sentencing:

            LIAO was arrested in February 2015 as part of “Operation Crash,” a nationwide crackdown on illegal trafficking in rhinoceros horns.  LIAO, a Canadian citizen, was a partner in an Asian art and antiques business located in China.  LIAO’s role was to purchase items, including wildlife items, in the United States and arrange for their export to China.  Between in or about March 2012 and May 2013, LIAO made online purchases of 16 rhinoceros horn products, more specifically libation cups, from auction houses in the United States, including in Manhattan, which he then smuggled to China without the required declarations and permits.  In order to make these purchases, LIAO used an address of his family members in New Jersey (the “New Jersey Location”) because he knew that absent a domestic address, the auction houses would not ship him rhinoceros horn or ivory products that LIAO had purchased.  Liao then used a Manhattan-based courier service to illegally export the merchandise to China.  LIAO did not declare the rhinoceros exports to the U.S. Fish and Wildlife Service or obtain the required permits despite his knowledge of the need to do so.  LIAO closely coordinated his efforts with co-conspirators who sold the items for a profit at their antique business in China.  The market value of the rhinoceros libation cups in this case is more than $1,000,000.     

            The rhinoceros is an herbivore species of prehistoric origin and one of the largest remaining mega-fauna on earth.  They have no known predators other than humans.  All species of rhinoceros are protected under U.S. and international law.  Since 1976, trade in rhinoceros horn has been regulated under CITES, a treaty signed by over 170 countries around the world to protect fish, wildlife, and plants that are or may become imperiled due to the demands of international markets.  Rhinoceros are also protected under the U.S. Endangered Species Act, which further regulates trade and transport.

*                *                *

            In addition to his prison term, LIAO, 35, a Chinese citizen who resides in Canada, was sentenced to two years of supervised release and ordered to forfeit $1 million and 304 pieces of carved ivory found during a search of the New Jersey Location. 

            Operation Crash is a continuing investigation by the Department of the Interior’s Fish and Wildlife Service, in coordination with the Department of Justice.  A “crash” is the term for a herd of rhinoceros.  Operation Crash is an ongoing effort to detect, deter, and prosecute those engaged in the illegal killing of rhinoceros and the unlawful trafficking of rhinoceros horns.

            U.S. Attorney Preet Bharara thanked the U.S. Fish and Wildlife Service for its outstanding work in this investigation.  This case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit.  Assistant United States Attorney Jennifer Gachiri and Senior Litigation Counsel Richard A. Udell with the Environmental Crimes Section of the Department of Justice are in charge of the prosecution.

            Preet Bharara, the United States Attorney for the Southern District of New York, and Mark Hamlet, Special Agent in Charge of the Special Operations Division of the United States Drug Enforcement Administration (“DEA”), today announced that EFRAIN ANTONIO CAMPO FLORES and FRANQUI FRANCISCO FLORES DE FREITAS were arrested in the Republic of Haiti on Tuesday and brought to the United States based on a charge that they conspired to import cocaine into the United States.  CAMPO FLORES and FLORES DE FREITAS will be presented before U.S. Magistrate Judge James L. Cott later today.

            According to the allegations in the Indictment[1], which was unsealed today in Manhattan federal court, CAMPO FLORES, 29, and FLORES DE FREITAS, 30, conspired with others between October 2015 and the present to violate U.S. narcotics laws prohibiting the importation of cocaine.  Specifically, the Indictment charges CAMPO FLORES and FLORES DE FREITAS with conspiring to (i) import five or more kilograms of cocaine into the United States from a foreign country; and (ii) distribute five or more kilograms of cocaine knowing and intending that it would be imported into the United States.  The charge in the Indictment carries a maximum penalty of life in prison.  The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge.

            Mr. Bharara praised the outstanding investigative work of the DEA’s Special Operations Division, Bilateral Investigations Unit, and New York Strike Force.  Mr. Bharara also thanked the DEA’s Port-au-Prince Country Office, U.S. Customs and Border Patrol's National Targeting Center, DEA’s Airwing, the Government of the Republic of Haiti and the Haitian National Police, and the U.S. Department of Justice’s Office of International Affairs for their ongoing assistance.

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

            The charge contained in the Indictment is merely an accusation and the defendants are presumed innocent unless and until proven guilty. 

[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth 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 NICHOLAS MOTTA and DOMINIC MOTTA pled guilty today in White Plains federal court to attempted mail fraud in connection with a scheme to obtain insurance proceeds by committing arson.  Previously, on October 23, 2015, a third defendant, ANTHONY PERSO, pled guilty to attempted mail fraud in connection with the same arson and insurance fraud scheme.  All defendants pled guilty before the U.S. District Judge Nelson S. Román.  The MOTTAS are scheduled to be sentenced on February 11, 2016; PERSO is scheduled to be sentenced on January 29, 2016.

            According to the allegations contained in the indictment and information adduced during the Court proceedings:

            In the early morning hours of February 10, 2010, during an extraordinary blizzard, a shuttered bar in Swan Lake, New York, formerly known as Kilcoin’s, was set ablaze and destroyed.  PERSO was among the individuals who set the fire.  NICHOLAS and DOMINIC MOTTA owned the bar, and arranged the arson by having others, including PERSO, travel to Sullivan County to set the bar afire, in order to make a claim to recover proceeds from the insurance company.  In pursuing the insurance claim, DOMINIC MOTTA deceived the insurance company about the fire in order to attempt to obtain more than $100,000 in insurance proceeds.  The insurance company, however, detected the arson, and ultimately denied DOMINIC MOTTA’s claim when MOTTA repeatedly failed to respond to requests by the insurance company that he answer questions about the fire under oath.

*                      *                      *

              DOMINIC MOTTA, 59, and NICHOLAS MOTTA, 43, both of Islandia, New York, and PERSO, 32, of Medford, New York, each pled guilty to one count of attempted mail fraud.  The offense carries a maximum penalty 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 outstanding investigative work of the Federal Bureau of Investigation, the Suffolk County District Attorney’s Office, the Suffolk County Police Department, and the Sullivan County Sheriff’s Office.

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

Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriquez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that ELLIOT HALBERSTAM was arrested today and charged in a criminal complaint with three counts stemming from his sexual exploitation and enticement of a minor and his receipt of child pornography.

Manhattan U.S. Attorney Preet Bharara said:  “Elliot Halberstam is charged with violating the trust of his former patient, a 16-year old boy, in the worst way imaginable - he allegedly coerced and tricked the victim into engaging in sexually explicit conduct, and captured it on video and in photographs.  Together with our partners at the FBI, we are dedicated to ensuring that those who sexually exploit children are held to account.”  

FBI Assistant Director-in-Charge Diego Rodriquez said:  “As alleged, Halberstam violated the trust of a minor who was a former patient of his in counseling, by coercing the victim to engage in sexual activity with him and film it.  The FBI will continue to investigate and bring to justice those who sexually exploit our children.”

According to the Complaint[1]:

Beginning in March 2015, HALBERSTAM, a child therapist, coerced and enticed a 16-year-old boy who was a former patient of his (“Victim-1”) to engage in sexually explicit conduct for the purpose of producing a visual depiction of such conduct, and received images and videos constituting child pornography from Victim-1.  To do so, HALBERSTAM groomed Victim-1 through numerous email and text messages, including by posing as another individual to entice Victim-1 to produce and send child pornography to HALBERSTAM and to allow HALBERSTAM to photograph Victim-1.

*                *                *

HALBERSTAM, 38, of Bergenfield, New Jersey, is charged with one count of coercing and enticing a minor to engage in illegal sexual activity, which carries a maximum penalty of life in prison; one count of sexual exploitation of a child, which carries a maximum sentence of 30 years in prison; and one count of receipt of child pornography, which carries a maximum sentence of 20 years in prison.   The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

There may be more victims of this alleged conduct.  Any individuals who believe they have information concerning ELLIOT HALBERSTAM that may be relevant to the investigation should contact the Federal Bureau of Investigation at 1-212-384-1000 or https://tips.fbi.gov/.

Mr. Bharara praised the efforts of the FBI in this investigation.  He added that the investigation is continuing.

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

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

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

            Preet Bharara, the United States Attorney for the Southern District of New York, announced that JOHN EARVIN, the former president of the United Federation of Law Enforcement Officers (“UFLEO” or the “Union”), was sentenced by U.S. District Judge Paul A. Engelmayer to three years of probation, including six months of home confinement.  EARVIN pled guilty on June 19, 2015, to one count of wire fraud.  

            According to the Indictment and statements made in court:

            The UFLEO represents Special Inspectors employed by the Metropolitan Transportation Authority of New York (“MTA”).  From February 2007 through April 2010, EARVIN was the Union’s president, supervising the affairs of the Union and managing the Union’s finances, including through sole control of the Union’s bank account (the “Account”).  Through his presidency, EARVIN perpetrated a scheme to defraud the Union by diverting Union dues payments deposited into the Account for his own benefit, principally by making hundreds of ATM withdrawals at off-track betting facilities and other locations and making personal use of the funds.  In perpetuating the scheme and preventing its discovery, EARVIN repeatedly lied to Union members about the Account by, for example, claiming that he could not provide an accounting of funds to Union members because an independent auditor was reviewing the Union’s finances.  As a result of the scheme, EARVIN defrauded the Union and its members of approximately $28,012.

*          *          *

            EARVIN, 67, of New Rochelle, New York, was also sentenced to 600 hours of community service and ordered to pay restitution of $2,000 a month.

            U.S. Attorney Preet Bharara thanked the DOL-OLMS for its work in the investigation.

            The case is being prosecuted by the Office’s Public Corruption Unit.  Assistant U.S. Attorneys Carrie H. Cohen and Jennifer Gachiri are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that HARRY FALTERBAUER pled guilty today to willfully failing to file a Report of Foreign Bank and Financial Accounts (“FBAR”) with the IRS regarding a secret offshore bank account he maintained and controlled.  FALTERBAUER, a United States citizen and resident of Florida, maintained the undeclared account at a bank in Liechtenstein from approximately 1988 to 2008.  During that time, the account reached a high balance of more than $1.5 million.  FALTERBAUER, who was arrested in July 2015, entered his guilty plea before U.S. District Judge Jesse M. Furman.

Manhattan U.S. Attorney Preet Bharara said: “As he admitted, Harry Falterbauer tried to conceal his million-dollar offshore bank account from U.S. authorities.  Today’s plea is a reminder that we continue to work with the IRS to investigate and prosecute taxpayers who seek to use bank-secrecy laws abroad to avoid legal obligations in the U.S.”

According to the Indictment previously filed in Manhattan federal court and statements made in court in connection with FALTERBAUER’s guilty plea:

FALTERBAUER opened an account at Liechtensteinische Landesbank AG, a bank based in Vaduz, Liechtenstein (“LLB-Vaduz”), in the late 1980s.  Although FALTERBAUER opened the account in his own name, the bank referred to the account exclusively by its number in order to conceal the connection to FALTERBAUER.  In an affidavit provided to the bank in 2003, FALTERBAUER declared that he was a U.S. citizen and that he was not authorizing LLB-Vaduz to disclose his name to U.S. tax authorities.

The account generated capital gains and losses from investments, reaching a high balance of more than $1.5 million in approximately 2007.  It had a balance of more than $1.1 million before its closure in 2008.

For the calendar year 2008, FALTERBAUER willfully failed to disclose on his tax returns both his interest in the LLB-Vaduz account and the income that account generated.  For the same year, FALTERBAUER also willfully failed to file an FBAR with the IRS, as the law required him to do.

Liechtenstein amended its laws in 2012 to permit banks to produce documents relating to certain U.S. taxpayers to the Department of Justice.  LLB-Vaduz subsequently provided files from undeclared accounts, including FALTERBAUER’s, to this Office.

*                *                *

FALTERBAUER, 60, faces a maximum sentence of five years in prison.  As part of his plea agreement, FALTERBAUER has agreed to pay a civil penalty of $794,500, file amended tax returns, and pay back taxes of at least $15,013.  He is scheduled to be sentenced by Judge Furman on February 24, 2016 at 4 p.m.  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 IRS-CI.  Mr. Bharara also thanked the U.S. Department of Justice’s Tax Division for its assistance.

The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit.  Assistant United States Attorneys Sarah Paul and David Abramowicz are in charge of the prosecution.

Breaches Included the Largest Theft of Customer Data from a U.S. Financial Institution in History

Defendants Hacked in Furtherance of Securities Market Manipulation Schemes, and Vast Gambling and Payment Processing Schemes

Attorney General Loretta E. Lynch, 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 Special Agent in Charge Robert J. Sica of the U.S. Secret Service (USSS) New York Field Office announced today the unsealing of a superseding indictment charging Gery Shalon, aka “Garri Shalelashvili,” “Gabriel,” “Gabi,” “Phillipe Mousset” and “Christopher Engeham,” with orchestrating 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 (the U.S. Financial Sector Hacks).  Shalon is charged with committing these crimes with Joshua Samuel Aaron, aka “Mike Shields,” in furtherance of securities market manipulation schemes that Shalon and Aaron perpetrated with defendant Ziv Orenstein, aka “Aviv Stein” and “John Avery” in the United States. 

As alleged, Shalon also orchestrated computer network hacks and cyberattacks in furtherance of other major criminal schemes, including unlawful internet casinos and illicit payment processors which Shalon operated with Orenstein.  Shalon also owned and controlled an illegal U.S.-based Bitcoin exchange known as Coin.mx.  Shalon and Orenstein were arrested in July 2015 by the Israel Police on an indictment that charged the underlying securities fraud, and they remain in custody in Israel pending extradition on those charges.  The U.S. Attorney’s Office will seek their extradition to stand trial in the United States on the additional charges announced today.  Aaron remains at large.  Also announced today is the unsealing of a separate indictment charging Anthony R. Murgio with operating Coin.mx in the United States, and related crimes.  Murgio, who was arrested on a complaint in July 2015, will be arraigned before the Honorable Alison J. Nathan.

 “As set forth in the indictment, these three defendants perpetrated one of the largest thefts of financial-related data in history – making off with the sensitive information of literally thousands of hard-working Americans,” said Attorney General Lynch.  “These charges were made possible in large part because those victims came forward and worked with the Department of Justice to hold the perpetrators accountable.  In an age when enormous quantities of vital information are stored in digital format on potentially vulnerable Internet-connected devices, public-private partnerships and information-sharing are more critical than ever.  The Department of Justice is committed to protecting the financial data of all our citizens and the financial integrity of our institutions.  I’d like to thank the prosecutors and law enforcement professionals who worked tirelessly on this case, and the victims who offered their full cooperation with law enforcement to make these criminal charges possible.”

“Today, we have exposed a cybercriminal enterprise that for years successfully and secretly hacked into the networks of a dozen companies, allegedly stealing personal information of over 100 million people, including over 80 million customers from one financial institution alone,” said U.S. Attorney Bharara.  “The charged crimes showcase a brave new world of hacking for profit.  It is no longer hacking merely for a quick payout, but hacking to support a diversified criminal conglomerate.  This was hacking as a business model.  The alleged conduct also signals the next frontier in securities fraud – sophisticated hacking to steal nonpublic information, something the defendants discussed for the next stage of their sprawling enterprise.  Fueled by their hacking, the defendants’ criminal schemes allegedly generated hundreds of millions of dollars in illicit proceeds.  Even the most sophisticated companies – like those victimized by the hacks in this case – have to appreciate the limits of their ability to uncover the full scope of any cyber-intrusion and to stop the perpetrators before they strike again.  If they have been hacked, most likely others have been as well, and even more will be.  The best bet to identify, stop and punish cybercriminals is to work closely, and early, with law enforcement.  That happened here, and today’s charges are proof of that.”

“Shalon, Aaron and their co-conspirators allegedly robbed victim companies, often for months at a time, stealing the contact information of tens of millions of customers,” said Assistant Director in Charge Rodriguez.  “They cloaked themselves in secrecy, but their methods rivaled those of the traditional masked robber.  Today’s indictment sheds light on an increasingly complex threat.  But just as criminals continue to develop relationships with one another in order to advance their objectives, the law enforcement community has developed a collaborative approach to fighting these types of crimes.”

“This investigation is indicative of the sophistication and complexity of cybercrime and the transnational criminal organizations that are responsible for it,” said Special Agent in Charge Sica.  “Transnational cybercriminal organizations operate with impunity regardless of national borders as these criminal organizations seek to profit from information stolen through the unauthorized access to victims’ networks.  Through the U.S. Secret Service global network of Electronic Crimes Task Forces, our field offices located overseas and the close cooperation of our foreign law enforcement partners, no cybercriminal is beyond our reach.  We will remain relentless in pursuing these criminals wherever they may reside.”

According to the allegations contained in the superseding indictment[1]:

From approximately 2012 to mid-2015, Shalon, working with Aaron and others, orchestrated the U.S. Financial Sector Hacks, stealing personal information of over 100 million customers of the victim companies.  Among these, their network intrusion at one bank (Victim-1) resulted in the theft of personal information of over 80 million Victim-1 customers, making it the largest theft of customer data from a U.S. financial institution in history.  Shalon, Aaron and their co-conspirators engaged in these crimes in furtherance of other criminal schemes.  In particular, in an effort to artificially manipulate the price of certain stocks publicly traded in the United States, Shalon and his co-conspirators sought to market the stocks, in a deceptive and misleading manner, to customers of the victim companies whose contact information they had stolen in the intrusions. 

In addition to directing the U.S. Financial Sector Hacks, Shalon directed computer network hacks and cyberattacks against numerous companies outside of the financial sector.  Shalon and his co-conspirators engaged in these crimes in furtherance of large-scale criminal businesses that Shalon and Orenstein operated in the United States and other countries.  In particular, between approximately 2007 and July 2015, Shalon owned and operated unlawful internet gambling businesses in the United States and abroad; owned and operated multinational payment processors for illegal pharmaceutical suppliers, counterfeit and malicious software (malware) distributors, and unlawful internet casinos; and owned and controlled Coin.mx, an illegal U.S.-based Bitcoin exchange that operated in violation of federal anti-money laundering laws.  Nearly all of these schemes, like Shalon’s securities market manipulation schemes, relied for their success on computer hacking and other cybercrimes committed by Shalon and his co-conspirators.

Through their criminal schemes, between in or about 2007 and in or about July 2015, Shalon and his co-conspirators earned hundreds of millions of dollars in illicit proceeds, of which Shalon concealed at least $100 million in Swiss and other bank accounts.

Shalon, Aaron, Orenstein and their co-conspirators operated their criminal schemes, and laundered their criminal proceeds, through at least 75 shell companies and bank and brokerage accounts around the world.  The defendants controlled these companies and accounts using aliases, and by fraudulently using approximately 200 purported identification documents, including over 30 false passports that purported to be issued by the United States and at least 16 other countries.

The U.S. Financial Sector Hacks

Between approximately 2012 and August 2014, Shalon and a co-conspirator (CC-1), working at times with Aaron, executed the hacks of the computer networks of Victims 1 through 9.  Among other things, in foreign-language electronic communications, during these hacks, Shalon bragged about the size and scope of his securities market manipulation schemes and described to CC-1 his use of the stolen data in furtherance of those schemes.  Shalon and CC-1 also discussed expanding their network intrusions to encompass thefts of material non-public information from the financial institutions and other firms they were hacking. 

The Securities Market Manipulation Schemes

Since 2011, Shalon, Aaron, Orenstein and their co-conspirators orchestrated multimillion-dollar stock manipulation – or “pump and dump” – schemes to manipulate the price and trading volume of dozens of publicly traded microcap stocks (penny stocks) in order to enable members of the conspiracy to sell their holdings in those stocks at artificially inflated prices.  In some instances, Shalon and Aaron caused the companies to become publicly traded in furtherance of the scheme.  To do so, Shalon caused privately held companies to engage in “reverse mergers” with publicly traded shell corporations Shalon controlled.  Orenstein managed bank and brokerage accounts used in furtherance of the schemes under aliases that he supported with false passports and other false personal identification information. 

To artificially manipulate the trading volume and prices of dozens of stocks, among other things, at pre-arranged times, Shalon and Aaron disseminated materially misleading, unsolicited messages by various means – including by email (spam) to up to millions of recipients per day – that falsely touted the stock in order to trick others into buying it.  Shalon and Aaron engaged in the U.S. Financial Sector Hacks in part to acquire email and mailing addresses, phone numbers and other contact information for potential victims to whom they could send such deceptive communications.  Shalon and his co-conspirators generated tens of millions of dollars in unlawful proceeds from the securities market manipulation schemes. 

The Unlawful Internet Gambling Schemes, Hacks and Cyberattacks

From at least in or about 2007 up to and including in or about July 2015, Shalon, Orenstein and their co-conspirators operated unlawful internet casinos in the United States and elsewhere through hundreds of employees in multiple countries.  In the United States, the defendants knowingly operated at least 12 unlawful internet casinos (the Casino Companies) which, through their websites, offered real-money casino gambling in violation of federal law and the laws of numerous states, including New York state.  Through the Casino Companies, Shalon, Orenstein and their co-conspirators generated hundreds of millions of dollars in unlawful income.

In furtherance of his unlawful internet gambling schemes, Shalon and his co-conspirators engaged in massive hacks and cyberattacks against other internet gambling businesses to steal customer information, secretly review executives’ emails and cripple rival businesses.  For example, Shalon orchestrated network intrusions of Victims-10 and -11, companies that provided operating software to Shalon’s internet casinos.  In doing so, Shalon sought to, and did, secretly obtain access to the email accounts of senior executives at both companies to ensure that the companies’ work with Shalon’s competitors did not compromise the success of Shalon’s unlawful internet gambling businesses.

The Illicit Payment Processing Scheme and Hack

From at least in or about 2011 until in or about July 2015, Shalon, Orenstein and their co-conspirators operated IDPay and Todur, multinational payment processors for criminals who sought to receive payments by credit and debit card in furtherance of their unlawful schemes.  Through these payment processors, Shalon, Orenstein and their co-conspirators knowingly processed credit and debit card payments for, at a minimum, unlawful pharmaceutical distributors, purveyors of counterfeit and malicious purported “anti-virus” computer software, their own unlawful internet casinos and Coin.mx, an illegal U.S.-based Bitcoin exchange owned by Shalon.  In doing so, Shalon, Orenstein, and their co-conspirators knowingly processed hundreds of millions of dollars in transactions for criminal schemes, for which they earned a percentage of every transaction.  

Beginning in or about 2012, Shalon and his co-conspirators hacked into the computer networks of Victim-12, a U.S. company which assessed merchant risk and compliance for credit card issuers and others, including by detecting merchants that accepted credit card payments for unlawful goods or services.  Thereafter, on an ongoing basis, Shalon and his co-conspirators monitored Victim-12’s detection efforts, including by reading emails of Victim-12 employees, so they could take steps to evade detection by Victim-12 of their unlawful payment processing scheme. 

The Unlawful Bitcoin Exchange

From in or about 2013 to in or about July 2015, Shalon knowingly owned Coin.mx, which was operated by Murgio in the United States at Shalon’s direction in violation of federal anti-money laundering (AML) registration and reporting laws and regulations.  Through Coin.mx, Shalon, Murgio and their co-conspirators enabled their customers to exchange cash for Bitcoins, charging a fee for their service.  In total, between approximately October 2013 and July 2015, Coin.mx exchanged millions of dollars for Bitcoins on behalf of its customers.

*                *                *

Shalon, 31, of Savyon, Israel; Aaron, 31, a U.S. citizen who resides in Moscow; and Tel Aviv; and Orenstein, 40, of Bat Hefer, Israel, are charged with the following offenses, which carry the maximum prison terms listed below:

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

20 years

Five

Shalon, Aaron and Orenstein

Conspiracy to Commit Wire Fraud: Securities Market Manipulation Scheme

20 years

Six to 12

Shalon, Aaron and Orenstein

Securities Fraud

20 years

13

Shalon, Aaron and Orenstein

Wire Fraud

20 years

14

Shalon, Aaron and Orenstein

Identification Document Fraud Conspiracy

20 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

five years

22

Shalon, Aaron and Orenstein

Money Laundering Conspiracy: Securities Market Manipulation Scheme

20 years

23

Shalon, Aaron and Orenstein

Money Laundering Conspiracy: Internet Gambling and Payment Processing Schemes

20 years

For his alleged conduct, Murgio, 31, of Tampa, Florida, is charged with the following offenses: conspiracy to operate an unlicensed money transmitting business, which carries a maximum prison term of five years; operation of an unlicensed money transmitting business, which carries a maximum prison term of five years; conspiracy to make corrupt payments with intent to influence an officer of a financial institution, which carries a maximum prison term of five years; making corrupt payments with intent to influence an officer of a financial institution, which carries a maximum prison term of 30 years; conspiracy to commit wire fraud, which carries a maximum prison term of 20 years; wire fraud, which carries a maximum prison term of 20 years; and money laundering, which carries a maximum prison term of 20 years.

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.

U.S. Attorney Bharara praised the investigative work of the FBI and the USSS, 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, Cyber Unit - Lahav 433, for their support and assistance with the investigation and the ongoing extradition proceedings.  He also thanked the U.S. Securities and Exchange Commission, U.S. Immigration and Customs Enforcement-Homeland Security Investigations, the Financial Industry Regulatory Authority, the National Credit Union Administration, the Justice Department’s Office of International Affairs and the Financial Services Information Sharing and Analysis Center, which significantly aided the investigation by facilitating information-sharing among the victim institutions.

The prosecution of this case is being overseen by the U.S. Attorney’s Office of the Southern District of New York’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys Nicole Friedlander, Eun Young Choi and Sarah Lai of the Southern District of New York are in charge of the prosecution.  Assistant U.S. Attorney Edward Diskant of the Southern District of New York’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.

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

Loretta E. Lynch, the Attorney General of the United States, 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 Robert J. Sica, Special Agent in Charge of the US Secret Service New York Field Office (“USSS”) announced today the unsealing of a superseding indictment charging 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,” with orchestrating 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 (the “U.S. Financial Sector Hacks”).  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 ZIV ORENSTEIN, a/k/a “Aviv Stein,” a/k/a “John Avery” in the United States.  As alleged, SHALON also orchestrated computer network hacks and cyberattacks in furtherance of other major criminal schemes, including unlawful internet casinos and illicit payment processors which SHALON operated with ORENSTEIN.  SHALON also owned and controlled an illegal U.S.-based Bitcoin exchange known as Coin.mx.  SHALON and ORENSTEIN were arrested in July 2015 by the Israel Police on an indictment that charged the underlying securities fraud, and they remain in custody in Israel pending extradition on those charges.  The United States Attorney’s Office will seek their extradition to stand trial in the United States on the additional charges announced today.  AARON remains at large.  Also announced today is the unsealing of a separate indictment charging ANTHONY R. MURGIO with operating Coin.mx in the United States, and related crimes.  MURGIO, who was arrested on a Complaint in July 2015, will be arraigned before the Honorable Alison J. Nathan.

Attorney General Loretta E. Lynch said: “As set forth in the indictment, these three defendants perpetrated one of the largest thefts of financial-related data in history – making off with the sensitive information of literally thousands of hard-working Americans.  These charges were made possible in large part because those victims came forward and worked with the Department of Justice to hold the perpetrators accountable.  In an age when enormous quantities of vital information are stored in digital format on potentially vulnerable Internet-connected devices, public-private partnerships and information-sharing are more critical than ever.  The Department of Justice is committed to protecting the financial data of all our citizens and the financial integrity of our institutions.  I’d like to thank the prosecutors and law enforcement professionals who worked tirelessly on this case, and the victims who offered their full cooperation with law enforcement to make these criminal charges possible.”

Manhattan U.S. Attorney Preet Bharara said: “Today, we have exposed a cybercriminal enterprise that for years successfully and secretly hacked into the networks of a dozen companies, allegedly stealing personal information of over 100 million people, including over 80 million customers from one financial institution alone.  The charged crimes showcase a brave new world of hacking for profit.  It is no longer hacking merely for a quick payout, but hacking to support a diversified criminal conglomerate.  This was hacking as a business model.  The alleged conduct also signals the next frontier in securities fraud – sophisticated hacking to steal nonpublic information, something the defendants discussed for the next stage of their sprawling enterprise.  Fueled by their hacking, the defendants’ criminal schemes allegedly generated hundreds of millions of dollars in illicit proceeds.  Even the most sophisticated companies – like those victimized by the hacks in this case – have to appreciate the limits of their ability to uncover the full scope of any cyber-intrusion and to stop the perpetrators before they strike again.  If they have been hacked, most likely others have been as well, and even more will be.  The best bet to identify, stop and punish cybercriminals is to work closely, and early, with law enforcement.  That happened here, and today’s charges are proof of that.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “Shalon, Aaron, and their co-conspirators allegedly robbed victim companies, often for months at a time, stealing the contact information of tens of millions of customers. They cloaked themselves in secrecy, but their methods rivaled those of the traditional masked robber.  Today’s indictment sheds light on an increasingly complex threat. But just as criminals continue to develop relationships with one another in order to advance their objectives, the law enforcement community has developed a collaborative approach to fighting these types of crimes.”

USSS Special Agent in Charge Robert J. Sica said:  “This investigation is indicative of the sophistication and complexity of cybercrime and the transnational criminal organizations that are responsible for it.  Transnational cybercriminal organizations operate with impunity regardless of national borders as these criminal organizations seek to profit from information stolen through the unauthorized access to victims’ networks.  Through the U.S. Secret Service global network of Electronic Crimes Task Forces, our field offices located overseas, and the close cooperation of our foreign law enforcement partners, no cybercriminal is beyond our reach.  We will remain relentless in pursuing these criminals wherever they may reside.”

According to the allegations contained in the superseding indictment[1]:

From approximately 2012 to mid-2015, SHALON, working with AARON and others, orchestrated the U.S. Financial Sector Hacks, stealing personal information of over 100 million customers of the victim companies.  Among these, their network intrusion at one bank (“Victim-1”) resulted in the theft of personal information of over 80 million Victim-1 customers, making it the largest theft of customer data from a U.S. financial institution in history.  SHALON, AARON, and their co-conspirators engaged in these crimes in furtherance of other criminal schemes.  In particular, in an effort to artificially manipulate the price of certain stocks publicly traded in the United States, SHALON and his co-conspirators sought to market the stocks, in a deceptive and misleading manner, to customers of the victim companies whose contact information they had stolen in the intrusions.

In addition to directing the U.S. Financial Sector Hacks, SHALON directed computer network hacks and cyberattacks against numerous companies outside of the financial sector.  SHALON and his co-conspirators engaged in these crimes in furtherance of large-scale criminal businesses that SHALON and ORENSTEIN operated in the United States and other countries.  In particular, between approximately 2007 and July 2015, SHALON owned and operated unlawful internet gambling businesses in the United States and abroad; owned and operated multinational payment processors for illegal pharmaceutical suppliers, counterfeit and malicious software (“malware”) distributors, and unlawful internet casinos; and owned and controlled Coin.mx, an illegal United States-based Bitcoin exchange that operated in violation of federal anti-money laundering laws.  Nearly all of these schemes, like SHALON’s securities market manipulation schemes, relied for their success on computer hacking and other cybercrimes committed by SHALON and his co-conspirators.

Through their criminal schemes, between in or about 2007 and in or about July 2015, SHALON and his co-conspirators earned hundreds of millions of dollars in illicit proceeds, of which SHALON concealed at least $100 million in Swiss and other bank accounts.

SHALON, AARON, ORENSTEIN, and their co-conspirators operated their criminal schemes, and laundered their criminal proceeds, through at least 75 shell companies and bank and brokerage accounts around the world.  The defendants controlled these companies and accounts using aliases, and by fraudulently using approximately 200 purported identification documents, including over 30 false passports that purported to be issued by the United States and at least 16 other countries.

The U.S. Financial Sector Hacks

Between approximately 2012 and August 2014, SHALON and a co-conspirator (“CC-1”), working at times with AARON, executed the hacks of the computer networks of Victims 1-9.  Among other things, in foreign-language electronic communications, during these hacks, SHALON bragged about the size and scope of his securities market manipulation schemes, and described to CC-1 his use of the stolen data in furtherance of those schemes.  SHALON and CC-1 also discussed expanding their network intrusions to encompass thefts of material non-public information from the financial institutions and other firms they were hacking.

The Securities Market Manipulation Schemes

Since 2011, SHALON, AARON, ORENSTEIN, and their co-conspirators orchestrated multimillion-dollar stock manipulation – or “pump and dump” – schemes to manipulate the price and trading volume of dozens of publicly traded microcap stocks (“penny stocks”) in order to enable members of the conspiracy to sell their holdings in those stocks at artificially inflated prices.  In some instances, SHALON and AARON caused the companies to become publicly traded in furtherance of the scheme.  To do so, SHALON caused privately held companies to engage in “reverse mergers” with publicly traded shell corporations SHALON controlled.  ORENSTEIN managed bank and brokerage accounts used in furtherance of the schemes under aliases that ORENSTEIN supported with false passports and other false personal identification information.

To artificially manipulate the trading volume and prices of dozens of stocks, among other things, at pre-arranged times, SHALON and AARON disseminated materially misleading, unsolicited messages by various means – including by email (“spam”) to up to millions of recipients per day – that falsely touted the stock in order to trick others into buying it.  SHALON and AARON engaged in the U.S. Financial Sector Hacks in part to acquire email and mailing addresses, phone numbers, and other contact information for potential victims to whom they could send such deceptive communications.  SHALON and his co-conspirators generated tens of millions of dollars in unlawful proceeds from the securities market manipulation schemes.

The Unlawful Internet Gambling Schemes, Hacks and Cyberattacks

From at least in or about 2007 up to and including in or about July 2015, SHALON, ORENSTEIN and their co-conspirators operated unlawful internet casinos in the United States and elsewhere through hundreds of employees in multiple countries.  In the United States, the defendants knowingly operated at least 12 unlawful internet casinos (the “Casino Companies”) which, through their websites, offered real-money casino gambling in violation of federal law and the laws of numerous states, including New York State.  Through the Casino Companies, SHALON, ORENSTEIN, and their co-conspirators generated hundreds of millions of dollars in unlawful income.

In furtherance of his unlawful internet gambling schemes, SHALON and his co-conspirators engaged in massive hacks and cyberattacks against other internet gambling businesses to steal customer information, secretly review executives’ emails, and cripple rival businesses.  For example, SHALON orchestrated network intrusions of Victims-10 and -11, companies that provided operating software to SHALON’s internet casinos.  In doing so, SHALON sought to, and did, secretly obtain access to the email accounts of senior executives at both companies to ensure that the companies’ work with SHALON’s competitors did not compromise the success of SHALON’s unlawful internet gambling businesses.

The Illicit Payment Processing Scheme and Hack

From at least in or about 2011 until in or about July 2015, SHALON, ORENSTEIN, and their co-conspirators operated IDPay and Todur, multinational payment processors for criminals who sought to receive payments by credit and debit card in furtherance of their unlawful schemes.  Through these payment processors, SHALON, ORENSTEIN, and their co-conspirators knowingly processed credit and debit card payments for, at a minimum, unlawful pharmaceutical distributors, purveyors of counterfeit and malicious purported “anti-virus” computer software, their own unlawful internet casinos, and Coin.mx, an illegal United States-based Bitcoin exchange owned by SHALON.  In doing so, SHALON, ORENSTEIN, and their co-conspirators knowingly processed hundreds of millions of dollars in transactions for criminal schemes, for which they earned a percentage of every transaction.

Beginning in or about 2012, SHALON and his co-conspirators hacked into the computer networks of Victim-12, a U.S. company which assessed merchant risk and compliance for credit card issuers and others, including by detecting merchants that accepted credit card payments for unlawful goods or services.  Thereafter, on an ongoing basis, SHALON and his co-conspirators monitored Victim-12’s detection efforts, including by reading emails of Victim-12 employees, so they could take steps to evade detection by Victim-12 of their unlawful payment processing scheme.

The Unlawful Bitcoin Exchange

From in or about 2013 to in or about July 2015, SHALON knowingly owned Coin.mx, a Bitcoin exchange service, which was operated by MURGIO in the United States at SHALON’s direction in violation of federal anti-money laundering (“AML”) registration and reporting laws and regulations.  Through Coin.mx, SHALON, MURGIO, and their co-conspirators enabled their customers to exchange cash for Bitcoins, charging a fee for their service.  In total, between approximately October 2013 and July 2015, Coin.mx exchanged millions of dollars for Bitcoins on behalf of its customers.

*                *                *

SHALON, 31, of Savyon, Israel, AARON, 31, a U.S. citizen who resides in Moscow, Russia, and Tel Aviv, Israel, and ORENSTEIN, 40, of Bat Hefer, Israel, are charged with the following offenses, which carry the maximum prison terms listed below:

Count

Defendants

Charge

Maximum Prison Term

One

SHALON and AARON

Conspiracy to Commit Computer Hacking

5 years

Two

SHALON and AARON

Computer Hacking

5 years

Three

SHALON and AARON

Computer Hacking

5 years

Four

SHALON, AARON, and  ORENSTEIN

Conspiracy to Commit Securities Fraud

20 years

Five

SHALON, AARON, and  ORENSTEIN

Conspiracy to Commit Wire Fraud: Securities Market Manipulation Scheme

20 years

Six to Twelve

SHALON, AARON, and  ORENSTEIN

Securities Fraud

20 years

Thirteen

SHALON, AARON, and  ORENSTEIN

Wire Fraud

20 years

Fourteen

SHALON, AARON, and  ORENSTEIN

Identification Document Fraud Conspiracy

20 years

Fifteen

SHALON, AARON, and  ORENSTEIN

Aggravated Identity Theft

Mandatory 2 years

Sixteen

SHALON and  ORENSTEIN

Unlawful Internet Gambling Enforcement Act Conspiracy

5 years

Seventeen

SHALON and  ORENSTEIN

Unlawful Internet Gambling Enforcement Act

5 years

Eighteen

SHALON and  ORENSTEIN

Operation of Illegal Gambling Business

5 years

Nineteen

SHALON and  ORENSTEIN

Conspiracy to Commit Wire Fraud: Unlawful Payment Processing

20 years

Twenty

SHALON

Conspiracy to Operate an Unlicensed Money Transmitting Business

5 years

Twenty One

SHALON

Operation of an Unlicensed Money Transmitting Business

5 years

Twenty Two

SHALON, AARON, and  ORENSTEIN

Money Laundering Conspiracy: Securities Market Manipulation Scheme

20 years

Twenty-Three

SHALON, AARON, and  ORENSTEIN

Money Laundering Conspiracy: Internet Gambling and Payment Processing Schemes

20 years

For his alleged conduct, MURGIO, 31, of Tampa, Florida, is charged with the following offenses: (1) conspiracy to operate an unlicensed money transmitting business, which carries a maximum prison term of 5 years; (2) operation of an unlicensed money transmitting business, which carries a maximum prison term of 5 years; (3) conspiracy to make corrupt payments with intent to influence an officer of a financial institution, which carries a maximum prison term of 5 years; (4) making corrupt payments with intent to influence an officer of a financial institution, which carries a maximum prison term of 30 years; (5) conspiracy to commit wire fraud, which carries a maximum prison term of 20 years; (6) wire fraud, which carries a maximum prison term of 20 years; and (7) money laundering, which carries a maximum prison term of 20 years.

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

Mr. Bharara praised the investigative work of the FBI and 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, Cyber Unit - Lahav 433, for their support and assistance with the investigation and the ongoing extradition proceedings.  He also thanked the SEC, Immigration and Customs Enforcement - Homeland Security Investigations, the Financial Industry Regulatory Authority, the National Credit Union Administration, the Office of International Affairs of the U.S. Department of Justice, and the Financial Services Information Sharing and Analysis Center, which significantly aided the investigation by facilitating information-sharing among the victim institutions.

The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit.Assistant U.S. Attorneys Nicole Friedlander, 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.

[1] As the introductory phrase signifies, the entirety of the text of the superseding 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, Shantelle P. Kitchen, Special Agent in Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation Division (“IRS-CI”), announced today the unsealing of a criminal complaint charging three defendants with participating in a large-scale tax refund scheme that used stolen identities to file fraudulent returns to obtain fraudulent tax refund checks.  TRISTON PHILLIP, GREGORY MERCADO, a/k/a “George Merchant,” and JOSUE TORRES are charged in a tax fraud scheme involving millions of dollars in claimed fraudulent returns.  PHILLIP, MERCADO, and TORRES were charged in a complaint unsealed today.  MERCADO was arrested in Rhode Island, where he appeared in federal court, and PHILLIP and TORRES were arrested in the Bronx and will appear in Manhattan federal court today.

            According to the Complaint[1]:

            From at least in or about 2011 up to and including in or about November 2015, PHILLIP, MERCADO, and TORRES conspired and engaged in a scheme to steal the names, dates of birth, and social security numbers of individuals, which the defendants then used to file fraudulent income tax returns that claimed tax refunds to which the defendants were not entitled.

            PHILLIP, 31, MERCADO, 28, and TORRES, 36, are each charged with one count of conspiracy to steal government funds, which carries a maximum sentence of five years in prison, theft of government funds, which carries a maximum sentence of 10 years in prison, and one count of aggravated identity theft in connection with the tax fraud scheme, which carries a mandatory sentence of two years in prison, to be served consecutively to any other sentence imposed.  In addition, TORRES is also charged with one count of theft and receipt of stolen mail, which carries a maximum sentence of five years in prison.  The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants would be determined by the Court.

            Mr. Bharara praised the outstanding investigative work of IRS-CI and thanked the United States Postal Inspection Service for their assistance.

            This case is being handled by the Office’s General Crimes Unit.  Assistant U.S. Attorney Alex Rossmiller is in charge of the prosecutions.

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

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced that CHARLES J. MOORE, former Chief Executive Officer of broker-dealer Crucible Capital, Inc. (“Crucible”), pled guilty today before United States District Judge Colleen McMahon to obstructing a regulatory examination.  MOORE was arrested on August 8, 2014, based on a criminal Complaint alleging, among other things, that he caused a Crucible employee to give falsified invoices to Securities and Exchange Commission (“SEC”) personnel who were conducting a regulatory examination of Crucible.  MOORE is scheduled to be sentenced by Judge McMahon on February 18, 2016.

Manhattan U.S. Attorney Preet Bharara said: “Charles Moore, the CEO of a broker-dealer, admitted today that he obstructed the SEC’s examination of his company, concealing the truth about his firm’s finances.  Moore’s deceit, which included providing falsified documents to the SEC, has criminal consequences, and he now awaits sentencing for his acknowledged wrongdoing.”

According to the agreement pursuant to which MOORE entered his plea of guilty today, the underlying criminal Complaint filed August 7, 2014, the Indictment filed on September 30, 2014, and statements made during court proceedings:

MOORE was at all relevant times the Chief Executive Officer of Crucible, an SEC-registered broker-dealer that maintained no customer securities trading accounts, but held itself out as a “boutique” investment bank helping small businesses to raise capital and financing.  Crucible used its status as an SEC-registered broker-dealer to solicit business.

MOORE was also at all relevant times the CEO of an affiliated company, Angelic Holdings LLC (“Angelic”), which was not registered with the SEC and conducted “due diligence” for Crucible-related business.  Crucible and Angelic shared employees and office space.  They also shared expenses, under an agreement that had Crucible paying Angelic a monthly fee and Angelic paying vendors of certain specified services on behalf of both Angelic and Crucible.

As an SEC-registered broker-dealer that maintained no customer accounts, Crucible was required to maintain net capital of at least $5,000 at all times.  It was also required to file monthly “FOCUS” reports with the SEC reporting its net capital.

In the fall of 2013, the SEC opened a regulatory examination of Crucible to explore, among other things, the accuracy of the net capital figures that Crucible had supplied in its FOCUS reports from in or about February 2013 through in or about September 2013.  As part of that examination, the SEC requested all 2013 invoices to Angelic for Crucible-related expenses.

MOORE, responding to this request, caused a Crucible employee to create falsified invoices to deliver to the SEC.  Specifically, he directed the employee to take original invoices that had been sent to Crucible personnel, and create versions of those invoices that omitted references to large, unpaid debts appearing on the originals.  MOORE then caused the employee to hand the falsified invoices to the SEC.  The purpose of this obstruction was to hide the true extent of Crucible’s debts from the regulatory examination team, and thus make it appear, falsely, that Crucible’s net capital figures, as reported in its 2013 FOCUS reports, were accurate.

*                      *                      *

MOORE, 63, pled guilty to Count One of a three-count Indictment.  Count One charges obstruction of a regulatory examination and carries a maximum sentence of 20 years in prison.  The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the investigative work of the U.S. Postal Inspection Service and the Federal Bureau of Investigation and thanked the SEC, which has filed civil charges in a separate action.

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 Sarah Eddy McCallum and Andrew B. Bauer 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 the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Charles Gardner, the Commissioner of the Yonkers Police Department, announced that, yesterday afternoon, CLYDEDORO GRAHAM was found guilty of kidnapping a 19-year-old victim (the “Victim”), conspiring to engage in sex trafficking of the Victim, and attempting to engage in sex trafficking of the Victim.  CLYDEDORO GRAHAM was convicted after a seven-day jury trial before United States District Judge Nelson S. Román.

            U.S. Attorney Preet Bharara stated:  “Clydedoro Graham preyed on a young, vulnerable victim.  Together with his accomplices, he lured a 19-year-old to his apartment, kidnapped her, and tried to force her to work as a prostitute for him.  This young woman endured a nightmare at the hands of the defendant.  But thanks to the outstanding work of the FBI and the Yonkers Police Department, he did not get away with it and a unanimous jury has found him guilty of all charges.”                        

            FBI Assistant Director-in-Charge Diego Rodriguez stated:  “Graham lay in wait as his co-conspirators set a trap for their victim. Unbeknownst to her, the harrowing situation would play out for days before help arrived to save her from her captors’ plans. Although there are many who become entangled in a life of prostitution, this should not serve as an excuse for others to violate them and force them into sex trafficking schemes. Today’s conviction is proof of the FBI’s efforts to stop this type of illegal activity.”

            Yonkers Police Commissioner Charles Gardner stated:  “I want to thank the U.S. Attorney for the Southern District of New York and the FBI for their efforts in this investigation and successful prosecution of this suspect.  This case was initiated by our Patrol Officers who remained vigilant in searching for a missing person, who turned out to be the victim in this heinous crime.  The verdict should be a warning to all who chose to engage in sex trafficking here in Yonkers and abroad that a substantial sentence in federal prison may be the result of your actions.”   

            According to the allegations in the Complaint and Superseding Indictment filed in federal court, and the evidence presented at trial:

            On the evening of June 16, 2014, CLYDEDORO GRAHAM was at his apartment in Yonkers, New York (the “Apartment”), with his girlfriend and accomplice, Alisa Papp.  His cousin, Kevin Graham, and his friend, Hector Garcia, were also present.  As Papp, Kevin Graham, and Garcia knew, CLYDEDORO GRAHAM was a “pimp.”  That night, the four co-conspirators agreed to lure a prostitute to the Apartment for the purpose of forcing her to work for them.

            CLYDEDORO GRAHAM was the leader of this scheme.  Using his cellphone, he went to Backpage.com, a website where prostitutes post advertisements.  He trolled through the advertisements searching for a target, and eventually decided on the Victim.  Kevin Graham called the Victim and led her to believe, falsely, that he wanted to hire her for a prostitution “date.”

            When the Victim arrived, the co-conspirators were lying in wait.  Papp served as the lookout, making sure the Victim did not arrive with anyone else.  Kevin Graham met her outside and led her into the Apartment, while CLYDEDORO GRAHAM and Garcia hid inside.  Once inside the Apartment – and at the direction of CLYDEDORO GRAHAM – the co-conspirators took away the Victim’s purse and phone, removed the battery from her phone, and told her that she was there to work as a prostitute for them.  The Victim asked repeatedly to leave, but CLYDEDORO GRAHAM and his accomplices refused.

            The co-conspirators told the Victim that she had no choice but to have sex with each of the men.  She refused and asked again to go home.  CLYDEDORO GRAHAM said she could give it up or they would “take it.”  CLYDEDORO GRAHAM, Kevin Graham, and Hector Garcia took turns having sex with the Victim, against her will.

            Later that night, Kevin Graham and Garcia left the Apartment.  For the next two days and two nights, CLYDEDORO GRAHAM and Papp held the Victim captive in the Apartment.  Among other coercive measures, CLYDEDORO GRAHAM removed the doorknob from the interior side of the Apartment’s front door to prevent the Victim from escaping.  He then made plans to bring the Victim out onto the streets of Yonkers to prostitute her for his own benefit.

            CLYDEDORO GRAHAM’s scheme unraveled on June 18, 2014, when two Yonkers police officers arrived at the Apartment after receiving a tip from individuals who had been searching for the Victim.  The officers demanded to speak with the Victim, immediately determined that she was being held against her will, and brought her to safety.

*                      *                      *

            On or about December 4, 2014, CLYDEDORO GRAHAM, Alisa Papp, Kevin Graham, and Hector Garcia were charged in a three-count Superseding Indictment with sex trafficking and kidnapping offenses.  Papp, Kevin Graham, and Garcia entered pleas of guilty before trial and are awaiting sentencing.

            CLYDEDORO GRAHAM proceeded to trial on October 27, 2015.  Yesterday, the jury found him guilty of all charges: one count of conspiracy to engage in sex trafficking, which carries a maximum sentence of life in prison; one count of attempted sex trafficking, which carries a maximum sentence of life in prison and a mandatory minimum sentence of 15 years in prison; and one count of kidnapping, which carries a maximum sentence of life in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.

            CLYDEDORO GRAHAM is scheduled to be sentenced by Judge Román on April 15, 2016.

            Mr. Bharara praised the outstanding investigative work of the FBI’s Westchester Violent Crimes Task Force, which comprises agents and detectives of the FBI, Homeland Security Investigations, the City of Yonkers Police Department, the Westchester County Police, and the Westchester County District Attorney’s Office.  He also thanked the Westchester County District Attorney’s Office.

            The prosecution is being handled by the Office’s White Plains Division.  Assistant U.S. Attorneys Kathryn Martin, Douglas Zolkind, and Daniel Filor are in charge of the prosecution.         

            Preet Bharara, the United States Attorney for the Southern District of New York, Douglas Shoemaker, regional Special Agent-in-Charge of the United States Department of Transportation Office of Inspector General (“DOT-OIG”), and Michael Nestor, Inspector General of The Port Authority of New York and New Jersey, announced that the United States filed on Tuesday, and simultaneously settled, a civil fraud lawsuit against a contractor, YONKERS CONTRACTING INC. (“YONKERS CONTRACTING”), for engaging in fraudulent conduct designed to exploit the Disadvantaged Business Enterprise Program in order to secure a contract on the federally-funded project for highway rehabilitation and bridge refurbishment along I-287, the Cross-Westchester Expressway (the “I-287 Project”).   Specifically, as alleged in the complaint, YONKERS CONTRACTING falsely certified to the New York State Department Of Transportation (“NYS DOT”) that work being done by a disadvantaged business enterprise (“DBE”) qualified for DBE credit when YONKERS CONTRACTING knew that this was not the case and that YONKERS CONTRACTING instead paid kickbacks to the DBE for the fraudulent use of its DBE status.  In the settlement, approved in White Plains federal court by U.S. District Judge Nelson S. Román, YONKERS CONTRACTING admitted and accepted responsibility for violating the DBE regulations governing the I-287 Project and agreed to pay the Government $2,600,000.

            YONKERS CONTRACTING also entered into a non-prosecution agreement with the United States Attorney’s Office.  Pursuant to the agreement, YONKERS CONTRACTING agreed, among other things, that it has instituted and will continue to maintain internal corporate remediation measures regarding Disadvantaged, Minority-Owned, and Women-Owned Business Enterprises (“D/M/WBEs”) for a period of two years, including: (1) creation and maintenance of a D/M/WBE Policy Manual and updated Code of Business Ethics for distribution to all employees; (2) implementation of an internal D/M/WBE training program for its employees; (3) creation and maintenance of a position focused on D/M/WBE issues; and (4) development and implementation of a checklist for D/M/WBE compliance to be used on all projects.  Pursuant to the agreement, the United States Attorney’s Office agreed not to prosecute YONKERS CONTRACTING criminally in connection with credits claimed by it toward the DBE goal on a construction project on the Cross-Westchester Expressway for work purportedly done by two certified DBEs from in or about 2006 through in or about 2010.

            Manhattan U.S. Attorney Preet Bharara said: “The DBE regulations at issue serve the important purpose of increasing legitimate participation by minority-owned and disadvantaged businesses.  Instead of complying with the DBE regulations, Yonkers Contracting found fraudulent ways to get around them.”

            DOT-OIG regional Special Agent-in-Charge Douglas Shoemaker said: “Disadvantaged Business Enterprise fraud like that committed by YONKERS CONTRACTING harms the integrity of the DBE program and law-abiding contractors, including many small businesses, by defeating efforts to ensure a level playing field in which all firms can compete fairly for contracts.  Our agents will continue to work with the Secretary of Transportation, the Administrator of Federal Highways, and other Federal, State, and local law enforcement and prosecutorial colleagues to expose and shut down DBE fraud schemes that adversely affect public trust and DOT-assisted highway programs throughout New York and elsewhere.”

            Port Authority Inspector General Michael Nestor said: “This investigation has demonstrated how individuals in the construction industry have manipulated and circumvented the intent of the DBE Program by utilizing firms as fronts to satisfy Program goals. This conduct deprived legitimate DBE’s from receiving their fair share of government contracts. This investigation should serve notice to all in the industry to adhere to the Program’s intent or face legal consequences. The Port Authority’s Office of Inspector General and its law enforcement partners will aggressively identify, investigate and bring to justice those who corrupt the integrity of the construction industry.”

BACKGROUND ON DBEs

            In 1980, the United States Department of Transportation (“USDOT”) issued regulations in connection with a program to increase the participation of minority and disadvantaged business enterprises in federally funded public construction contracts.  To become certified as a DBE, a company must, among other things, be owned and controlled by socially and economically disadvantaged individuals; be an independent business whose viability does not depend on its relationship with other firms; employ its own work force and own equipment necessary to perform its work; and be able to meet its financial obligations.

            General contractors can count funds paid to DBEs toward the attainment of the DBE goals only if the DBEs performed a “commercially useful function.”  A DBE subcontractor performs a commercially useful function only when it is responsible for the execution of the work of the contract; actually performs, manages, and supervises the work involved; and furnishes the supervision, labor, and equipment necessary to perform its work.

            A DBE does not perform a “commercially useful function” if “its role is limited to that of an extra participant in a transaction, contract, or project through which funds are passed in order to obtain the appearance of DBE participation.”

YONKERS’S FRAUD

            As set forth/described in the complaint:

            Yonkers was part of a joint venture that obtained a contract from NYS DOT for the I-287 Project.  This contract required adherence to DBE regulations, and as part of its bid, the joint venture submitted a DBE Utilization Packet to NYS DOT.  NYS DOT agreed to a DBE participation commitment from the joint venture of 8.03%, of which over 31% was based on the purported work to be provided by a DBE called Global Marine Supply Co. (“Global Marine”).  While YONKERS CONTRACTING claimed that Global Marine was going to serve as a steel supplier, YONKERS CONTRACTING in fact negotiated directly with a third-party steel supplier, which was not a DBE, to supply steel for the I-287 Project.  YONKERS CONTRACTING hired Global Marine solely for its DBE status, in exchange for a 1% mark-up.  The third-party steel supplier provided invoices to Global Marine, which recopied them, added the 1% mark-up, and submitted them to the joint venture.  Global Marine never stored or shipped any steel, and thus, as YONKERS CONTRACTING knew, performed no commercially useful function on the project.  Yet the joint venture regularly made entries into NYS DOT’s electronic-tracking system reflecting steel purchases purportedly made through Global Marine, and these records were used by NYS DOT to determine Global Marine’s contribution and whether the joint venture was meeting its DBE goal.  As a result of the false reports submitted, YONKERS CONTRACTING obtained federal money to which it was not entitled.

            Pursuant to the settlement agreement, YONKERS CONTRACTING admitted, acknowledged, and accepted responsibility for making and causing false statements to be made in violation of applicable regulations designed to encourage the participation of disadvantaged business enterprises in federally funded construction projects.  Under the agreement, YONKERS CONTRACTING must also pay the United States $2,600,000.               

            Mr. Bharara praised the USDOT Office of Inspector General and the Office of the Inspector General for the Port Authority of New York and New Jersey for their invaluable work on this case, and thanked the Office of the Inspector General of the Metropolitan Transportation Authority and NYS DOT’s Investigations Bureau for their assistance with this investigation. 

            Assistant United States Attorney Benjamin Allee of the Office’s White Plains Division is in charge of the criminal case.  Assistant United States Attorneys Ellen London and Mara Trager of the Office’s Civil Frauds Unit are in charge of the civil case.

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

            U.S. Attorney Preet Bharara said:  “Michael Danilovich has been convicted by a unanimous jury of committing several frauds.  As the jury found, he took a lead role in scamming insurance companies of over $100 million in fraudulent medical treatments and in engaging in other investment scams that swindled investors out of another $18 million.  Today's verdict ensures that Danilovich will be punished for the wide-ranging frauds he perpetrated.”

            According to the Superseding Indictment and evidence admitted at trial:

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

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

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

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

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

*          *          *

            DANILOVICH was convicted of one count of conspiracy to commit racketeering, which carries a maximum sentence of 20 years in prison.  In addition, DANILOVICH was convicted of conspiracies to commit securities fraud, health care fraud, mail fraud, wire fraud, and money laundering, as well as substantive counts of securities fraud, health care fraud, mail fraud, wire fraud, and money laundering, which, in total, carry a maximum sentence of 260 years in prison.  In total, DANILOVICH faces a maximum sentence of 280 years in prison.  DANILOVICH is scheduled to be sentenced on March 8, 2016, at 11:00 a.m., before Judge Batts.  The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

            DANILOVICH, 41, of Brooklyn, New York, is the thirty-sixth defendant convicted in this case.  DANILOVICH was remanded pending sentencing following his conviction.

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

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

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

            Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the guilty plea of ROHIT BANSAL, who was formerly employed as an associate at an investment bank headquartered in New York, New York (the “Investment Bank”), to the theft of confidential information from the Federal Reserve Bank of New York (“FRBNY”).  Between July and September of 2014, at the direction of BANSAL, another individual, Jason Gross, without authorization, took confidential information from the FRBNY, which related to the FRBNY’s supervision of banks, and which Gross obtained during the course of his employment with the FRBNY, and sent that information to BANSAL.  BANSAL then used the confidential information in an effort to further his employment at the Investment Bank.  BANSAL entered his guilty plea today before U.S. Magistrate Judge Gabriel W. Gorenstein.  Gross, who was charged with the same offense as BANSAL, pled guilty yesterday before Judge Gorenstein.

            According to the Information filed today in Manhattan federal court:

            The Federal Reserve System (“Federal Reserve”) fulfills several roles in the nation’s economy, including managing the nation’s money supply through monetary policy, supervising and regulating banking institutions, and generally overseeing the stability of the financial system.  The Board of Governors of the Federal Reserve (the “Board”) is the Federal Reserve’s main governing body, and the FRBNY is one of the banks that is part of the Federal Reserve.  Among other things, the FRBNY supervises and conducts examinations of banks that are members of the Federal Reserve and bank holding companies.  Federal regulations protect the disclosure of certain “confidential supervisory information” (“CSI”) related to the Board’s and the FRBNY’s supervision of banks, including reports of examination of banks and information derived from, related to, or contained in, such reports.                

            From in or about August 2007 up to and including in or about March 2014, BANSAL was employed as a supervisory manager at the FRBNY, where he had responsibility for supervising certain banks.  Thereafter, from in or about July 2014 until in or about October 2014, BANSAL was employed as an associate at the Investment Bank, which, among other things, provided advice on regulatory issues to certain client banks, including banks supervised by the FRBNY.  During the relevant time period, Jason Gross was employed by the FRBNY and, prior to April of 2014, BANSAL and Gross had worked together at the FRBNY.  

            From at least in or about July 2014, up to and including in or about September 2014, at the direction of BANSAL, who had left the FRBNY and had begun to work at the Investment Bank, Gross emailed documents containing CSI (the “Confidential Documents”) to BANSAL.  Gross sent the Confidential Documents, which he obtained during and through his employment at the FRBNY, to BANSAL without authorization from the Board or the FRBNY.  Upon receiving the Confidential Documents from Gross, BANSAL utilized certain of the Confidential Documents in an effort to further BANSAL’s employment at the Investment Bank.  In particular, BANSAL disseminated certain of the Confidential Documents to other Investment Bank employees for the purpose of assisting with the Investment Bank’s work for its client banks.

            For example, on or about August 10, 2014, BANSAL sent Gross a text message asking Gross to send to BANSAL particular Confidential Documents regarding two banks (“Bank-1” and “Bank-2”).  BANSAL further asked Gross to send the documents to BANSAL’s personal email account.  Thereafter, on or about August 19, 2014, Gross sent from his personal email account to the personal email account of BANSAL one of the Confidential Documents (“Confidential Document-1”).  Gross knowingly sent Confidential Document-1, which was labeled as confidential, to BANSAL without authorization from the Board or the FRBNY.  Confidential Document-1 related to the supervision of Bank-2, a bank that BANSAL had previously been responsible for supervising when he worked at the FRBNY.  Notwithstanding that BANSAL knew that he was not entitled to receive or disseminate any Confidential Documents, BANSAL sent Confidential Document-1 from his email account at the Investment Bank to the email accounts of other individuals employed by the Investment Bank.  In a cover email attaching Confidential Document-1, BANSAL told these employees that, with respect to certain supervisory issues, Confidential Document-1 “gives you [an] idea of what [the] Board was looking at . . . Please don’t distribute.” 

*                *                *

            BANSAL, 30, of New York, New York, pled guilty to one count of theft of government property the value of which property did not exceed $1,000 and faces a maximum sentence of one year in prison.  The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.  BANSAL is scheduled to be sentenced by Judge Gorenstein on March 9, 2016, at 10:00 a.m.

            Mr. Bharara praised the investigative work of the FBI and thanked the FRBNY and the Board for their support and assistance with the investigation.

            This case is being handled by the Office’s Complex Frauds and Cybercrime Unit.Assistant U.S. Attorneys Drew Johnson-Skinner and Sarah E. Paul are in charge of the prosecution.

            Preet Bharara, the United States Attorney for the Southern District of New York, announced that MICHAEL OPPENHEIM pled guilty today to embezzlement and securities fraud for using his position as an investment adviser at a global financial institution based in New York City (the “Bank”) to defraud multiple Bank clients out of approximately $22 million over the course of a seven-year period.  Among other false and misleading statements, OPPENHEIM lied to his clients by claiming to have invested their money in low-risk municipal bonds and sending them doctored account statements purportedly reflecting those investments and profits earned.  In truth, OPPENHEIM used the clients’ money for his own personal benefit and, in certain circumstances, to pay back other investors.  OPPENHEIM was arrested on April 16, 2015, and pled guilty today before United States District Judge Analisa Torres.

            Manhattan U.S. Attorney Preet Bharara said: “Michael Oppenheim has now admitted he lied to his clients about how he would handle their money and embezzled $22 million in clients’ money to make his own personal investments and to pay his own expenses.”          

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

            From at least March 2008 to March 2015, OPPENHEIM, a former investment adviser at the Bank, a global financial institution based in New York City, abused his relationship of trust with his clients in converting to his own use and personal benefit more than $22 million belonging to ten clients whose investment advisory accounts at the Bank he purported to manage.  OPPENHEIM did not invest these clients’ money in low-risk municipal bonds at the Bank as promised.  Instead, after taking a client’s money, OPPENHEIM, without the client’s knowledge, used the client’s money to obtain cashier’s checks purporting to be remitted by the clients.  OPPENHEIM then deposited the cashier’s checks in at least three online brokerage accounts OPPENHEIM controlled at financial institutions other than the Bank.  OPPENHEIM used clients’ funds for his own personal use, including on-line trading in accounts he controlled, and to pay for personal expenses such as a home loan and bills.

            In an effort to cover up his fraudulent scheme, OPPENHEIM provided some clients with fraudulent Bank account statements. The purported Bank account statements reflected bonds held by other clients of the Bank, but OPPENHEIM caused his clients’ names to appear on the statements in order to give the false impression that OPPENHEIM had purchased bonds on behalf of those clients, as he had promised.  In a further effort to conceal his fraud, on several occasions, and without his clients’ consent or authority, OPPENHEIM withdrew funds from one client and deposited those funds into the account of another client.

          OPPENHEIM continued the fraud until he was terminated by the Bank in March 2015.

*                      *                      *

            OPPENHEIM, 48, of Livingston, New Jersey, pled guilty to one count of embezzlement and one count of securities fraud.  The embezzlement count carries a maximum of 30 years in prison.  The securities fraud count carries a maximum sentence of 20 years in prison.  The charges 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 defendant will be determined by the judge.  According to the terms of the plea agreement, OPPENHEIM has agreed to forfeit $22,432,375, and to pay $27,292,856 in restitution.

            OPPENHEIM is scheduled to be sentenced by Judge Torres on February 15, 2016, at 4:30 p.m.

            In a separate action, the U.S. Securities and Exchange Commission (“SEC”) has pending civil charges against OPPENHEIM.

            Mr. Bharara praised the work of the Federal Bureau of Investigation, and thanked the SEC and the Financial Industry Regulatory Authority (“FINRA”) for their 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 Complex Frauds and Cybercrime Unit and the Securities and Commodities Fraud Task Force.  Assistant U.S. Attorneys Janis Echenberg and Brooke Cucinella are in charge of the prosecution.

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 the guilty plea of JASON GROSS to the theft of confidential information from the Federal Reserve Bank of New York (“FRBNY”).  Between July and September of 2014, without authorization, GROSS took confidential information from the FRBNY, which related to the FRBNY’s supervision of banks, and that GROSS obtained during the course of his employment with the FRBNY, and sent that information to a former supervisor at the FRBNY (“Individual-1”) who was then employed at an investment bank headquartered in New York, New York.  GROSS entered his guilty plea today before U.S. Magistrate Judge Gabriel W. Gorenstein.

According to the Information filed today and other statements made in Manhattan federal court:

The Federal Reserve System (“Federal Reserve”) fulfills several roles in the nation’s economy, including managing the nation’s money supply through monetary policy, supervising and regulating banking institutions, and generally overseeing the stability of the financial system.  The Board of Governors of the Federal Reserve (the “Board”) is the Federal Reserve’s main governing body, and the FRBNY is one of the banks that is part of the Federal Reserve.  Among other things, the FRBNY supervises and conducts examinations of banks that are members of the Federal Reserve and bank holding companies.  Federal regulations protect the disclosure of certain “confidential supervisory information” (“CSI”) related to the Board’s and the FRBNY’s supervision of banks, including reports of examination of banks and information derived from, related to, or contained in such reports.

During the relevant time period, GROSS was employed by the FRBNY.  GROSS’s responsibilities at the FRBNY included assisting with the supervision of certain banks.  Prior to April of 2014, GROSS and Individual-1 had worked together at the FRBNY.  From at least July 2014, up to September 2014, at the direction of Individual-1, who had left the FRBNY and begun to work at an investment bank headquartered in New York, New York (the “Investment Bank”), GROSS emailed documents containing CSI (the “Confidential Documents”) to Individual-1.  GROSS sent the Confidential Documents, which he obtained during and through his employment at the FRBNY, to Individual-1 without authorization from the Board or the FRBNY.  Upon receiving the Confidential Documents from GROSS, Individual-1 utilized certain of the Confidential Documents in an effort to further Individual-1’s employment at the Investment Bank.  In particular, Individual-1 disseminated certain of the Confidential Documents to other Investment Bank employees for the purpose of assisting with the Investment Bank’s work for its client banks.

For example, on August 10, 2014, Individual-1 sent GROSS a text message asking GROSS to send to Individual-1 particular Confidential Documents regarding two banks (“Bank-1” and “Bank-2”).  Individual-1 further asked GROSS to send the documents to Individual-1’s personal email account.  Thereafter, on August 19, 2014, GROSS sent one of the Confidential Documents (“Confidential Document-1”) from his personal email account to the personal email account of Individual-1.  GROSS knowingly sent Confidential Document-1, which was labeled as confidential, to Individual-1 without authorization from the Board or the FRBNY.  Confidential Document-1 related to the supervision of Bank-2, a bank that Individual-1 had previously been responsible for supervising when Individual-1 worked at the FRBNY.  Notwithstanding that Individual-1 knew that Individual-1 was not entitled to receive or disseminate any Confidential Documents, Individual-1 sent Confidential Document-1 from Individual-1’s email account at the Investment Bank to the email accounts of other individuals employed by the Investment Bank.  In a cover email attaching Confidential Document-1, Individual-1 told these employees that, with respect to certain supervisory issues, Confidential Document-1 “gives you [an] idea of what [the] Board was looking at . . . Please don’t distribute.”

*                *                *

GROSS, 37, of Bellmore, New York, pled guilty to one count of theft of government property the value of which property did not exceed $1,000 and faces a maximum sentence of one year in prison.  The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. GROSS is scheduled to be sentenced by U.S. Magistrate Judge Gabrielle W. Gorentstein on March 2, 2016.

Mr. Bharara praised the investigative work of the FBI and thanked the FRBNY and the Board for their support and assistance with the investigation.

This case is being handled by the Office’s Complex Frauds and Cybercrime Unit.Assistant U.S. Attorneys Drew Johnson-Skinner and Sarah E. Paul are in charge of the prosecution.

            Preet Bharara, the United States Attorney for the Southern District of New York, announced that ALLAH JUSTICE MCQUEEN OF Brooklyn, New York, was sentenced today by U.S. District Court Judge Shira A. Scheindlin to 15 months in prison.  MCQUEEN pled guilty on July 6, 2015, to one count of conspiracy to commit wire fraud and one count of wire fraud in connection with his participation in a scheme that targeted and victimized elderly people across New York.                    

            According to the Complaint, Superseding Indictment, and plea proceeding:

            In or about August and September 2013, MCQUEEN and his co-conspirators perpetrated a scheme to defraud elderly victims around the United States by tricking them into believing their grandchildren had been imprisoned and needed immediate bail money.  In particular, in each case, a member of the conspiracy contacted the victim by phone, purported to be a law enforcement official or attorney, and falsely claimed that the victim’s grandchild had been taken into custody for a narcotics offense and would not be released unless the victim paid thousands of dollars, and in some cases tens of thousands of dollars, in purported bail money.  A member of the conspiracy also frequently posed on the call as the victim’s grandchild, typically crying and pleading with the elderly victim to send money to secure the grandchild’s release from jail, and asking the victim not to contact any other family members because the grandchild felt ashamed.  In each case, in extreme distress, the victim sent thousands of dollars, at a minimum, as instructed, to certain individuals who, among other things, provided that money to MCQUEEN at his direction.  In each case, after paying the “bail” money as directed, the victim directly contacted his or her grandchild and thereupon learned that the grandchild had not, in fact, been arrested, that the grandchild knew nothing about the claims made on the call to the victim, and that the call was fraudulent.

            For example, a 79-year-old victim in New York received a phone call in August 2013 from an individual who identified himself as a police sergeant and claimed that the victim’s grandson had been arrested after drugs were discovered in a car in which the grandson was a passenger.  The purported sergeant said the grandson would be released if the victim sent $6,000 in bail money as directed.  The victim, who briefly heard, on the phone, an individual who sounded like the victim’s grandson, wired the money as directed.  The victim subsequently spoke directly with the victim’s grandson, and learned that he had not been arrested, and knew nothing about the purported sergeant or the basis for his request for bail money.  The victim never received any money back from the purported sergeant. 

            In fact, the victim’s money was wired to particular individuals working with and at the direction of MCQUEEN who collected the wired funds on MCQUEEN’s behalf and provided the money to MCQUEEN and his co-conspirators.  As to a portion of the victim’s money, MCQUEEN appeared personally at a particular location in Brooklyn to arrange for the collection of the proceeds.  MCQUEEN subsequently deposited another portion of the money sent by the victim directly into his personal bank account.

*                *                *

            MCQUEEN, 34, of Brooklyn, New York, was convicted of one count of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349 and one count of wire fraud, in violation of 18 U.S.C. § 1343.  In addition to the 15-month prison term, MCQUEEN was sentenced by Judge Scheindlin to three years of supervised release, and ordered to pay restitution to the victims, a $200 special assessment, and forfeiture.

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

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced the unsealing today of an indictment charging MALAMINE OUEDRAOGO, a citizen of Burkina Faso, with wire fraud in connection with a scheme to distribute ineffective malaria nets treated with little or no insecticide instead of the World Health Organization-certified nets treated with the proper quantity of insecticide that OUEDRAOGO had promised to supply to the West African country of Burkina Faso.  The malaria nets in question were to be distributed as part of an anti-malaria campaign by the Global Fund to Fight AIDS, Tuberculosis and Malaria (“Global Fund”), funding for which was provided, in part, by the United States Agency for International Development (“USAID”).  Because the counterfeit malaria nets that OUEDRAOGO obtained without the knowledge or permission of the Global Fund were significantly less expensive than the certified malaria nets OUEDRAOGO had agreed to purchase and supply, OUEDRAOGO defrauded the Global Fund and USAID out of more than $12 million.  OUEDRAOGO remains at large.

According to allegations contained the Indictment[1]:

USAID is an independent federal agency that provides loans, grants, and technical assistance to assist countries with, among other things, global health issues.  The Global Fund is an international financing organization based in Geneva, Switzerland, that disburses resources to prevent and treat HIV and AIDS, tuberculosis, and malaria.  The Global Fund regularly receives substantial funding from USAID.  The Programme D’Appui Au Développement Sanitaire (“PADS”), or Program for Health Development, is an entity within the Ministry of Health of Burkina Faso that receives and distributes funds contributed by donor countries and other organizations for health-related causes within the West African country of Burkina Faso.  Among these health-related causes is the prevention and treatment of malaria, which is a leading cause of morbidity and mortality in Burkina Faso.

Malaria is a mosquito-borne infectious disease.  The risk of malaria can be reduced by preventing mosquito bites through, among other things, the use of mosquito nets.  Mosquito nets are nets, constructed from polyester or other material, with mesh fine enough to exclude insects without unacceptably impeding visibility or the flow of air.

Mosquito nets are substantially more effective in preventing malaria if treated with an appropriate insecticide.  Nets not treated with insecticide are less effective because they fail to repel or kill mosquitos and can develop small holes over time through which mosquitos can penetrate.  Untreated nets therefore pose a higher risk of exposure to mosquitos, and an increased health risk for people using them.  Mosquito nets treated with insecticide, also known as long-lasting insecticidal mosquito nets, or LLINs, are substantially more costly to produce than untreated mosquito nets.

The World Health Organization (“WHO”) is a specialized agency of the United Nations that is concerned with international public health.  The World Health Organization Pesticide Evaluation Scheme (“WHOPES”) is a program within the WHO that promotes and coordinates the testing and evaluation of pesticides for public health.  WHOPES also conducts testing and review of long-lasting insecticidal mosquito nets (“LLINs”) used for the prevention of malaria, and issues recommendations of particular LLINs that meet certain criteria and requirements set forth by the WHO.

Because of the importance of LLINs in preventing the spread of malaria, WHOPES conducts and coordinates extensive evaluation and testing of mosquito nets to ensure that the nets are as effective as possible in preventing the spread of malaria.  After evaluation and testing, WHOPES issues recommendations of particular mosquito nets found to be effective in preventing the spread of malaria.  As a result, Global Fund and USAID only fund the purchase of LLINs that are recommended by, and conform to the standards of, WHOPES.

MALAMINE OUEDRAOGO, a citizen of Burkina Faso, obtained more than $12 million in funding from the Global Fund (provided to him via PADS) to purchase, and provide to the people of Burkina Faso, more than 2 million WHOPES-certified mosquito nets made by a particular WHOPES-recommended manufacturer in Thailand (the “WHOPES-Recommended Manufacturer”) and appropriately treated with long-term insecticides.  Contrary to the express, written promises that OUEDRAOGO made in securing that funding, however, nearly all of the mosquito nets he purchased and provided to the people of Burkina Faso were counterfeit, not manufactured by the WHOPES-Recommended Manufacturer, not certified by WHOPES, and not properly treated with insecticide.

Instead of purchasing WHOPES-recommended mosquito nets from the WHOPES-Recommended Manufacturer, as he had promised to do, OUEDRAOGO purchased counterfeit nets that were manufactured by a non-WHOPES-recommended manufacturer in China (the “Chinese Manufacturer”), but were fraudulently labeled and packaged to look like the nets produced by the WHOPES-Recommended Manufacturer.  The nets OUEDAROGO purchased and then distributed in Burkina Faso contained little or no insecticide.

OUEDRAOGO purchased the counterfeit mosquito nets from the Chinese Manufacturer for a small fraction of the price OUEDRAOGO knew it would have cost to purchase properly treated nets that satisfied WHOPES standards.  As a result, OUEDRAOGO fraudulently obtained over $12 million in illegal profits from the Global Fund and USAID.

*                *                *

OUEDRAOGO, 33, of Burkina Faso, is charged with one count of wire fraud.  He faces a maximum sentence of 20 years in prison.  The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the outstanding investigative work of the USAID Office of the Inspector General.  Mr. Bharara also thanked the Global Fund for its assistance in the investigation.   

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

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

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

Preet Bharara, the United States Attorney for the Southern District of New York; James J. Hunt, Special Agent in Charge of the New York Field Division of the Drug Enforcement Administration; Cyrus Vance, Jr., the New York County District Attorney; and Thomas Zugibe, the Rockland County District Attorney, announced today the release of two public service announcements addressing the dangers of prescription drug abuse and how parents can keep their children safe.

According to the Centers for Disease Control, 46 people die each day from an overdose of prescription painkillers in the United States.  The rate of prescription painkiller overdoses has more than quadrupled since 1999 and is now the leading cause of injury death, causing more deaths than motor vehicle traffic accidents annually.

Teens and young adults, who mistakenly believe prescription drugs are safer than illicit drugs, are abusing pills at an alarming rate.  One in four teens has misused or abused a prescription drug at least once in their lifetime, a 33 percent increase since 2008.

The increase in the use of prescription drugs has also led to an explosion of heroin abuse. The recent national heroin abuse rate is 19 times higher among those who reported prior use of prescription pain relievers than among those who did not report such use.  And four out of every five people who try heroin for the first time admit to having abused prescription pain relievers first.

Here in New York State, young adults are seeking treatment for opioid and heroin addiction at historic rates.  The number of people who sought treatment increased 136 percent from 2004 to 2013.  In particular, upstate New York, with a 222 percent increase in admissions, and Long Island, with a 242 percent increase, have been hard-hit by this problem.

The PSAs released today provide tips on how parents can dispose of prescription drugs safely, since the home medicine cabinet is the number-one source of prescription pills for teens and young adults.

The PSAs can be found here: http://www.justice.gov/usao-sdny.  Media requesting a high resolution version can contact the U.S. Attorney’s Office of Public Affairs.

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”), Thomas E. Bishop, Acting Special Agent in Charge of the New York Office of Internal Revenue Service – Criminal Investigation (“IRS-CI”), and Scott J. Lampert, the Special Agent in Charge for the New York Regional Office of the Department of Health and Human Services - Office of Inspector General (“HHS-OIG”), announced the unsealing of an indictment today against three individuals and two pharmacies for a multimillion-dollar oxycodone distribution scheme that flooded New York City with illegal controlled substances through pharmacies operated in Brooklyn and Queens.  Defendants LILIAN JAKACKI, a/k/a/ “Lilian Wieckowski” (“WIECKOWSKI”), MARCIN JAKACKI, a/k/a “Martin,” ROBERT CYBULSKI, EUROPEAN APOTHECARY, INC., d/b/a “Chopin Chemists,”  and MW&W GLOBAL ENTERPRISES, INC., d/b/a “Chopin Chemists,” are charged with illegally distributing more than 500,000 pills of oxycodone over a five-year period with a street value between $10 million and $15 million.  The defendants are also charged with money laundering and health care fraud.

The defendants were arrested yesterday and are expected to be presented before U.S. Magistrate Judge James C. Francis IV.  These arrests are the product of coordinated civil and criminal investigations that also resulted in the simultaneous filing today of a civil lawsuit against WIECKOWSKI, EUROPEAN APOTHECARY, INC., and MW&W GLOBAL ENTERPRISES, INC., that seeks millions of dollars in civil penalties and damages for violations of the Controlled Substances Act (“CSA”) and the False Claims Act (“FCA”).

Manhattan U.S. Attorney Preet Bharara said:  “The defendants and pharmacies charged today allegedly were part of one the largest opioid painkiller diversion schemes ever uncovered in New York.  As alleged, they flooded the city with over half a million illegally diverted oxycodone pills based on obviously fake prescriptions or no prescription at all, helping fuel the growing crisis of prescription pill abuse.  Whether it is the corrupt doctor writing unwarranted prescriptions; the greedy pharmacist selling pills based on fake or no prescriptions; or the street-level drug dealer peddling painkillers directly to the addicted, we must confront this escalating epidemic at every level.  Our actions today show that we and our law enforcement partners are committed to doing just that.”                  

DEA Special Agent in Charge James Hunt said:  “During the same time that nearly two million Americans either abused or were dependent on opioid painkillers, Chopin Pharmacy was making a killing off the profit of illicit oxycodone sales.  This two-year investigation uncovered a massive pill mill operating under the guise of ‘mom and pop’ pharmacies in Brooklyn and Queens.  Using resources from numerous law enforcement agencies, the three defendants arrested today all face drug distribution charges, two face additional money laundering charges, and Wieckowski faces further Medicare fraud charges.”  

IRS Acting Special Agent in Charge Thomas Bishop said:  “As the law enforcement arm of the Internal Revenue Service, IRS-Criminal Investigation is responsible for investigating criminal tax fraud and related financial crimes, including money laundering.  IRS-Criminal Investigation remains committed to the investigation of those who illegally traffic in prescription drugs.  Any profitable illegal drug organization depends on the laundering of illegal proceeds in order to remain successful and to operate undetected by law enforcement.  We are proud of our proven track record of using financial investigations to dismantle such organizations.  We also remain committed to protecting publicly funded programs, like Medicare, and we will use our investigative authority accordingly to combat healthcare fraud.”

HHS-OIG Special Agent in Charge Scott J. Lampert said:  “Abuse of prescription drugs kills more people than illegal drug use and wastes millions of taxpayers’ dollars.  HHS-OIG, along with our law enforcement partners, will continue to investigate those accused of contributing to America's prescription drug fraud epidemic.”

According to the allegations in the Indictment and the civil Complaint[1]:

WIECKOWSKI is the owner of EUROPEAN APOTHECARY, INC., a pharmacy that conducts business in Queens, New York, as Chopin Chemists (“Chopin Queens”).  WIECKOWSKI also owns MW&W GLOBAL ENTERPRISES, INC., a pharmacy that conducted business as Chopin Chemists in Brooklyn, New York, until it was sold by WIECKOWSKI in 2014 (“Chopin Brooklyn,” and collectively the “Chopin Pharmacies”).  All three individual defendants, along with the Chopin Pharmacies, are charged with conspiracy to distribute narcotics.  WIECKOWSKI and JAKACKI are also charged with laundering the proceeds of their illegal narcotics business.  WIECKOWSKI is also charged with a conspiracy to misbrand prescription drugs and a separate offense of defrauding Medicare out of more than $750,000 by claiming reimbursements for medicine she never actually dispensed.

As measured by the sheer quantity of pills distributed, the defendants’ oxycodone ring is one of the largest illegal diversions of oxycodone pills ever uncovered in a New York State pharmacy.  

In 2013, WIECKOWSKI’S Chopin Brooklyn was the single largest purchaser of oxycodone pills in its zip code for three straight years, from 2010 to 2012.  In 2011 and 2012, for example, Chopin Brooklyn exceeded the second highest purchaser’s orders in that zip code by more than 240,000 pills each year.  In 2013, the DEA conducted an audit of Chopin Brooklyn that revealed more than 400,000 pills were dispensed without prescriptions.  WIECKOWSKI and the Chopin Pharmacies also illegally diverted more than 160,000 additional pills by accepting 1,300 fraudulent prescriptions at both locations, including prescriptions made out in the names of famous luxury brands such as “Coach” or “Chanel.”   

JAKACKI, WIECKOWSKI’s husband, helped to arrange the illegal sales of oxycodone pills.  In September and October 2015, JAKACKI coordinated the illegal sale of hundreds of oxycodone pills to a DEA undercover agent at the Chopin Queens location.

CYBULSKI was one of the largest purchasers of illegal oxycodone from WIECKOWKSI at Chopin Brooklyn.  While WIECOWSKI owned it, CYBULSKI regularly visited Chopin Brooklyn with multiple prescriptions in others’ names, typically obtaining 500 30-milligram oxycodone pills each time.  In total, CYBULSKI illegally obtained tens of thousands of oxycodone pills from Chopin Brooklyn.

WIECKOWSKI and JAKACKI also conspired with others to launder hundreds of thousands of dollars in cash proceeds derived from the illegal oxycodone scheme.  Among other things, WIECKOWSKI and JAKACKI transferred money between various bank accounts in the form of structured financial transactions.  Among other things, WIECKOWSKI and JAKACKI purchased a $2 million home in Greenwich, Connecticut, using the proceeds of their illegal oxycodone distribution scheme.           

WIECKOWSKI and Chopin Brooklyn also conspired to defraud the federally funded Medicare program by submitting false requests for reimbursement for expensive medications that were never dispensed by the Chopin Pharmacies.  From 2010 to 2014, Medicare reimbursed Chopin Brooklyn for more than $750,000 in claims for prescription medications that were not purchased or dispensed by WIECKOWSKI or Chopin Brooklyn.  WIECKOWSKI used a portion of the money from the federal Medicare program to purchase additional oxycodone pills for the illegal diversion scheme.

WIECKOWSKI is also charged with purchasing prescription medications from the black market at a deep discount from the prices legitimate suppliers typically charge, and then re-selling these drugs at Chopin Brooklyn.

WIECKOWSKI, 49, of Greenwich, Connecticut, is charged with one count of conspiracy to distribute and possess with the intent to distribute oxycodone illegally, which carries a maximum sentence of 20 years in prison; one count of conspiracy to commit health care fraud, which carries a maximum sentence of 20 years in prison; one count of conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison; two counts of money laundering, each which carry a maximum sentence of 20 years in prison; and one count of conspiracy to misbrand prescription medication, which carries a maximum sentence of 5 years in prison.

JAKACKI, 35, of Greenwich, Connecticut, is charged with one count of conspiracy to distribute and possess with the intent to distribute oxycodone illegally, which carries a maximum sentence of 20 years in prison; one count of conspiracy to commit money laundering, which carries a maximum sentence of 20 in prison; and one count of money laundering, which carries a maximum sentence of 20 years in prison.

CYBULSKI, 30, Staten Island, New York, is charged with one count of conspiracy to distribute and possess with the intent to distribute oxycodone illegally, 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.  The criminal case has been assigned to U.S. District Judge Jed S. Rakoff.

Mr. Bharara praised the outstanding investigative work of the DEA’s New York Division Diversion Group D62, the DEA Tactical Diversion Squad, the U.S. Internal Revenue Service, and the U.S. Department of Health and Human Services.  The DEA’s Tactical Diversion Group includes agents and officers of the DEA, the New York City Police Department, the New York State Police, Town of Orangetown Police Department, and Westchester County Police Department.

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

The civil case is being handled by the Office’s Civil Frauds Unit.  Assistant United States Attorney Louis A. Pellegrino is 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 texts of the Indictment and Complaint and the descriptions of each set forth herein constitute only allegations, and every fact described should be treated as an allegation.