Southern District of New York

Preet Bharara, the United States Attorney for the Southern District of New York, Philip Bartlett, the Inspector-in-Charge of the New York Division of the U.S. Postal Inspection Service, (“USPIS”), and Shantelle P. Kitchen, Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service’s Criminal Investigation Division (“IRS”), announced today that CARLTON P. CABOT and TIMOTHY J. KROLL – the former Chief Executive Officer and Chief Operating Officer of Cabot Investment Properties LLC (“CIP”), respectively – were arrested for participating in a scheme to defraud investors in numerous CIP-sponsored real estate investments by misappropriating over $17 million to pay for personal and business expenses and covering up their fraud with manipulated financial statements.  CABOT and KROLL are expected to be presented and arraigned before U.S. Magistrate Judge Henry B. Pitman later this afternoon.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Carlton Cabot and Timothy Kroll conspired to defraud investors out of millions of dollars by misappropriating investor funds, in part to pay for personal luxuries, and they falsified financial statements in an attempt to cover their tracks.  The investigative work of the Postal Inspection Service and the IRS put an end to the alleged scheme.”

USPIS Inspector-in-Charge Philip Bartlett said: “This is a classic case of greed overcoming honest business practices.  These defendants allegedly carried out a scheme to steal from their investors and investor funded properties all to fund a well-heeled lifestyle.  Postal Inspectors and their law enforcement partners have no tolerance for this behavior and will spare no resource to bring these criminals to justice.”

IRS Special Agent-in-Charge Shantelle P. Kitchen said: “The investing public should take notice that the cooperation among federal law enforcement agencies, including IRS Criminal Investigation, the Postal Inspection Service and the U.S. Attorney’s Office, offers an assurance that investment fraud schemes will be uncovered and thoroughly investigated, and that the scammers will be prosecuted.”

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

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

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

According to the representations in the offering prospectuses for the TIC Investments, CIP was only allowed to collect “excess” rental income from the TIC Investments – i.e., any additional money left over after the TIC Investments had paid the operating expenses for the properties and the disbursements due to the TIC Investors.  Despite these representations, CABOT and KROLL repeatedly transferred money out of bank accounts belonging to the TIC Investments and into CIP bank accounts that they controlled (the “CIP Operating Accounts”) before the TIC Investments could use the funds to pay for operating expenses and disbursements to the TIC Investors.  CABOT and KROLL then used these funds to pay for the following three unauthorized purposes, without the knowledge or authorization of the TIC Investors:

First, CABOT and KROLL caused millions of dollars to be transferred from the CIP Operating Accounts to the bank accounts of TIC Investments that had no available funds to cover their operating expenses and investor distributions.  In this way, CABOT and KROLL were able to perpetuate the fraud scheme by propping up failing TIC Investments using funds belonging to other TIC Investments.

Second, CABOT and KROLL used the funds in the CIP Operating Accounts belonging to the TIC Investments to pay for millions of dollars of personal expenses, including expensive cars and rental apartments and private school tuitions.

Third, CABOT and KROLL used the funds in the CIP Operating Accounts belonging to the TIC Investments to pay for CIP business expenses, including an approximately $1,125,651 civil settlement to certain TIC Investors who had sued CABOT, KROLL, CIP, and a CIP subsidiary.

To conceal their misappropriation of TIC Investment funds from the TIC Investors, CABOT and KROLL provided false and misleading financial reports to the TIC Investors that intentionally hid the fact that CIP owed large sums of money to the TIC Investments.  KROLL also gave false and misleading information to the TIC Investors about how the TIC Investment funds were managed in order to prevent the TIC Investors from learning the true financial status of their investment.

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

***

For this conduct, CABOT and KROLL are each charged with the following offenses, which carry the maximum prison terms listed below:

Count

Charge

Maximum Prison Term

Count One

Conspiracy to commit securities fraud

Five years

Count Two

Conspiracy to commit wire fraud

20 years

Count Three

Conspiracy to commit money laundering

20 years

Count Four

Securities fraud

20 years

Count Five

Wire fraud

20 years

Count Six

Money laundering

20 years

Count Seven

Illegal monetary transactions

10 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.

CABOT, 52, of Stamford, Connecticut, and KROLL, 44, of New Hope, Pennsylvania, were arrested earlier this morning at their residences.

Mr. Bharara praised the investigative work of the USPIS and the IRS.

The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorney Christian R. Everdell is in charge of the prosecution.

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

 

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

Convicted of Multiple Counts for Creating and Operating the “Silk Road" Website, Used by More than 100,000 Users to Buy and Sell More Than $200 Million Worth of Illegal Drugs and Other Unlawful Goods and Services

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ROSS ULBRICHT, a/k/a “Dread Pirate Roberts,” was sentenced today in Manhattan federal court to life in prison in connection with his operation and ownership of Silk Road, a hidden website designed to enable its users to buy and sell illegal drugs and other unlawful goods and services anonymously and beyond the reach of law enforcement between January 2011 and October 2013.  ULBRICHT was found guilty of each of the seven charges he faced on February 5, 2015, following a four-week jury trial.  U.S. District Judge Katherine B. Forrest imposed today’s sentence.

 Manhattan U.S. Attorney Preet Bharara said:  “Make no mistake: Ulbricht was a drug dealer and criminal profiteer who exploited people’s addictions and contributed to the deaths of at least six young people.  Ulbricht went from hiding his cybercrime identity to becoming the face of cybercrime and as today’s sentence proves, no one is above the law.”

 According to the evidence presented at trial, statements made during other public proceedings including today’s sentencing, and other court documents:

            ULBRICHT created Silk Road in January 2011, and owned and operated the underground website until it was shut down by law enforcement authorities in October 2013.  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 varieties, 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 more than 100,000 buyers, and to launder hundreds of millions of dollars deriving from these unlawful transactions.

            ULBRICHT deliberately operated Silk Road as an online criminal marketplace intended to enable its users to buy and sell drugs and other illegal goods and services anonymously and outside the reach of law enforcement.  ULBRICHT sought to anonymize transactions on Silk Road in two principal ways.  First, ULBRICHT operated Silk Road 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.  Second, ULBRICHT designed Silk Road to include 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.

            The vast majority of items for sale on Silk Road were illegal drugs, which were openly advertised as such on the site.  As of September 23, 2013, the Silk Road home page displayed nearly 13,000 listings for controlled substances, listed under such categories as “Cannabis,” “Dissociatives,” “Ecstasy,” “Intoxicants,” “Opioids,” “Precursors,” “Prescription,” “Psychedelics,” and “Stimulants.”  From November 2011 to September 2013, law enforcement agents made more than 60 individual undercover purchases of controlled substances from Silk Road vendors.  These purchases included heroin, cocaine, ecstasy, and LSD, among other illegal drugs, and were filled by vendors believed to be located in more than ten different countries, including the United States, Germany, the Netherlands, Canada, the United Kingdom, Spain, Ireland, Italy, Austria, and France.

            The narcotics distributed on Silk Road have been linked to at least six overdose deaths across the world.  These overdose deaths included Jordan M., a 27-year old Microsoft employee who was found unresponsive in front of his computer, which was logged onto Silk Road at the time, and died as a result of heroin and other prescription drugs that he had ordered from Silk Road.  Preston B., from Perth, Australia, and Alejandro N., from Camino, California, both 16 years old, died as a result of taking 25i-NBOMe, a powerful synthetic drug designed to mimic LSD (commonly referred to as “N-Bomb”), which was purchased from Silk Road.  Additional victims included Bryan B., a 25-year old from Boston, Massachussetts, and Scott W., a 36-year old from Australia, who both died as a result of heroin purchased from Silk Road, and Jacob B., a 22-year old from Australia, who died from health complications that were aggravated by the use of drugs purchased from Silk Road.

            In addition to illegal narcotics, other illicit goods and services were openly bought and sold on Silk Road.  For example, as of September 23, 2013, there were: 159 listings under the category “Services,” most of which offered computer hacking services, such as a listing by a vendor offering to hack into social networking accounts of the customer’s choosing; 801 listings under the category “Digital goods,” including malicious software, hacked accounts at various online services, and pirated media content; and 169 listings under the category “Forgeries,” including offers to produce fake driver’s licenses, passports, Social Security cards, utility bills, credit card statements, car insurance records, and other forms of false identification documents.

            Using the online moniker “Dread Pirate Roberts,” or “DPR,” ULBRICHT controlled and oversaw every aspect of Silk Road, and managed a staff of paid, online administrators and computer programmers who assisted with the day-to-day operation of the site.  Through his ownership and operation of Silk Road, ULBRICHT reaped commissions worth more than $13 million generated from the illicit sales conducted through the site.  ULBRICHT also demonstrated a willingness to use violence to protect his criminal enterprise and the anonymity of its users, soliciting six murders-for-hire in connection with operating the site, although there is no evidence that these murders were actually carried out.

*                      *                      *

ULBRICHT, 31, of San Francisco, California, was convicted of seven offenses after a four-week jury trial:  distributing narcotics, distributing narcotics by means of the Internet, conspiring to distribute narcotics, engaging in a continuing criminal enterprise, conspiring to commit computer hacking, conspiring to traffic in false identity documents, and conspiring to commit money laundering.

In addition to the life sentence prison term, ULBRICHT was ordered to forfeit $183,961,921.

In imposing today’s sentence, Judge Forrest said:  “There must be no doubt that lawlessness will not be tolerated.  There must be no doubt that no one is above the law - no matter one’s education or privileges.  All stand equal before the law.  There must be no doubt that you cannot run a massive criminal enterprise and because it occurred over the Internet minimize the crime committed on that basis.”

Mr. Bharara praised the outstanding investigative work of the Federal Bureau of Investigation and its New York Special Operations and Cyber Division, as well as the outstanding investigative work of the DEA’s New York Organized Crime Drug Enforcement Strike Force, which comprises agents and officers of the DEA, the IRS, the New York City Police Department, U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), the New York State Police, the Bureau of Alcohol, Tobacco, Firearms and Explosives, the U.S. Secret Service, the U.S. Marshals Service, Office of Foreign Assets Control, and NY Department of Taxation.  Mr. Bharara also thanked the ICE-HSI Chicago-O’Hare office for its assistance and support, as well as the Department of Justice’s Computer Crime and Intellectual Property Section and Office of International Affairs.  Additionally, Mr. Bharara praised the foreign law enforcement partners whose contributions to the success of the investigation and prosecution have been invaluable, namely, the Reykjavik Metropolitan Police of the Republic of Iceland, and the French Republic’s Central Office for the Fight Against Crime Linked to Information Technology and Communication.

The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant United States Attorneys Serrin Turner and Timothy T. Howard are in charge of the prosecution, and Assistant United States Attorney Christine Magdo is in charge of the forfeiture aspects of the case.

15-135

Preet Bharara, the United States Attorney for the Southern District of New York, William P. Offord, the Special Agent-in-Charge of the Boston Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), 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 criminal complaint charging LIN MIAO, YONG JASON LEE, a/k/a “Jason Lee,” MICHAEL PEARSE, YONGCHAO LIU, a/k/a “Kevin Liu,” MICHAEL PAJACZKOWSKI, a/k/a “Paj,” and CHRISTOPHER GOFF with participating in a scheme to charge mobile phone customers tens of millions of dollars in monthly fees for unsolicited, recurring text messages about topics such as horoscopes, celebrity gossip, and trivia facts, without the customers’ knowledge or consent – a practice the defendants referred to as “auto-subscribing.”

Manhattan U.S. Attorney Preet Bharara said: “As alleged, by burying relatively small hidden text message service charges in the monthly mobile phone bills of thousands of customers who did not purchase the text message service, these defendants reaped tens of millions of dollars.  Stealing incrementally is stealing nonetheless, and if the allegations are proven, the defendants will have to answer for this massive consumer fraud.”

IRS Special Agent-in-Charge William Offord said: “The arrests today highlight the magnitude of this complex e-commerce fraud against unwitting consumers.  Crimes like ‘auto-subscribing’ undermine the integrity of our economic system.  Working closely with our law enforcement partners, IRS plays an important role in unraveling complex financial transactions where individuals attempt to conceal the true source of their criminal proceeds.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “The six defendants charged today are alleged to have profited from the unlawful billing of consumers for unsolicited services. Hundreds of thousands of customers collectively lost tens of millions of dollars in this far-reaching scheme. Behavior of this nature has a devastating impact on people, companies, and the integrity of mobile phone industry. We are putting those persons who engage in this type of fraud on notice: Your actions can result in serious charges carrying severe penalties and consequences.”

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

From 2011 through 2013, MIAO, LEE, PEARSE, LIU, PAJACZKOWSKI, and GOFF engaged in a multimillion-dollar scheme to defraud consumers by placing unauthorized charges for premium text messaging services on consumers’ cellular phone bills, through a practice known as “auto-subscribing.”

During the relevant time period, MIAO and LEE worked for a company that offered premium text messaging services – such as monthly horoscopes, celebrity gossip, and trivia facts – to mobile phone customers (the “Texting Company”).  PEARSE and LIU worked for companies that were affiliated with the Texting Company (the “Texting Company Affiliates”).  PAJACZKOWSKI and GOFF worked for a mobile aggregator (the “Mobile Aggregator”), which served as a middleman between the Texting Company and mobile phone carriers, and was responsible for assembling monthly charges incurred by a particular mobile phone customer for premium text messaging services and placing those charges on that customer’s cellular phone bill.

To carry out the scheme, MIAO and others at the Texting Company purchased large volumes of mobile phone numbers from PAJACZKOWSKI and GOFF, who had access to those numbers by virtue of their employment at the Mobile Aggregator.  MIAO then worked with LEE, PEARSE, and LIU to have unsolicited text messages sent to the mobile phone numbers that had been purchased, and to enroll those customers in premium text messaging services without their knowledge or consent.  MIAO, LEE, PEARSE, and LIU also took steps to conceal the fraud scheme by making it appear as if the customers had, in fact, elected to purchase the text messaging services, when in truth they had not.

The consumers who received the unsolicited text messages typically ignored or deleted the messages, often believing them to be spam.  Regardless, the consumers were billed for the receipt of the messages, at a rate of $9.99 per month, through charges that typically appeared on the consumers’ cellular telephone bills in an abbreviated and confusing form, e.g., with billing descriptors such as “96633IQ16CALL8668611606” and “25184USBFIQMIG.”  The $9.99 charge recurred each month unless and until consumers noticed the charges and took action to unsubscribe.  Even then, consumers’ attempts to dispute the charges and obtain refunds from the Texting Company or from the Texting Company Affiliates were often unsuccessful.

MIAO, PAJACZKOWSKI, and GOFF also worked together to launder the proceeds of the fraud scheme.  PAJACZKOWSKI and GOFF created shell companies to receive payments from MIAO and the Texting Company for the mobile phone numbers that PAJACZKOWSKI and GOFF collected and sold.  PAJACZKOWSKI and GOFF, moreover, communicated with MIAO about the fraud scheme using personal email accounts with email addresses such as “thats1spicymeatball@gmail.com” and “very.important.information.123@gmail.com.”  In this way, PAJACZKOWSKI and GOFF attempted to conceal their role in the fraud from their employer, the Mobile Aggregator.

Through their successful orchestration of this fraud scheme, which affected hundreds of thousands of consumers, MIAO, LEE, PEARSE, LIU, PAJACZKOWSKI, and GOFF generated in excess of $50 million in proceeds for themselves, some of which were used to fund a lavish lifestyle of expensive parties, travel, and gambling.

*                *                *

MIAO, LEE, PEARSE, LIU, PAJACZKOWSKI, and GOFF are charged with one count of conspiracy to commit wire fraud and mail fraud, which carries a maximum term of 20 years in prison.  MIAO, PAJACZKOWSKI, and GOFF are also charged with one count of conspiracy to commit money laundering, which carries a maximum term 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.

MIAO was arrested yesterday afternoon at Los Angeles International Airport.  LEE, PAJACZKOWSKI, and GOFF were arrested this morning at their residences in California and Texas.  PEARSE and LIU reside in Australia and have not yet been arrested.  MIAO, LEE, and GOFF are expected to be presented later this afternoon in federal court in Los Angeles, California, before U.S. Magistrate Judge Carla M. Woehrle.  PAJACZKOWSKI was presented this morning in federal court in Plano, Texas, before U.S. Magistrate Judge Don D. Bush.

Mr. Bharara praised the investigative work of the IRS-CI and the FBI, and expressed his sincere gratitude to the Federal Trade Commission for its support and assistance with the investigation.  He also thanked the U.S. Attorney’s Office for the Central District of California and the U.S. Attorney’s Office for the Eastern District of Texas for their help in coordinating the arrests of the defendants.

The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit.Assistant U.S. Attorneys Christian R. Everdell and Sarah E. Paul are in charge of the prosecution.Assistant U.S. Attorney Edward B. 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 Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

 

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

Preet Bharara, the United States Attorney for the Southern District of New York, and Gustavo Velasquez, the U.S. Department of Housing and Urban Development Assistant Secretary for Fair Housing and Equal Opportunity, announced today that the United States has settled civil rights claims under the Fair Housing Act against EAST RIVER HOUSING CORPORATION (“EAST RIVER”) stemming from EAST RIVER’s alleged denial of reasonable accommodations to its residents by prohibiting them from keeping emotional assistance animals.  The settlement agreement, which was approved on May 27, 2015, by U.S. District Judge Edgardo Ramos, provides that EAST RIVER will adopt and implement a policy for providing reasonable accommodations to residents with disabilities and will train its employees and officers to follow the new policy.  In the settlement agreement, EAST RIVER also agrees to permit two of the three residents named in the suit to have emotional assistance animals in their apartments and to compensate them financially for the alleged discrimination against them.

U.S. Attorney Bharara said:  “This settlement ensures that future East River residents with disabilities who are in need of assistance animals will not face the kind of discrimination alleged in the complaint.  Emotional assistance animals are not pets, and they must be permitted when an individual with a disability demonstrates a need for such an animal, regardless of a building’s no-pets policy.”

Assistant Secretary Velasquez said: “Support animals provide persons with disabilities with the stability and assistance needed to maintain their independence.  They are not pets.  We are extremely pleased that the settlement makes this clear, and that East River residents with disabilities will now be granted the reasonable accommodations they need.”

According to the complaint filed in Manhattan federal court:

EAST RIVER is a private 1,672-unit housing cooperative on the Lower East Side of Manhattan.  It has no written or established policies or procedures for making reasonable accommodations for individuals who require service or emotional support animals because of a disability.  Complainants Amy Eisenberg, Steven Gilbert, and Stephanie Aaron, all EAST RIVER residents, each brought a dog into their apartments and sought to be permitted to keep those dogs as reasonable accommodations of their disabilities.  EAST RIVER either denied the requests or failed to respond to them, and instead instituted eviction proceedings against each of the complainants in New York City Housing Court (“Housing Court”).  The three residents then filed complaints with the U.S. Department of Housing and Urban Development and/or the New York State Division of Human Rights, which in each case found reasonable cause to believe that EAST RIVER had violated the Fair Housing Act by refusing to grant the requested accommodation, and in the case of Mr. Gilbert further found that EAST RIVER had retaliated against him for exercising his right to file a complaint.  EAST RIVER elected to have the claims against it brought in federal court.

The Government’s complaint alleges that EAST RIVER violated the Fair Housing Act by refusing to make reasonable accommodations when such accommodations may be necessary to afford persons with disabilities equal opportunity to use and enjoy their dwellings, and by coercing, intimidating, threatening, and interfering with the exercise or enjoyment of a dwelling on account of a complainant’s having exercised his or her rights under the Act.  The Government further alleged that EAST RIVER’s conduct constituted a pattern of resistance to the full enjoyment of rights granted by the Fair Housing Act, and a denial to a group of persons of the rights granted by the Fair Housing Act.

During the course of the litigation, EAST RIVER refused to discontinue its efforts to evict two of the three complainants, Mr. Gilbert and Ms. Aaron.  Instead, it sought to enforce a Housing Court order requiring Mr. Gilbert to pay approximately $30,000 of EAST RIVER’s attorney’s fees in that proceeding on threat of eviction, and it sought to enforce a Housing Court eviction order against Ms. Aaron.   After EAST RIVER insisted on moving forward with these actions, the Government sought, and obtained, temporary restraining orders and preliminary injunctions from the federal court enjoining EAST RIVER from taking steps to evict the complainants until the case could be decided at trial.

*                      *                      *

As part of today’s settlement, EAST RIVER will enact a reasonable accommodation policy that explicitly acknowledges its responsibility to provide accommodations to persons with disabilities, including permitting residents with disabilities to keep emotional assistance animals or service animals in their apartments, and streamlines the process by which residents can apply for such accommodations.  EAST RIVER will further train its officers and employees about the reasonable accommodation policy and the Fair Housing Act.  EAST RIVER will also inform its current and future residents of this new policy.

In addition, to settle the Government’s claim on Mr. Gilbert’s behalf, EAST RIVER will permit Mr. Gilbert to keep a dog in his apartment, pay him $30,000, and forgive the attorney’s fees judgment of approximately $30,000 it obtained against him in the Housing Court.  To settle the Government’s claim on Ms. Eisenberg’s behalf, EAST RIVER will permit Ms. Eisenberg to keep her dog in her apartment, pay her $55,000, forgive eight months’ basic maintenance payments, and withdraw its eviction case against her in Housing Court.  The third complainant, Ms. Aaron, reached a separate settlement with EAST RIVER in the Housing Court, and on that basis the Government dismissed its claim on her behalf.

If you are a person with a disability who believes that you are being discriminated against by your housing provider, you may contact the Fair Housing and Equal Opportunity Office, U.S. Department of Housing and Urban Development, 26 Federal Plaza, Room 3532, New York, NY 10278-0068, and at (800) 496-4294.

This case is being handled by the Office’s Civil Rights Unit.  Assistant United States Attorneys Jean-David Barnea and Elizabeth Tulis are in charge of the case.

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, today announced that FABIO PORFIRIO LOBO was arrested in the Republic of Haiti and brought to the United States on charges that he conspired to import cocaine into the United States.  LOBO was presented and arraigned before U.S. Magistrate Judge Kevin Nathaniel Fox this afternoon.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Fabio Lobo attempted to break U.S. law by conspiring to traffic in cocaine.  Being the son of a former public official, though, does not mean that you are above the law.”

DEA Special Agent in Charge Mark Hamlet said: “The arrest of Fabio Porfirio Lobo proves, once again, that no one is above the law, Mr. Lobo will be prosecuted in a U.S. court thanks, in large part, to the great cooperation from our international partners, particularly the Government of the Republic of Haiti.”

LOBO’s father, Porfirio Lobo, served as president of Honduras between 2010 and 2014.  According to the allegations in the Indictment,[1] which was previously unsealed in Manhattan federal court, LOBO conspired with others from 2009 to 2014 to violate U.S. narcotics laws prohibiting the importation of cocaine.  Specifically, the Indictment charges LOBO 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 defendant will be determined by a judge

Mr. Bharara praised the outstanding investigative work of the DEA’s Special Operations Division and New York Strike Force.  Mr. Bharara also thanked the DEA’s Port-au-Prince Country Office, the Government of the Republic of Haiti and its Bureau de Lutte Contre le Trafic Illicite de Stupefiants, 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, Michael D. Lockard, and Adam Fee are in charge of the prosecution.

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

15-132                            

 

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[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth 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,  Diego Rodriguez, the Assistant Director-in-Charge of the Federal Bureau of Investigation (“FBI”), Christy Romero, and Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”) announced that MARIO ALVARENGA, RAJESH MADDIWAR, and AMIR MEIRI were arrested today for participating in a scheme to fraudulently induce distressed homeowners to sell their homes to a company associated with the defendants.  ALVARENGA, MADDIWAR, and MEIRI were presented this afternoon in Manhattan federal court before U.S. Magistrate Judge Kevin Fox.

            Manhattan U.S. Attorney Preet Bharara said: “In what is alleged to be a brazen fraud, these defendants manipulated and took advantage of vulnerable people, and in some cases even tricked individuals into losing their homes.  I would like to thank our partners – the FBI, SIGTARP, and DFS – for their ongoing assistance on this case.”

            FBI Assistant Director Diego Rodriguez said: “The defendants took advantage of distressed home owners, mostly the poor and elderly, promising relief. In reality it was nothing more than a callous scheme that took advantage of the most desperate of victims. And in many cases, the owners were evicted from their homes after being tricked into selling their property to the defendants arrested today.”

            Special Inspector General for SIGTARP said: “The three individuals taken into custody today stand charged with preying on struggling homeowners simply looking for a way to keep their homes from falling into foreclosure. These individuals are alleged to have dangled false promises of guaranteed mortgage modifications as a veil for secretly swindling homeowners out of their homes and forcing homeowners to vacate their properties.  SIGTARP and our law enforcement partners will aggressively investigate allegations of fraud related to the exploitation of TARP’s housing programs and bring perpetrators to justice.  SIGTARP commends U.S. Attorney Bharara, Superintendent Lawsky, and the FBI for their shared commitment to safeguarding taxpayers from TARP-related crime.”

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

            Since at least 2013, ALVARENGA, MADDIWAR, and MEIRI have defrauded distressed homeowners throughout the Bronx, Brooklyn, and Queens.  ALVARENGA, MADDIWAR, and MEIRI falsely represented to these homeowners – some of whom were elderly or in poor health – that they could assist them with a loan modification or similar relief from foreclosure that would allow the homeowners to save their homes.  But rather than actually assisting these homeowners, the defendants deceived them into selling their homes to Launch Development LLC (“Launch Development”), a for-profit real estate company also affiliated with the defendants.

ALVARENGA, MADDIWAR, and MEIRI lured victims through the Homeowners Assistance Service of New York (“HASNY”), which purported to provide assistance to homeowners who were seeking to avoid foreclosure of their homes.  As part of the scheme, MEIRI directed employees of Launch Development, a company owned in part by MEIRI, to solicit owners of distressed properties and invite them to meet with HASNY representatives so that they could learn more about avoiding foreclosure and saving their homes.

When a homeowner arrived at the HASNY office, he or she met with ALVARENGA, who typically advised the homeowner that HASNY could assist him or her with a loan modification.  In still other cases, ALVARENGA advised the homeowner that a loan modification could not be completed, but that the homeowner could engage in a type of short sale in which the homeowner would sell the property to a third party, Launch Development, and then within approximately 90 days arrange for a relative of the homeowner to repurchase the property from Launch Development.  ALVARENGA typically explained that the homeowner could remain in his or her home throughout the entire process.  ALVARENGA then typically scheduled a closing at which the homeowner would meet with MADDIWAR, who was described as the homeowner’s attorney for the transaction.

At the closing, a homeowner who had been led to believe that he or she was about to receive a loan modification or transfer his or her property to a trusted relative was encouraged to sign documents presented by MADDIWAR, which in some cases were blank.  Unbeknownst to the homeowners, by signing the documents, they were selling to Launch Development the homes they had hoped to save.  Homeowners often were then forced to vacate their homes soon thereafter. 

*          *          *

ALVARENGA, MADDIWAR, MEIRI are each charged with one count of conspiracy to commit wire fraud, which carries a maximum term 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 outstanding work of the FBI, SIGTARP, and the New York State Department of Financial Services for their investigative efforts and ongoing support and assistance with the case.

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

            The prosecution of this case is being overseen by the Office’s General Crimes Unit.  Assistant U.S. Attorney Jaimie L. Nawaday is in charge of the case.

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

 

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

Preet Bharara, the United States Attorney for the Southern District of New York, and Judith Enck, Regional Administrator of the U.S. Environmental Protection Agency (“EPA”), announced today that Westchester County (“Westchester” or the “County”) has entered into a consent decree with the United States to resolve the civil lawsuit filed in August 2013, alleging that since April 2012 the County has failed to operate its Water District No. 1 in compliance with regulations designed to protect the public from Cryptosporidium, a parasite that can cause severe gastrointestinal illness.  Water District No. 1 supplies water to residents of Scarsdale, White Plains, Mount Vernon, and Yonkers.  Since April 2012, a significant portion of the drinking water distributed by Water District No. 1 has not been properly treated.

U.S. Attorney Preet Bharara stated:  “For years, Westchester County has flouted its obligations under the Safe Drinking Water Act by failing to ensure that drinking water supplied by Westchester Water District No. 1 was properly treated for Cryptosporidium. Today’s consent decree ensures that Westchester will finally come into compliance with EPA standards, and will pay a significant civil penalty for its years of noncompliance.”

EPA Regional Administrator Enck stated:  “The people of Westchester deserve high quality drinking water.  These long-overdue drinking water treatment upgrades will bring Westchester into compliance with the Safe Drinking Water Act, and will protect the people of Mount Vernon, Scarsdale, White Plains and Yonkers from water-borne diseases.”

According to the allegations of the complaint:

Since April 2012, Westchester, through its Water District No. 1, has failed to comply with the Long Term 2 Enhanced Surface Water Treatment Rule (the “Enhanced Water Treatment Rule”) by failing to upgrade its water treatment facilities or capabilities to properly treat its drinking water for Cryptosporidium.  Public water systems that were required to comply with the Enhanced Water Treatment Rule had more than six years from the enactment of the rule to achieve compliance.  The Enhanced Water Treatment Rule specifically targets public water systems with higher potential risks of Cryptosporidium contamination; it requires such public water systems to treat unfiltered surface water for this parasite.  Cryptosporidium contamination can lead to cryptosporidiosis, a potentially fatal gastrointestinal illness in humans for which there is no known treatment.  The illness poses greater risks to people with weakened immune systems, such as young children, pregnant women, and the elderly.

Previously in this litigation, the U.S. District Court in White Plains ruled that Water District No. 1 is a public water system and that Water District No. 1 was subject to an April 1, 2012, deadline to comply with the treatment requirements in the Enhanced Water Treatment Rule.

*                *                *

In the consent decree filed today in White Plains federal court, Westchester admits, acknowledges, and accepts responsibility for the following:

• Westchester operates Water District No. 1.
• Westchester, “as operator of Water District No. 1, failed to ensure that Water District No. 1 implemented the water treatment measures of the Enhanced Water Treatment Rule.”
• The Enhanced Water Treatment Rule “required certain public water systems to implement specific water treatment measures” by April 1, 2012.
• “Water District No. 1 did not implement the water treatment measures of the Enhanced Water Treatment Rule by April 1, 2012, and to date has not implemented the water treatment measures of the Enhanced Water Treatment Rule.”

Pursuant to the consent decree filed today, Westchester will make capital improvements within Water District No. 1 to bring it into compliance with the Enhanced Water Treatment Rule.  These capital improvements will cost approximately $10 million.  While the capital improvements are being completed, the consent decree requires Westchester to undertake interim measures, including to reduce the amount of noncompliant water supplied by Water District No. 1 and enhanced monitoring of source water from the Kensico Reservoir for Cryptosporidium.  Westchester will make the enhanced source monitoring results available to the public on its website.

In addition to this injunctive relief, Westchester will pay a civil penalty of $1,108,771, the largest civil penalty ever imposed under the Safe Drinking Water Act on the operator of a public water system.  Westchester will be subject to substantial additional penalties if it fails to adhere to the deadlines in the consent decree.

Finally, Westchester has agreed to spend an additional $691,229 on supplemental environmental projects for the benefit of the residents of Water District No. 1.  Westchester has committed to expend these funds (i) to increase the number of days during which unused pharmaceuticals and hazardous household chemicals will be accepted from residents of Water District No. 1 at Westchester’s Household Materials Recovery Facility or at other designated sites and (ii) to purchase at least $100,000 worth of 55-gallon rain barrels for residential collection and storage of roof rainwater runoff, to be distributed to residents of Water District No. 1.

The consent decree will be lodged with the District Court for a period of at least 30 days, and notice of the consent decree will be published in the Federal Register before the consent decree is submitted for the Court’s approval.  This will afford members of the public the opportunity to submit comments on the consent decree to the Department of Justice.

This case is being handled by the Office’s Environmental Protection Unit.  Assistant United States Attorneys Andrew E. Krause and Cristine Irvin Phillips are in charge of the case.

            Preet Bharara, United States Attorney for the Southern District of New York, Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Ronald G. Gardella, Special Agent-in-Charge of the Department of Justice Office of the Inspector General (“DOJ OIG”), announced today the arrest of DAVID POLOS, until recently an Assistant Special Agent-in-Charge with the Drug Enforcement Administration (“DEA”), and GLEN GLOVER, a DEA Information Technology Specialist, for allegedly making false statements to the government regarding their employment at an adult entertainment establishment.  The Complaint alleges that POLOS, who supervised the Organized Crime and Drug Enforcement Strike Force, and GLOVER failed to disclose their employment at, and ownership interests in, an adult entertainment establishment (the “Club”) in Northern New Jersey in connection with a background check to determine their suitability as employees of a federal law enforcement agency with access to classified information.  The national security forms POLOS and GLOVER allegedly submitted in connection with the background check require disclosure of outside employment in part due to concerns attendant to certain types of employment, including proximity to crime and persons involved in crime and the risk of employee blackmail.  POLOS and GLOVER surrendered to the FBI in Manhattan this morning, and are scheduled to appear before U.S. Magistrate Judge Kevin Nathaniel Fox in Manhattan federal court later today.

            Manhattan U.S. Attorney Bharara said:  “David Polos and Glen Glover had important and sensitive law enforcement jobs with the DEA.  As alleged in the Complaint, they also had other secret jobs, which they concealed from DEA in order to maintain their national security clearance, betraying the oaths they had taken and creating needless risk for the agency they worked for.”

            FBI Assistant Director-in-Charge Rodriguez said:  “We expect those in government—and particularly those charged with enforcing the law—to tell the truth. As alleged, the defendants’ lack of candor is what finds them before a judge today in Manhattan Federal Court.”

            DOJ OIG Special Agent-in-Charge Gardella said:  “Federal law enforcement officers must be held to the highest standards of integrity. The alleged conduct is serious and we will do everything we can to ensure that justice is done in this case.”

            According to the allegations in the Complaint unsealed today in Manhattan federal court*:

            GLOVER and POLOS submitted national security forms in August and September 2011, respectively, that stated, among other things, that they did not have employment other than their DEA jobs within the previous seven years.  In fact, as charged, GLOVER was the part owner of, and POLOS had a convertible ownership interest in, the Club, which featured scantily clad and sometimes topless women dancers and offered private stalls for what were supposed to be limited-contact dances between dancers and their patrons.  As POLOS and GLOVER knew, many of the dancers – who at times engaged in sexual acts with club patrons and staff – were undocumented immigrants not lawfully in the United States.

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

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

*              *             *

            POLOS, 51, of West Nyack, New York, and GLOVER, 45, of Lyndhurst, New Jersey, are each charged with one count of making false statements, which carries a maximum sentence of five years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge.

            Mr. Bharara praised the investigative work of the FBI and DOJ OIG.  He also thanked the Internal Revenue Service-Criminal Investigation Division for its assistance.

            This case is being handled by the Office’s Public Corruption Unit.  Assistant United States Attorneys Martin S. Bell and Andrew D. Goldstein 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.

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

Preet Bharara, the United States Attorney for the Southern District of New York, and Caroline D. Ciraolo, Acting Assistant Attorney General for the U.S. Department of Justice’s Tax Division, announced that MATTHEW LIBOUS was sentenced yesterday to six months in prison for failing to report income on his tax returns for the 2007, 2008, and 2009 tax years.  LIBOUS was convicted at a bench trial in January 2015.  United States District Judge Vincent L. Briccetti imposed yesterday’s sentence.

According to the Superseding Indictment and the evidence presented at trial:

LIBOUS engaged in the practice of law from 2006 through 2008.  LIBOUS deposited the fees he received into his personal bank account but never reported them on his tax return.  In 2008, LIBOUS became a minority partner and manager of Wireless Construction Solutions, LLC ("WCS"), a company that maintained cellular telephone towers.  LIBOUS caused WCS to pay thousands of dollars in his personal expenses on his behalf from 2008 to 2011.  Judge Briccetti found today that LIBOUS failed to report more than $97,000 in income, leading to a tax loss of more than $38,000.

* * *

In addition to the prison sentence, LIBOUS, 37, of Glen Ridge, New Jersey, was sentenced to one year of supervised release, a $25,000 fine, 100 hours of community service, and costs of prosecution.

Mr. Bharara praised the outstanding investigative work of the Internal Revenue Service - Criminal Investigation and the investigators from the U.S. Attorney's Office for the Southern District of New York.

This case is being handled by the Office’s White Plains Division.  Assistant United States Attorney James McMahon and Special Assistant U.S. Attorney Andrew Kameros are in charge of the prosecution.

Preet Bharara, United States Attorney for the Southern District of New York, announced today that LENA LASHER, a licensed pharmacist, was found guilty in federal court of misbranding and fraud offenses arising from an Internet pharmacy scheme.  LASHER was convicted on Friday, May 15, in Manhattan federal court after a two-week trial before U.S. District Judge Naomi Reice Buchwald.

According to the Indictment, and Superseding Indictment, public filings, and evidence presented at trial:

From 2008 through late November 2012, LASHER, along with others, engaged in a scheme to dispense prescription drugs, including addictive pain medications, to customers who ordered them online, without meeting or consulting with a physician.  Over the course of the scheme, LASHER, a licensed pharmacist who was the Pharmacist-In-Charge at Hellertown Pharmacy in Hellertown, Pennsylvania, and who supervised a second pharmacy, Palmer Pharmacy & Much More in Easton, Pennsylvania, dispensed and caused others to dispense hundreds of thousands of pain pills without valid prescriptions.

LASHER also directed employees at the two pharmacies she supervised to ship pills in vials with false or misleading labels.  At LASHER’s direction, instructions on the labels for how often a customer should take certain drugs were often altered, and the descriptions on the labels regarding the quantity of pills in the pill vial were often inaccurate.  She also directed employees to take pills that had been returned by customers or delivery services, remove the labels, and then to re-dispense the pills to other customers with new labels, without informing those new customers that they were receiving pills that had previously been dispensed to others.  LASHER also instructed her employees to store pills without required information, such as a lot number or expiration date.

As part of her effort to conceal the nature of the Internet pharmacy business at both pharmacies, LASHER made false representations to multiple state boards of pharmacy and to an investigator with the Commonwealth of Pennsylvania.  LASHER also instructed her employees to use code when talking about the Internet pharmacy scheme, telling them to refer to prescription drugs dispensed pursuant to prescriptions obtained over the Internet as “nursing home meds” and not to use the word “Internet” in describing the pharmacies’ business to walk-in customers or the United States Post Office.

*                                  *                                  *

LASHER, 47, of High Bridge, New Jersey, was convicted of one count of conspiracy to introduce misbranded prescription drugs into interstate commerce and to misbrand prescription drugs while held for sale, with intent to defraud or mislead, which carries a maximum sentence of five years; one count of introducing misbranded prescription drugs into interstate commerce, with intent to defraud or mislead, which carries a maximum sentence of three years; one count of conspiracy to commit mail fraud and wire fraud, which carries a maximum sentence of 20 years; one count of mail fraud, which carries a maximum sentence of 20 years; and one count of wire fraud, which carries a maximum sentence of 20 years.  LASHER was acquitted of one count of witness tampering.  The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as the sentencing of the defendant will be determined by the judge.

LASHER, who is scheduled to be sentenced on September 2, 2015 at 2 p.m., was arrested on November 29, 2012, along with Peter J. Riccio, the owner of Hellertown Pharmacy and Palmer Pharmacy & Much More, multiple physicians, and others involved in the Internet pharmacy scheme.  Other than defendant Gergana Chervenkova, who remains at large abroad, and who is presumed innocent unless and until proven guilty, all defendants in the case have been convicted.

United States Attorney Bharara praised the investigative work of the Drug Enforcement Administration, the Food and Drug Administration, Office of Criminal Investigations, and the United States Postal Inspection Service, and expressed his appreciation for the assistance of the Commonwealth of Pennsylvania, Department of State, and the New Jersey Department of Law & Public Safety, Division of Law, Professional Boards Prosecution Section.

The case is being handled by the Office’s Narcotics Unit.  Assistant U.S. Attorneys Daniel C. Richenthal and Kristy J. Greenberg are in charge of the prosecution.

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Preet Bharara, the United States Attorney for the Southern District of New York, and John P. Carlin, Assistant Attorney General for National Security, announced today that KHALID AL FAWWAZ was sentenced to life in prison for multiple terrorism offenses relating to his participation in al Qaeda’s conspiracy to kill Americans. U.S. District Judge Lewis A. Kaplan imposed sentence on FAWWAZ, 52, a citizen of Saudi Arabia, in Manhattan federal court, at a proceeding attended by victims of the 1998 bombings of the U.S. embassies in Nairobi, Kenya, and Dar es Salaam, Tanzania. FAWWAZ’s sentencing follows a six-week jury trial in January and February of this year, at which FAWWAZ was convicted of all four counts in which he was charged.

Manhattan U.S. Attorney Preet Bharara said: “Khalid al Fawwaz, who played a critical role for al Qaeda in its murderous conspiracy against America, will now spend the rest of his life in a federal prison. As one of Osama bin Laden's original and most trusted lieutenants, Fawwaz led an al Qaeda training camp in Afghanistan and a terrorist cell in Kenya before serving as bin Laden’s media adviser in London. Fawwaz was bin Laden's bridge to the West, facilitating interviews of bin Laden in Afghanistan by Western media and disseminating bin Laden's 1996 declaration of jihad against America and his 1998 fatwah directing followers to kill Americans anywhere in the world. To that end, on August 7, 1998, al Qaeda operatives bombed our embassies in Kenya and Tanzania, murdering 224 innocent people and wounding thousands more. Fawwaz conspired with a murderous regime, and the result was a horrific toll of terror and death. The price he will pay, appropriately severe as it is, cannot possibly compensate his victims and their families.”

Assistant Attorney General John P. Carlin said: “Fawwaz is a terrorist who for years served Usama bin Laden and held many positions within al Qaeda. With this sentence, he is being held accountable for his role in al-Qaeda's conspiracy to kill U.S. nationals worldwide during the 1990s. This case is a testament to our commitment to bringing to justice those who threaten the United States and our interests around in the world, no matter how long it may take.”

According to the evidence presented at trial:

During the early 1990s, FAWWAZ trained at al Qaeda’s Jawar military training camp in Afghanistan and then became the emir, or head, of al Qaeda’s al Siddiq military training camp in Afghanistan. In approximately 1993, FAWWAZ moved to Nairobi, Kenya, where he served as one of the leaders of the al Qaeda members there, during a time that al Qaeda was sending fighters through Nairobi to Somalia to fight, and to train Somalis to fight, United States and United Nations forces in Somalia. FAWWAZ was also a leader of al Qaeda in Nairobi when al Qaeda began its preparations to attack the United States Embassy there.

The evidence further showed that, in 1994, FAWWAZ began to act as Osama bin Laden’s media representative in London, England. FAWWAZ served as bin Laden’s conduit to Western media, screening requests for interviews of Bin Laden and facilitating travel to Afghanistan by journalists who were allowed to interview bin Laden. FAWWAZ also publicized bin Laden’s threats of violence against the United States. Among other things, FAWWAZ delivered bin Laden’s August 1996 Declaration of Jihad against the United States to a journalist for publication and helped arrange for the publication of a February 1998 fatwa, signed by bin Laden and others, that claimed it was the individual duty of every Muslim to kill Americans, civilian and military, in any country where it was possible to do so. In addition, FAWWAZ provided al Qaeda with advice about how best to disseminate to the West its message of terror, and helped obtain for al Qaeda items that were difficult to obtain in Afghanistan, such as generators, vehicles, and communications equipment. In addition, a list of al Qaeda members recovered in Kandahar, Afghanistan, by the United States military in late 2001 contained FAWWAZ’s alias, and had him numbered ninth on the list.

Following FAWWAZ’s arrest in England in September 1998, FAWWAZ challenged his extradition to the United States for over a decade. He arrived in the Southern District of New York in October 2012.

* * *

FAWWAZ’s sentencing follows convictions for conspiring to kill United States nationals (Count One), conspiring to murder officers and employees of the United States (Count Three), conspiring to destroy buildings and property of the United States (Count Five), and conspiring to attack national defense utilities (Count Six). Counts One, Three, and Five each carried a maximum term of life in prison, and Count Six carried a maximum term of 10 years in prison.

Mr. Bharara praised the outstanding efforts of the FBI’s New York Joint Terrorism Task Force – which principally consists of agents from the Federal Bureau of Investigation and detectives from the New York City Police Department. Mr. Bharara also thanked the United States Marshals Service, the United States Department of Justice’s Office of International Affairs, and the National Security Division for their efforts. Mr. Bharara additionally thanked New Scotland Yard for its cooperation in the investigation and prosecution.

The case is being prosecuted by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Sean S. Buckley, Adam Fee, Nicholas J. Lewin, and Stephen J. Ritchin are in charge of the prosecution.

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Preet Bharara, the United States Attorney for the Southern District of New York, announced today that SEAN ROBINSON and KENDAL THOMPSON pled guilty in connection with a robbery conspiracy operating across New York, New Jersey, Virginia, and Connecticut in which members committed daytime robberies of high-end jewelry and watch stores, including Cartier in Manhattan, using violence, including firearms, and resulting in serious injury to victims and the theft of more than one million dollars in watches and other goods. THOMPSON pled guilty today before United States District Judge Loretta A. Preska, and ROBINSON pled guilty on May 7, 2015, before Judge Preska. To date, eight members of the crew have been apprehended and pled guilty. Two defendants, JAMAL DEHOYOS and COURTNEY HARDIN, remain wanted by the Federal Bureau of Investigation (“FBI”) and are considered armed and dangerous.

According to the allegations contained in court documents previously filed in federal court, and statements made in Court during the pleas of THOMPSON and ROBINSON:

Between approximately July 1, 2013, and January 30, 2014, a highly organized crew engaged in a series of violent robberies of high-end jewelry and watch stores located in four states. During those robberies, crew members smashed display cases with hammers while customers and employees were in the stores, and stole more than one million dollars in luxury watches.

The crew used violence as necessary to carry out the scheme. For example, in one robbery in August 2013 in Richmond, Virginia, the robbers used a handheld stun gun to subdue a female store employee before fleeing with more than a $100,000 in watches. Additionally, THOMPSON and ROBINSON both participated in a September 23, 2013, armed daytime robbery of a jewelry store in Brooklyn, New York, in which two of the robbers displayed handguns, and one of the robbers shot the store owner when he attempted to prevent members of the crew from fleeing with stolen jewelry. ROBINSON, the leader of the crew, planned the September 23, 2013, robbery, as well as a series of other robberies committed by this crew.

Among the stores robbed by the crew are: Cartier, in Manhattan; Travers Jewelers, in Manhattan; Golden Nugget Jewelry, in Manhattan; New York; the Borgata Hotel and Casino in Atlantic City, New Jersey; Schwarzschild’s Jewelers in Richmond, Virginia; Martin Jewelers in Cranford, New Jersey; Henry Reid and Sons Jewelers in New Canaan, Connecticut, and Litan Jewelers in Brooklyn, New York.

* * *

ROBINSON, 43, and THOMPSON, 31, both of Brooklyn, New York, each pled guilty to one count of Hobbs Act robbery conspiracy, which 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 defendants will be determined by a judge.

To date, two members of this conspiracy have been sentenced. On March 18, 2015, Judge Preska sentenced ALLEN WILLIAMS to 108 months in prison. On October 23, 2014, United States District Judge Robert P. Patterson sentenced TERRELL RATLIFF to 33 months in prison.

Mr. Bharara praised the investigative work of the FBI and the New York City Police Department. He also thanked the police departments of Cranford, New Jersey; Atlantic City, New Jersey; Richmond, Virginia; and New Canaan, Connecticut, and the Manhattan and Brooklyn District Attorneys’ Offices, and the Union County, New Jersey, Prosecutor’s Office, for their assistance in the investigation, which he noted is ongoing.

The case is being prosecuted by the Office’s General Crimes Unit. Assistant United States Attorneys Andrea M. Griswold and Richard Cooper are in charge of the prosecution.

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Preet Bharara, the United States Attorney for the Southern District of New York, Scott J. Lampert, Special Agent in Charge of the U.S. Department of Health and Human Services, Office of Inspector General’s (“HHS-OIG”) New York Region, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today that the United States has settled civil fraud claims under the False Claims Act against WESTCHESTER COUNTY HEALTH CARE CORPORATION d/b/a WESTCHESTER MEDICAL CENTER (“WMC”) related to WMC’s alleged violations of the Anti-Kickback Statute and the Stark Law and submission of costs reports to Medicare seeking reimbursement for charges WMC did not incur. In connection with the settlement, which was approved by U.S. District Judge Lewis A. Kaplan on May 14, 2015, the defendant agreed to pay a total of $18,800,000 to resolve its liabilities, and made admissions as to its conduct.

Manhattan U.S. Attorney Preet Bharara said: “The conduct of Westchester Medical Center is the reason the Anti-Kickback Statute and the Stark Law are so important – they are laws that help to rid the healthcare industry of conflicts that can improperly influence medical judgment, potentially jeopardizing patient care and causing federal healthcare programs to pay for excessive or unnecessary treatments. Hospitals and medical practices have an obligation to patients, and taxpayers, to ensure their arrangements conform to the requirements of these laws.”

HHS-OIG Special Agent in Charge Scott J. Lampert said: “Westchester Medical Center’s aggressive, intricate kickbacks and other fraud schemes in this case threatened the impartiality of medical referrals, the financial integrity of Medicare, and the public’s trust in the health care system. Our agency will continue to investigate those who seek to cheat federal health care programs.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “Westchester Medical Center participated in a coordinated shakedown of Medicare and, by extension, taxpayers. Today, they agreed to pay more than $18 million to resolve their liabilities and enable this government program to serve the seniors it was designed to help.”

According to the complaint-in-intervention filed in Manhattan federal court:

WMC operates a tertiary and quaternary care hospital in Valhalla, New York, and serves as the primary clinical affiliate of New York Medical College. From approximately 2000 through 2007, WMC maintained a financial relationship with Cardiology Consultants of Westchester, P.C. (“CCW”), a cardiology practice formerly operating on WMC’s Valhalla campus, which violated the Anti-Kickback Statute and the Stark Law. In particular, the complaint-in-intervention alleges that WMC advanced monies to CCW to open a practice for the express purpose of generating referrals to the hospital. When CCW began making payments to WMC purportedly repaying the advances, WMC entered into retroactive, no-work consulting agreements under which it paid CCW tens of thousands of dollars. Further, the complaint-in-intervention alleges that around this same time, WMC also began permitting CCW to use WMC’s fellows in CCW’s private office free of charge, contrary to WMC’s historic practice. As a result, WMC’s submission of claims to the Medicare Program for services rendered to patients referred to WMC by CCW’s shareholder physicians violated the False Claims Act. Additionally, during the same time period, through cost reports filed with the Centers for Medicare and Medicaid Services (“CMS”), WMC wrongly sought and obtained reimbursement for certain costs that WMC did not incur and that were not reimbursable under the relevant cost-reporting rules.

Under the Medicare Program, CMS makes payments to hospitals for inpatient and outpatient services after the services are rendered. Hospitals, like all healthcare providers, are required to comply with the Anti-Kickback Statute and the Stark Law, and in both cases, are prohibited from submitting claims tainted by such violations to the Medicare Program.

The Anti-Kickback Statute makes it illegal for a hospital to knowingly and willfully offer or pay remuneration to any person to induce that person to purchase, order, or recommend purchasing or ordering any good or item for which payment may be made under a federal health care program. The Anti-Kickback Statute arose out of congressional concern that remuneration given to those who can influence health care decisions would result in goods and services being provided that are medically unnecessary, of poor quality, or harmful to a vulnerable patient population.

The Stark Law provides that the government will not pay for certain designated health services prescribed by physicians who have improper financial relationships with entities to whom they refer patients because such financial relationships can compromise the physicians’ professional judgment as to whether a service is medically necessary, safe, effective, and of good quality.

As part of today’s settlement, WMC admitted the following conduct:

• Kingston Practice Arrangement. In July 2001, WMC, through its practice management affiliate, Matrix Resources, L.L.C. (“Matrix”), entered into a management agreement with CCW through which WMC agreed to assist CCW in establishing and developing a medical office located in Kingston, New York, with the objective of expanding WMC’s referral base and service area to the upper reaches of the Hudson Valley.
• Pursuant to the terms of the management agreement, which had an initial term of three years, Matrix agreed to provide certain management services for CCW’s Kingston office and to advance working capital to establish and operate the office. Between 2001 and 2002, WMC, through Matrix, advanced to CCW approximately $450,000 to pay for certain costs of the practice, including payment of the monthly management fee due under the management agreement.
• The management agreement provided that CCW would repay the advances at a rate of 8.5 percent interest by the end of the three-year term, with the proviso that the management agreement could be extended for one year if full repayment had not been made.
• In July 2002, CCW and WMC began discussions regarding the termination of the management agreement. At the outset of these discussions, WMC received a memorandum from CCW requesting that WMC, among other things, postpone or eliminate certain interest payments, reduce the applicable interest rate to the then-market rate of 6.5 percent, and extend the repayment period in recognition of CCW’s efforts in developing clinical volume at the Kingston practice and the resulting referral benefit to WMC.
• As of April 25, 2003, CCW and WMC executed a promissory note and associated letter agreement providing for immediate termination of the management agreement and repayment of the then-outstanding advances over five years at an initial interest rate of 4.75 percent (subject to periodic adjustment based upon changes in the prime rate), beginning with an initial repayment of $116,936.15 on April 28, 2003.
• In addition, on April 25, 2003, three days prior to CCW’s initial repayment of the advance, WMC and CCW entered into a two-year consulting agreement, retroactive to July 2, 2002. Pursuant to this agreement, CCW was to provide various consulting services to WMC for an annual amount of $50,000. In April 2004, the contract was amended and extended.
• Between April 2003 and July 2005, WMC paid CCW approximately $190,000 under the original and amended consulting services agreement.
• WMC was not able to locate evidence that CCW performed the contracted services under this agreement.
• During the period of approximately April 2003 through July 2005, CCW referred patients for hundreds of medical procedures at WMC.
• Fellows. For certain years during the relevant period, WMC charged various physician practices for a portion of the salaries and expenses relating to residents and fellows who trained at WMC. During the relevant period, fellows in WMC’s cardiology fellowship program performed certain services within CCW’s private offices as part of their regular clinical rotation.
• Prior to 2003, CCW paid hundreds of thousands of dollars to WMC for the salaries and expenses relating to cardiology fellows.
• Beginning in 2003, CCW ceased paying the fellowship charges for which it was invoiced by WMC; after continuing to bill CCW, but failing to compel payment, WMC wrote off these amounts as uncollectible in April 2007.
• Cost Report Reimbursement. From 2000 through 2007 (“relevant cost report timeframe”), WMC submitted annual Medicare cost reports to the Health Care Financing Administration (“HCFA”), and later CMS, reflecting certain costs, referred to as Direct Graduate Medical Education (“DGME”) and Indirect Medical Education (“IME”), associated with its residency and fellowship programs.
• Pursuant to certain HCFA/CMS regulations applicable to the DGME and IME lines of Medicare cost reports in effect during the relevant cost report timeframe, hospitals were permitted to claim reimbursement for time spent by the residents or fellows at other hospitals and non-hospital settings only if the hospital incurred all or substantially all of the salary and fringe benefit expense of the residents and fellows being rotated through other hospitals or non-hospital settings and complied with other applicable regulatory requirements.
• For the relevant cost report timeframe, WMC included certain costs in its filed cost reports that corresponded to time spent by certain residents and fellows at other hospitals or at non-hospital settings, but did not incur all or substantially all of the costs associated with these fellows and residents, or otherwise did not meet applicable HCFA/CMS regulatory requirements.

WMC also agreed to pay $18,800,000 to resolve its liabilities for this conduct.

* * *

Mr. Bharara praised the investigative work of the agents at HHS-OIG and expressed appreciation for their dedication to the case. Mr. Bharara also praised the investigative work of the FBI.

The case is being handled by the Office’s Civil Frauds Unit. Assistant United States Attorneys Rebecca C. Martin and Christine Schessler Poscablo are in charge of the case.

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Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of a criminal Complaint in Manhattan federal court charging SEAN STEWART, a Managing Director at an investment advisory firm headquartered in Manhattan, and his father, ROBERT STEWART, with using inside information to trade and cause another to trade in the securities of five different health care companies, the acquisitions of which were announced between 2011 and 2014. ROBERT STEWART was arrested on conspiracy and insider trading charges this morning at his home in North Merrick, Long Island. SEAN STEWART surrendered to the FBI on the same charges in Middleton, Wisconsin, and is expected to appear in Manhattan federal court on Monday.

Manhattan U.S. Attorney Preet Bharara said: “The Stewarts – father and son alike – allegedly engaged in insider trading together to the tune of more than $1 million. And, as alleged in one instance, the son’s tip to his father became a gift to himself when his father kicked back some of the proceeds of the insider trading to pay for his son’s wedding. I would like to thank our partners at the FBI for their excellent investigative work on this and so many other financial fraud cases.”

Assistant Director-in-Charge Diego Rodriguez said: “The defendants today stand charged with violations of our securities laws. The cash payments and cryptic communication, as alleged in the complaint, show the seriousness of the allegations. We will continue to police our markets to ensure they are legal, fair, and equitable.”

According to the Complaint* unsealed today in Manhattan federal court:

In early 2011, SEAN STEWART, who at the time held the position of Vice President in the Healthcare Investment Banking Group of a global bank headquartered in Manhattan (“Investment Bank A”), began tipping his father, ROBERT STEWART, with nonpublic information about upcoming mergers and acquisitions. The first of these deals involved the acquisition of Kendle International Inc. by INC Research, LLC, which was announced publicly on May 4, 2011. SEAN STEWART worked on the deal, representing Kendle. ROBERT STEWART made about $7,900 in profits on purchases of Kendle stock executed in February and March of 2011. When questioned by the Securities and Exchange Commission about his Kendle trades in May 2013, ROBERT STEWART reported that he used the proceeds of those trades to pay expenses related to SEAN STEWART’s June 2011 wedding.

The second deal about which SEAN STEWART tipped ROBERT STEWART was the acquisition of Kinetic Concepts, Inc. (“KCI”) by Apax Partners, announced on July 13, 2011. Although ROBERT STEWART purchased some stock in KCI based on SEAN STEWART’s tip, he sold that stock before the acquisition was announced, around the same time that SEAN STEWART learned the Financial Industry Regulatory Authority was conducting an inquiry into ROBERT STEWART’s Kendle trading.

Also around this time, in the spring of 2011, ROBERT STEWART expressed a concern to a co-conspirator and cooperating witness not named in the criminal Complaint (“CW-1”) that ROBERT STEWART was “too close to the source” to be trading in KCI stock his own account, and asked CW-1 to make purchases of KCI call options for ROBERT STEWART in CW-1’s brokerage account. CW-1 agreed to do so, and also mirrored for his own benefit the KCI trades that ROBERT STEWART was directing.

When the KCI/Apax Partners deal was announced, ROBERT STEWART and CW-1 reaped profits totaling approximately $107,790. At around this time, ROBERT STEWART told CW-1 that the source of the KCI tip and the earlier Kendle tip had been ROBERT’s son. Later, around the spring of 2012, ROBERT STEWART clarified for CW-1 that the son in question was SEAN STEWART, who worked on the “sell side” on Wall Street.

In October 2011, SEAN STEWART left Investment Bank A. A few months later, he joined an investment banking advisory firm headquartered in Manhattan (“Investment Bank B”) as a Managing Director.

During SEAN STEWART’s tenure with Investment Bank B, based on tips concerning nonpublic acquisition-related information supplied by SEAN STEWART, ROBERT STEWART had CW-1 conduct options trading in advance of the public announcements of three more deals: (1) the acquisition of Gen-Probe Inc. by Hologic, Inc., announced on April 30, 2012; (2) the acquisition, by tender offer, of Lincare Holdings Inc. by Linde AG, announced on July 1, 2012; and (3) the acquisition of CareFusion Corp. by Becton, Dickinson & Co. (“Becton”), announced on October 5, 2014. Investment Bank B represented Hologic in connection with its acquisition of Gen-Probe; Linde in connection with its acquisition of Lincare; and CareFusion in connection with its acquisition by Becton. The profits that ROBERT STEWART and CW-1 reaped from illegal insider trading in advance of the announcements of these three deals totaled over $1 million. In the midst of the scheme, in December 2012, ROBERT STEWART transferred at least $15,000 to SEAN STEWART.

To try to avoid detection for their crimes, ROBERT STEWART and CW-1 refrained from speaking explicitly about their trading over the phone or e-mail, sometimes using “golf”-related code. For example, shortly after the announcement of Lincare’s proposed acquisition by Linde, a German company, ROBERT STEWART wrote to CW-1 that he had seen a news story about the “high cost of golf reservations since a foreign company purchased all- even more expensive than imagined.” Other steps ROBERT STEWART and CW-1 took to avoid detection included trying to discuss their trading at face-to-face meetings and adopting a profit-splitting mechanism that had CW-1 paying ROBERT STEWART his portion of the illegal proceeds in small increments, over time, typically in cash.

In March and April of 2015, CW-1 recorded meetings he had with ROBERT STEWART. During one such meeting, ROBERT STEWART accepted a payment of $2,500 cash from CW-1, which was the balance of the proceeds owed to ROBERT STEWART for profitable trading executed in CW-1’s account in advance of the CareFusion acquisition announcement. Also during this meeting, ROBERT STEWART admitted that SEAN STEWART once chastised him for failing to make use of a tip, saying, “I can’t believe I handed you this on a silver platter and you didn’t invest in it.”

* * *

SEAN STEWART, 34, of New York, New York, and ROBERT STEWART, 60, of North Merrick, New York, have each been charged in the Complaint with one count of conspiracy to commit securities fraud and fraud in connection with a tender offer (Count One), one count of conspiracy to commit wire fraud (Count Two), six counts of securities fraud (Counts Three through Eight), and one count of fraud in connection with a tender offer (Count Nine). The securities fraud, tender offer fraud, and wire fraud conspiracy charges each carries a maximum prison term of 20 years. The charge of conspiracy to commit securities fraud and tender offer fraud carries a maximum prison term of five 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 a judge.

Mr. Bharara praised the investigative work of the FBI and also thanked the Securities and Exchange Commission, which has brought civil actions against the defendant.

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

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Sarah E. McCallum and Brooke E. Cucinella 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.

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

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Preet Bharara, the United States Attorney for the Southern District of New York, announced today that CHARLES HUGGINS was sentenced in Manhattan federal court to 10 years in prison for perpetrating an $8 million investment fraud against dozens of victims across the United States. HUGGINS was convicted on October 10, 2014, following a two-week jury trial before U.S. District Court Judge Sidney H. Stein, who also imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara said: “Charles Huggins took millions of dollars of his investors’ money under false pretenses and used it to pay for personal expenses, including luxuries. For his crimes, Huggins has been sentenced to 10 years in prison and ordered to relinquish his ill-gotten gains.”

According to the Complaint and other filings in Manhattan federal court, and the evidence presented at trial:

For nearly a decade, through September 2011, HUGGINS and others solicited more than $8 million from dozens of investors through various companies, including companies known as JYork Industries Inc. (“JYork”) and Urogo Inc. (“Urogo”). Huggins and his co-conspirators made false and misleading representations that, among other things, they would use the investors’ money exclusively to mine gold and diamonds from Sierra Leone and Liberia. HUGGINS falsely promised investors that their investments were risk-free and that they would receive high rates of return, which he represented were based upon the profits generated by the sale of the gold and diamonds in the United States.

HUGGINS and his co-conspirators misappropriated the investors’ funds and used those funds for their own purposes or to repay other investors. Contrary to the representations of HUGGINS and his co-conspirators, most of the investment funds were used to pay HUGGINS’s personal expenses and for purposes entirely unrelated to what was represented to investors. For example, hundreds of thousands of dollars in investor funds were diverted to Orpheus Inc., a record label owned by HUGGINS, and used to pay, among other expenses, HUGGINS’s $7,200 monthly apartment rent in the Sutton Place neighborhood of Manhattan, for upkeep of HUGGINS’s Mercedes Benz, restaurant bills, clothes from expensive boutiques, and personal credit card bills. HUGGINS personally received hundreds of thousands of dollars in cash and gave tens of thousands of dollars in cash to other members of his family and his co-conspirators. A portion of the funds was used to make payments to other investors, as in a classic Ponzi scheme.

Dozens of victims across the United States lost their money in the scheme. When certain investors complained that they had not received the investment return that they were promised, HUGGINS gave those investors small repayments from funds invested by others, or claimed that he converted their investment into restricted shares of Oraco Resources, a publicly traded company of which Huggins was a majority shareholder, that were essentially worthless.

In addition to his prison term, HUGGINS, 69, of Edgewater, New Jersey, was sentenced to three years of supervised release, and ordered to pay forfeiture and restitution of $2,383,255.26. HUGGINS was remanded following his conviction.

In sentencing HUGGINS, Judge Stein said, “This fraud was extensive, brazen, and sophisticated.” He also said that HUGGINS “lived a very luxurious lifestyle on the money of presumably hardworking individuals . . . people who were completely innocent.”

Two other defendants, Christopher Butchko and Anne Thomas, previously pled guilty for their roles in the fraudulent scheme, and await sentencing. Butchko pled guilty before Judge Stein on August 11, 2014, to conspiracy to commit wire fraud, and is scheduled to be sentenced on May 28, 2015 at 11:00 a.m. Thomas pled guilty before Judge Stein on August 18, 2014, to conspiracy to commit wire fraud, conspiracy to commit money laundering, structuring, and bank fraud, and is scheduled to be sentenced on June 24, 2015, at 3:30 p.m.

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

The case is being handled by the General Crimes Unit of the United States Attorney's Office. Assistant United States Attorneys Edward A. Imperatore and Andrea L. Surratt are 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 prevailed in a tax trial against LEHMAN BROTHERS HOLDINGS INC. (“LEHMAN”) resolving LEHMAN’s claim to approximately $67 million in foreign tax credits (“FTCs”) stemming from its cross-border stock lending. The decision, issued on May 8, 2015, by U.S. District Judge Richard M. Berman – following an October 7, 2014, bench trial – agreed with the Government that all of LEHMAN’s claimed FTCs should be disallowed. Together with, and upon application of, a previous settlement agreement between LEHMAN and the Government, LEHMAN’s claims of nearly half a billion dollars of FTCs are to be disallowed as a result of the Court’s decision.

Manhattan U.S. Attorney Preet Bharara said: “The Court’s decision rightly rejected an audacious tax-avoidance scheme that would have cost taxpayers hundreds of millions of dollars in lost revenue had it been allowed to go forward. Lehman moved millions of shares of stock around in an attempt to create tax credits available only under its questionable – and, as the Court found, erroneous – reading of a tax treaty, which it then tried to use to avoid paying taxes on its unrelated income.”

According to the evidence presented at trial:

In the transaction at issue, LEHMAN’s U.S. broker-dealer, Lehman Brothers Inc. (“LBI”), borrowed millions of shares of U.K. stock over their dividend record dates from U.S.-based lenders, and immediately lent them to its U.K. broker-dealer, Lehman Brothers International (Europe) plc (“LBIE”). LBIE, in turn, further lent the stock to a U.K. or European entity, or held the stock and used it for various purposes. Shortly after the dividend record date passed, the stock loans were unwound. Once the dividend was paid (to either LBIE or any entity to which it lent the stock), the recipient was contractually required to make a so-called “substitute payment” to the entity from which it borrowed the stock, in the amount of the dividend payment received. Thus, the ultimate holder would make a substitute payment to LBIE, LBIE would then make a substitute payment to LBI, and LBI would make a substitute payment back to the original lender. LBI, the U.S. taxpayer at issue, was accordingly just a pass-through entity between the ultimate stock lender and the ultimate stock borrower. LBI generally held the stock only for very short periods while shuttling it back and forth, and whenever it received a substitute dividend from LBIE, it paid out an equal substitute dividend to the original lender.

LEHMAN claimed that it was entitled to hundreds of millions of dollars’ worth of FTCs as a result of these transactions under its reading of a provision of the then-prevailing U.S.-U.K. tax treaty. Lehman then purported to use the majority of the FTCs it claimed to offset taxes it owed on hundreds of millions of dollars of its unrelated income.

According to the treaty, U.S. recipients of U.K. dividends were potentially entitled to a U.S. FTC in connection with those dividends, but the “aggregate of the amount or value of the dividend and the amount of the tax credit . . . shall be treated as a dividend for United States tax credit purposes.” The Government argued to the Court that the applicable U.S. tax credit rules prescribed certain conditions for when a taxpayer qualified for FTCs, among them that no credit would be given to a dividend recipient who acts as a middleman: in this case, someone who “is under an obligation . . . to make related payments with respect to positions in substantially similar or related property.” Thus, the Government argued, LEHMAN did not qualify for the tax credit because LBI’s obligation to pay out a substitute dividend was clearly “related” to its receipt of the substitute dividend from LBIE.

At the trial, the Court heard testimony from three former officials of the U.S. Department of Treasury who negotiated tax treaties, two who testified on behalf of LEHMAN, and one who testified on behalf of the Government. In the decision announced on Friday, the Court rejected LEHMAN’s argument that the Court should ignore or read out of existence the treaty language requiring that the sum of the dividend and the U.K. tax credit “shall be treated as a dividend” for U.S. tax credit purposes. It characterized LEHMAN’s arguments as impermissibly “cherry-picking” the treaty provisions that favor it – such as the one that potentially allowed it to claim FTCs – while rejecting the “shall be treated” provision that dooms LEHMAN’s claim.

Though the case tried before the Court concerned only approximately $67 million of the FTCs that LEHMAN claimed in connection with the stock-lending transactions it entered into in 1999 and 2000, the parties had previously agreed, pursuant to a March 14, 2014, settlement, that the Court’s trial ruling would be applied to LEHMAN’s claims for approximately $165 million of FTCs arising from the same types of transactions in 2001, 2002, 2003, and 2004, and also that LEHMAN would concede approximately $259 million of (additional) FTCs for the entire period. Accordingly, as a result of the trial and the settlement agreement, LEHMAN will lose all of the approximately $489 million in FTCs that it claimed in connection with the stock-lending transactions at issue.

Mr. Bharara thanked the Internal Revenue Service Office of Associate Chief Counsel (International) and its staff attorneys for their work on the case.

The case is being handled by the Office’s Tax and Bankruptcy Unit. Assistant United States Attorney Jean-David Barnea is in charge of the case.

Preet Bharara, the United States Attorney for the Southern District of New York, and Scott Lampert, Special Agent in Charge of the U.S. Department of Health and Human Services, Office of Inspector General’s (“HHS-OIG”) New York Region, announced today that the United States has settled civil fraud claims under the False Claims Act against MATTOO & BHAT MEDICAL ASSOCIATES, P.C. (“MBPC”) and DR. FENG QIN (“DR. QIN”) related to MBPC’s submission of fraudulent claims for reimbursement by Medicare for vascular surgical procedures that are not covered under Medicare. In connection with the settlement, which was approved by U.S. District Judge Louis L. Stanton on May 1, 2015, the defendants agreed to pay a total of $1,150,000 to resolve their liabilities.

Manhattan U.S. Attorney Preet Bharara said: “As they admitted, Mattoo & Bhat Medical Associates, P.C., and Dr. Feng Qin performed and billed Medicare for surgery procedures in violation of Medicare’s billing rules. We will continue to work to protect the public’s money from providers who try to skirt Medicare billing rules for their own profit.”

HHS-OIG Special Agent in Charge Scott Lampert said: “Performing invasive procedures that do not qualify for Medicare reimbursement and then billing Medicare for them undermines the financial integrity of the Medicare program. This settlement is another example of OIG’s commitment to protecting our beneficiaries and taxpayers from such abusive practices.”

According to the complaint filed in Manhattan federal court:

Patients with end-stage renal disease (“ESRD”), who are covered by Medicare, regularly require and receive dialysis treatments. Vascular surgeons may provide vascular access services to these patients, such as creation and maturation of fistulas, a port in the patient’s arm to obtain access to the patient’s circulatory system, through which dialysis is done. In addition, when clinically indicated, such surgeons may provide fistulagrams, a radiological procedure in which dye is injected into the patient’s vein or artery to visualize the port and surrounding blood vessels, and angioplasties, in which wires and balloons are inserted into veins or arteries that have narrowed in order to restore the patient’s blood flow. Routine monitoring of a dialysis patient’s access site, however, is typically done by the patient’s nephrologist and the dialysis nurses and technicians, who are reimbursed by Medicare for the ongoing monitoring and surveillance.

According to Medicare billing rules in New York State, monitoring of a dialysis patient’s access site does not require vascular surgery procedures, such as fistulagrams and angioplasties, and these procedures are not reimbursable unless the patient has specific clinical problems, such as significant difficulty receiving dialysis properly. Routinely performing fistulagrams and angioplasties where there is no supporting clinical indication is not reimbursable by Medicare. The rules also state that angioplasties are reimbursed by Medicare only if, in addition to the clinical findings required to support a fistulagram, there is evidence that the patient’s blood vessel has a restriction greater than 50% of the vessel’s diameter.

MBPC operated two office-based surgical offices in Manhattan and Queens, which operated under the trade name “AV Care,” from December 2010 to April 2012, and DR. QIN worked primarily at MBPC’s Manhattan location. AV Care’s patients were ESRD patients undergoing dialysis treatment. As a regular practice, AV Care routinely scheduled patients for fistulagrams and angioplasties as many as three months in advance, and MBPC surgeons, including DR. QIN, performed these fistualgrams as a matter of routine even if the patient presented without a clinical reason. Furthermore, from time to time, DR. QIN performed angioplasties on AV Care patients where the patient information and records did not support the presence of a restriction greater than 50% of the diameter of the patient’s blood vessel. MBPC wrongly billed Medicare for these procedures, which were excluded from Medicare coverage by the applicable rules.

As part of today’s settlement, MBPC and DR. QIN admitted that they regularly performed, and billed Medicare for, vascular surgery procedures done only for surveillance purposes, in violation of the Medicare billing rules. MBPC agreed to pay $1,000,000 and Dr. QIN agreed to pay $150,000 to resolve their respective liabilities for this conduct. In addition, MBPC and DR. QIN entered into integrity agreements with HHS-OIG, through which they agreed to implement certain compliance measures and submit to monitoring by HHS-OIG.

The case is being handled by the Office’s Civil Frauds Unit. Assistant United States Attorneys Rebecca C. Martin and Jean-David Barnea are in charge of the case.

AVCare relator release
Feng Qin stip and order
Mattoo+Bhat stip and order II

Preet Bharara, the United States Attorney for the Southern District of New York, announced today the filing of a lawsuit against the SPRINGFIELD MEDICAL AESTHETIC P.C. d/b/a ADVANCED COSMETIC SURGERY OF NEW YORK (“ADVANCED COSMETIC”), and EMMANUEL O. ASARE, M.D. (“ASARE”), a plastic surgery practice and surgeon in that practice, alleging discrimination on the basis of disability in violation of Title III of the Americans with Disabilities Act of 1990 (“Title III of the ADA”). ADVANCED COSMETIC, which has offices in Manhattan and Long lsland, and ASARE are alleged to have unlawfully discriminated against a prospective patient (the “Patient”) on the basis of his disability by refusing to provide services to the Patient, without even conducting a medical assessment of his condition, because the Patient is HIV positive.

Manhattan U.S. Attorney Preet Bharara said: “Medical providers are not free under the law simply to refuse their services to a person with a serious medical condition like HIV. Individuals with disabilities are entitled to the same medical services as everyone else, and there can be no room in the medical profession for the kind of discrimination alleged in this lawsuit.”

Title III of the ADA prohibits discrimination by doctors, lawyers, hospitals, restaurants, retail stores, hotels, private transportation providers, and other private businesses and nonprofit organizations that provide services to the public. All of these entities are prohibited from excluding individuals with disabilities from their services and programs because they have a serious medical condition, such as HIV.

According to the Complaint filed in Manhattan federal court, the Patient is a cancer survivor living with HIV. In July 2014, the Patient scheduled an appointment at ADVANCED COSMETIC to have an initial consult regarding his gynecomastia, an inflation of breast tissue that is a common side effect of both cancer treatments and anti-retroviral HIV medications. On or about July 14, 2014, the Patient met with ASARE at ADVANCED COSMETIC’s Manhattan offices. Upon learning that the Patient was living with HIV, ASARE immediately told the Patient that ADVANCED COSMETIC did not provide services to those with HIV, and the Patient was asked to leave. Subsequently, ASARE and ADVANCED COSMETIC stated that it is their policy not to provide services to people living with any of a host of ailments, including HIV, cancer, and diabetes.

The Complaint filed today seeks to require ADVANCED COSMETIC and ASARE to take the necessary steps to prevent and remedy any future discrimination on the basis of disability, particularly against those with serious medical conditions such as HIV, cancer, and diabetes, and pay compensation to the victims of discrimination and a civil penalty.

This case is being handled by the Office’s Civil Rights Unit. Assistant United States Attorney Arastu K. Chaudhury is in charge of the case.

To file a complaint alleging that any place of public accommodation within the Southern District of New York is not accessible to persons with disabilities, use the Civil Rights Complaint Form available on the United States Attorney’s Office’s website, www.usdoj.gov/usao/nys. Complaints should be sent 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

US v. Asare Complaint with Exhibits

Preet Bharara, the United States Attorney for the Southern District of New York, and Christina Scaringi, Special Agent in Charge, Department of Housing and Urban Development, Office of the Inspector General ("HUD-OIG"), Northeast Region, announced today the return of a Superseding Indictment charging MICHAEL BARNETT, ROBERT LEES, and KEVIN DICELLO with conspiracy, fraud, and false statement charges in connection with the development of Vineyard Commons, a luxury residential complex in Ulster County, New York. This case is assigned to Judge Kenneth M. Karas.

Manhattan U.S. Attorney Preet Bharara said: “Michael Barnett allegedly abused his position as the developer of Vineyard Commons to enrich himself and defraud his construction lender and, ultimately, the U.S. Department of Housing and Urban Development, which guaranteed the construction loan. As charged, Robert Lees and Kevin DiCello were all too willing to go along with Barnett's demand for an $865,000 kickback so that they could get more business from Barnett in the future.”

HUD-OIG Special Agent in Charge Christina Scaringi said: “These defendants were entrusted to use federally-insured funds to provide decent affordable housing for our senior citizens. Instead, as alleged, they lied to the lender and siphoned project funds to satisfy their greed. The HUD OIG will not tolerate this behavior and is committed to rooting out those who choose to engage in these outrageous acts.”

According to the allegations made in the Superseding Indictment*:

BARNETT, who was the developer of Vineyard Commons, sought kickbacks and investments from subcontractors and vendors on the project and made false statements to the project's lender so that he could draw down on the project's line of credit. LEES and DICELLO were a division president and vice president of operations, respectively, for a subcontractor and vendor that provided rough carpentry and lumber supplies on the project (the "Lumber Company"). The indictment charges that LEES and DICELLO agreed to have their employer pay BARNETT a

kickback of approximately $865,000 in exchange for the Vineyard Commons contract, as well as future business on other developments BARNETT was planning.

BARNETT, LEES, and DICELLO entered into an agreement by which the Lumber Company inflated its bid for labor and materials by approximately $865,000, which would be paid to BARNETT as a kickback from the Lumber Company.

The defendants intended that the kickback would be funded unwittingly by the construction lender, and ultimately by HUD through its guaranty of the construction loan, through the submission of false and inflated requests to draw down the construction loan.

In January 2010, the Lumber Company made a partial kickback payment of $200,000 to BARNETT, and the defendants disguised the transaction on the Lumber Company's books by making it appear to be a customer rebate payable to a company controlled by BARNETT that was not involved in the development of Vineyard Commons. BARNETT then used the $200,000 as a partial payment of an obligation he had to the general contractor on Vineyard Commons.

BARNETT solicited subcontractors and vendors on the Vineyard Commons project, including the Lumber Company, to provide labor and materials to build a pool house at his home. Some of these subcontractors and vendors, including the Lumber Company, agreed to do so.

BARNETT submitted false invoices to the construction lender in order to enrich himself fraudulently by drawing down the loan.

The defendants and the counts with which they are charged in the Superseding Indictment are set forth in the attached list.

Mr. Bharara thanked the HUD-OIG for its outstanding work on the investigation.

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

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

View Chart

US v Barnett et al Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced the conviction of KEVIN LOWE, the owner of “Astramed,” a purported medical clinic with multiple locations in the Bronx, New York, and from which more than five million tablets of the prescription painkiller oxycodone were unlawfully distributed over a three-year period. LOWE was convicted yesterday following a two-week jury trial presided over by U.S. District Judge Lorna G. Schofield.

Manhattan U.S. Attorney Preet Bharara said: “As a jury unanimously found, Kevin Lowe operated a series of purported medical clinics that functioned as prescription pill drug trafficking dens where doctors wrote almost 35,000 medically unnecessary prescriptions for oxycodone, comprising oxycodone tablets with a street value of nearly $165 million. With this guilty verdict and the 24 other convictions in this case, we have made an important step toward combatting the prescription pill trafficking problems plaguing the Southern District. I would like to thank the Drug Enforcement Administration and the New York City Police Department for being our partners in this case.”

According to the allegations contained in the Indictment and the Government’s evidence during LOWE’s trial:

From approximately January 2011 until February 2014, a drug distribution ring operated out of “Astramed,” a purported medical clinic with multiple locations in the Bronx that LOWE owned and operated. At these clinics, doctors working under LOWE’s direction wrote tens of thousands of medically unnecessary prescriptions for oxycodone, a highly addictive, prescription narcotic-strength opioid used to treat severe and chronic pain conditions. Oxycodone prescriptions, once written, have enormous cash value to street-level drug dealers, who can fill prescriptions at most pharmacies and resell the resulting pills at vastly inflated rates. Indeed, a single prescription for 180 30-milligram oxycodone pills has an average resale value in New York City of more than $6,000, and far more in nearby states.

LOWE capitalized on that black market for oxycodone by employing Board-certified, state-licensed doctors who were willing to write medically unnecessary prescriptions for large quantities of oxycodone in return for cash. LOWE’s clinics, which accepted no insurance from patients seeking oxycodone prescriptions, typically charged $300 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 180 30-milligram tablets, or a daily dosage of six 30-milligram tablets.

LOWE’s clinics bore little resemblance to a standard medical office. For example, on a daily basis, crowds of up to 100 people gathered outside the Astramed office on Southern Boulevard (the “Clinic”) clamoring to see one of the doctors at the clinic in order to obtain a prescription for oxycodone. Virtually none of these individuals had any medical need for oxycodone, or any legitimate medical record documenting an ailment for which oxycodone would be prescribed. Instead, most of these individuals were members of “crews” – that is, they were recruited and paid by high-level drug traffickers, oxycodone distributors (the “Crew Chiefs”), to pose as “patients” in order to receive medically unnecessary prescriptions from the Doctors. The Crew Chiefs then arranged for and oversaw the filling of the resulting prescription at various pharmacies and took possession of the oxycodone pills to be resold on the street. Crew Chiefs also paid the Clinic’s employees hundreds of dollars in cash at a time to get their Crew Members into the Clinic to see one of the Doctors.

In total, between approximately January 2011 and February 2014, Astramed Doctors issued 34,925 medically unnecessary prescriptions for oxycodone, comprising nearly 5.5 million oxycodone tablets with a street value of more than $165 million. LOWE alone collected more than $7 million in cash for these sham “doctor visits” during this time period.

LOWE, 55, of Melville, New York, was convicted of one count of conspiracy to distribute and possess with intent to distribute oxycodone, which carries a maximum sentence of 20 years in prison. LOWE is scheduled to be sentenced on August 10, 2015 at 4:30 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 a judge.

Twenty-four additional participants in the drug distribution ring – including doctors, clinic employees, and drug traffickers who oversaw crews of “patients” whom they sent into the clinics in order to obtain medically unnecessary prescriptions – have previously pled guilty to their participation in the unlawful scheme.

Mr. Bharara thanked the Drug Enforcement Administration and the New York City Police Department for their work in the 15-month investigation, which he noted is ongoing. Mr. Bharara also thanked the Town of Orangetown Police Department, the Westchester County Police Department, the United States Department of Health and Human Services, the New York State Health Department’s Bureau of Narcotic Enforcement, the Office of the Medicaid Inspector General, New York City's Human Resource Administration, the New York State Attorney General’s Office Medicaid Fraud Control Unit, the Internal Revenue Service-Criminal Investigation and the El Dorado Task Force for their assistance.

The case is being prosecuted by the Office’s Narcotics Unit. Assistant U.S. Attorneys Edward B. Diskant and Tatiana R. Martins are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that LATCHMEE MAHATO, a/k/a “Robbie,” and JONATHAN WHEELER, two of the owners and principals of G3K Displays, Inc., and related entities (“G3K”) – a New Jersey-based company that provided in-store displays for retailers – ZACHARY KAITZ, an executive at G3K, and KATHLEEN SMITH, a former employee of Foot Locker, Inc., a major customer of G3K, pled guilty in Manhattan federal court for their roles in an elaborate scheme to defraud G3K’s lenders and customers out of millions of dollars. Among other things, MAHATO, WHEELER, and ZACHARY KAITZ admitted that they and others fraudulently inflated G3K’s sales and accounts receivable to secure millions of dollars in loans, and verified to G3K’s lenders and outside auditors false financial information about G3K. SMITH admitted to inflating purchase orders from Foot Locker to G3K and receiving kickbacks from MAHATO, SMITH, and co-defendant Steven Kaitz, the third owner and principal of G3K. MAHATO, WHEELER, SMITH, ZACHARY KAITZ, and Steven Kaitz were charged in January 2015. MAHATO and SMITH pled guilty yesterday, ZACHARY KAITZ pled guilty today, and WHEELER pled guilty on April 28, 2015, each before United States District Judge Jed S. Rakoff. Steven Kaitz pled guilty on April 22, 2015, before Judge Rakoff.

Manhattan U.S. Attorney Preet Bharara said: “With the guilty pleas of Latchmee Mahato, Jonathan Wheeler, Kathleen Smith, and Zachary Kaitz, all five of the defendants have now pled guilty in connection with this multimillion-dollar scheme that misled G3K’s customers, lenders, and auditors. I would like to thank our partners at the FBI for working with us on this case.”

According to the Indictment and statements made during the proceedings in this case:

Steven Kaitz, MAHATO, and WHEELER were the three owners and principals of G3K, a company that manufactured and designed displays for retailers around the world, including major retailers of sports apparel and footwear. ZACHARY KAITZ served as G3K’s Vice President of Creative Services.

From approximately 2012 to May 2014, in order to trick various lenders, including Veritas Financial Partners, LLC, and MVC Capital, into lending at least $18.6 million to G3K, Steven Kaitz, MAHATO, WHEELER and others engaged in a scheme to falsely inflate G3K’s revenue and accounts receivable, and as part of the scheme, made and caused to be made materially false and misleading statements about G3K’s financial condition. To create the false impression of sales, the defendants created phony documents, including fake and falsely inflated purchase orders purporting to reflect sales to G3K’s customers. Steven Kaitz, MAHATO, WHEELER, and SMITH also tricked certain of the company’s customers, including Foot Locker into paying falsely inflated invoices from G3K.

The defendants took elaborate steps to keep the scheme afloat and prevent G3K’s lenders and outside auditors from discovering the fraud. For example, Steven Kaitz, MAHATO, and WHEELER were involved in the creation of fake email accounts purporting to belong to fictitious employees of Foot Locker and Adidas, G3K’s two largest customers. Steven Kaitz, MAHATO, and WHEELER operated these fake email accounts themselves, pretending to be employees of those customers, and then used those fake email accounts to “verify” false information about G3K’s financial condition, including its sales and accounts receivable, to G3K’s lenders and outside auditors. To keep their scheme afloat, Steven Kaitz, MAHATO, and WHEELER also utilized shell companies to engage in “round-trip” transactions to create the false appearance that customers were paying G3K’s phony outstanding receivables. ZACHARY KAITZ, who was skilled in graphic design, helped carry out the fraud by creating fraudulent documentation, such as fake invoices, purchase orders, and bills of lading, to support the false representations to the lenders about G3K’s business.

Steven Kaitz, MAHATO, and WHEELER further misappropriated approximately $2.8 million of the loan proceeds for their own personal use, to pay for homes and luxury cars, private school tuition, and personal credit card bills, as well as kickbacks to SMITH.

As of May 2014, when G3K’s lenders terminated their lending relationships with the company after discovering the fraud, G3K had approximately $18.6 million in loans outstanding.

LATCHMEE MAHATO, a/k/a “Robbie,” 49, of Jamaica, Queens, JONATHAN WHEELER, 46, of Southport, Connecticut, and ZACHARY KAITZ, 31, of Brooklyn, New York, each pled guilty to one count of conspiracy to commit bank fraud and wire fraud, which carries a maximum sentence of 30 years in prison. As part of their respective plea agreements, MAHATO and WHEELER each agreed to pay restitution in the amount of $18,600,000, MAHATO agreed to forfeit $2,215,147, WHEELER agreed to forfeit $957,435, and ZACHARY KAITZ agreed to forfeit $100,000. KATHLEEN SMITH, 49, of South Plainfield, New Jersey, pled guilty to one count of conspiracy to commit honest services wire fraud, which carries a maximum sentence of 20 years. As part of her plea agreement, SMITH agreed to pay restitution in the amount of $348,500 and to forfeit $244,407. MAHATO, WHEELER, SMITH, and ZACHARY KAITZ are each scheduled to be sentenced by Judge Rakoff on September 9, 2015.

Steven Kaitz pled guilty on April 22, 2015, before Judge Rakoff, and he is scheduled to be sentenced on September 8, 2015.

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 Federal Bureau of Investigation.

The case is being prosecuted by the Office’s Complex Frauds & Cybercrime Unit. Assistant U.S. Attorneys Joshua A. Naftalis and Rosemary Nidiry are in charge of the prosecution. Assistant U.S. Attorney Edward B. Diskant of the Money Laundering & Asset Forfeiture Unit is responsible for the forfeiture aspects of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ELEHECER BALAGUER pled guilty today in Manhattan federal court to aiming the beam of a laser pointer at commercial airliners in the vicinity of LaGuardia Airport on March 9, 2015. BALAGUER was arrested on March 16, 2015, and pled guilty today before United States District Judge Jed S. Rakoff to aiming a laser pointer at an aircraft.

U.S. Attorney Preet Bharara said: “Lasers, when pointed at aircraft, have the ability to incapacitate and injure pilots. Thankfully, this case did not end in tragedy, but Elehecer Balaguer’s actions were serious and posed a danger. Others should understand that they will be prosecuted criminally if they engage in this conduct.”

According to allegations made in the Complaint and the Information filed today, and statements made during court proceedings, including today’s guilty plea:

On March 9, 2015, the pilots of three commercial airliners near LaGuardia Airport in Queens were struck in the eyes with a bright green beam, causing the pilots to lose focus temporarily and, in two instances, briefly blinding the pilots. All three airliners were full of passengers and were either in the process of taking off from LaGuardia Airport or landing at LaGuardia Airport. In response, an Air Traffic Controller at LaGuardia Airport temporarily changed the runway directions used for all airplanes arriving at and departing from LaGuardia Airport that evening, so that airplanes would avoid the laser beam.

Each of the pilots struck with the green beam noticed that the beam appeared to originate from the Bronx, New York. Later in the evening on March 9, 2015, officers from the New York City Police Department (“NYPD”) Aviation Unit responded to the pilots’ complaints by flying in a helicopter (the “NYPD Helicopter”) in the vicinity of the location where the airplanes had been struck with a beam. While the NYPD Helicopter was in that area, a green beam was directed into the cockpit of the NYPD Helicopter, causing both of the NYPD pilots also to lose sight temporarily. The NYPD pilots observed that the laser beam appeared to originate from a particular second floor apartment of a building in the Bronx (the “Apartment”).

NYPD officers responded to the Apartment later in the night of March 9, 2015. BALAGUER and others were present in the Apartment. The officers recovered a laser pointer (the “Laser Pointer”) from the top of a refrigerator near the window from where the green beam that struck the NYPD Helicopter appeared to have originated. Written on the Laser Pointer is the warning: “DANGER – LASER RADIATION – AVOID DIRECT EYE EXPOSURE.” When questioned the night of March 9, 2015, BALAGUER admitted that he owned the Laser Pointer, but denied knowing who pointed the Laser Pointer at passing airplanes.

On March 13, 2015, in the presence of counsel, BALAGUER admitted to law enforcement that he shined the beam of the Laser Pointer at an airplane on March 9, 2015. BALAGUER further admitted to lying to law enforcement when he was interviewed by NYPD officers on March 9, 2015.

BALAGUER, 54, pled guilty to one count of aiming a laser pointer at an aircraft, which carries a maximum penalty of five 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.

BALAGUER is scheduled to be sentenced by Judge Rakoff on September 9, 2015.

U.S. Attorney Bharara praised the investigative work of the New York FBI’s Joint Terrorism Task Force – which principally consists of agents from the FBI and detectives from the NYPD, and comprises investigators from numerous federal, state, and local law enforcement agencies. Mr. Bharara also thanked the NYPD’s Aviation Unit and the Port Authority of New York and New Jersey.

This case is being handled by the Terrorism and International Narcotics Unit of the U.S. Attorney’s Office for the Southern District of New York. Assistant U.S. Attorney Ian McGinley is 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 that New York State Senate Majority Leader DEAN SKELOS and his son ADAM SKELOS were taken into custody this morning on charges that they extorted those with business before New York State to make payments to ADAM SKELOS, with the expectation that such payments would result in official action by DEAN SKELOS. The defendants were also charged with bribery and honest services fraud schemes. Among other things, DEAN SKELOS is accused of illegally obtaining a $20,000 payment for ADAM SKELOS from a large real estate developer dependent on DEAN SKELOS for tax breaks and a $10,000 monthly payment from an environmental technology company seeking government-funded contracts in New York State. DEAN SKELOS and ADAM SKELOS surrendered to the FBI in Manhattan, this morning, and are scheduled to appear before U.S. Magistrate Judge Henry B. Pitman in Manhattan federal court later today.

U.S. Attorney Preet Bharara said: “As the Complaint charges, in six counts, Dean Skelos unlawfully used his power and influence as Senate Majority Leader, repeatedly, to illegally enrich his son, Adam, and indirectly, himself. And, more specifically, the Complaint, in multiple places, alleges that Dean Skelos’s support for certain infrastructure projects and legislation was often based, not on what was good for his constituents or good for New York, but rather on what was good for his son’s bank account. By now, two things should be abundantly clear. First, public corruption is a deep-seated problem in New York State. It is a problem in both chambers; it is a problem on both sides of the aisle. And second, we are deadly serious about tackling that problem.”

FBI Assistant Director-In-Charge Diego Rodriguez said: “The charges announced today describe the alleged criminal activity of Dean and Adam Skelos. In particular, the defendants are alleged to have conspired to take advantage of Dean Skelos’s powerful position within state government to influence and extort those with business before the state. When all was said and done, Dean Skelos is charged with having caused more than $200,000 to be paid to Adam Skelos in exchange for backdoor bribes. We hold our elected representatives to the highest standards, and will continue to root out corruption in all forms and at all levels of government: municipal, state, and federal.”

According to the allegations contained in the Complaint* unsealed today in Manhattan federal court:

Since his re-election in 2010, DEAN SKELOS has served as Majority Leader or Co-Majority Leader of the New York State Senate, a position that gives him significant power over the operation of New York State government. DEAN SKELOS used this power to pressure companies with business before New York State to make payments to his son, ADAM SKELOS, who substantially depended on these companies for his income. DEAN SKELOS and ADAM SKELOS were able to secure these illegal payments through implicit and explicit representations that DEAN SKELOS would use his official position to benefit those making the payments, which DEAN SKELOS in fact did when it was necessary to ensure that the payments to ADAM SKELOS continued.

DEAN SKELOS, as charged, obtained over $200,000 in payments to ADAM SKELOS through persistent and repeated pressure applied to a senior executive of a major real estate developer (“Developer-1”) who is cooperating with the Government and referred to in the Complaint as CW-1. In response to this pressure, CW-1 arranged for Developer-1 to pay $20,000 to ADAM SKELOS and further arranged for an environmental technology company (the “Environmental Technology Company” or “Company”) in which Developer-1’s founding family and CW-1 owned stakes to make $10,000 monthly payments to ADAM SKELOS. CW-1 arranged for these payments to ADAM SKELOS due to Developer-1’s substantial dependence on DEAN SKELOS for real estate tax abatements and other real estate legislation favorable to Developer-1, and based in part on a statement from DEAN SKELOS that he would punish those in the real estate industry who defied him. In return for the payments to ADAM SKELOS, and to ensure that they would continue, DEAN SKELOS took numerous official actions to benefit both Developer-1 and the Environmental Technology Company, including promoting State legislation beneficial to the companies.

Dean Skelos’s Demands For Payments To Adam Skelos

Beginning in approximately 2010, DEAN SKELOS met repeatedly with CW-1 and other representatives of Developer-1 to request that Developer-1 provide sales commissions to his son, ADAM SKELOS, claiming that ADAM SKELOS was suffering financially. DEAN SKELOS met repeatedly with CW-1 to request payments for his son, including during meetings where CW-1 and others from Developer-1 were lobbying DEAN SKELOS with respect to real estate legislation. CW-1 was concerned about Developer-1 making payments to ADAM SKELOS but did not want to ignore DEAN SKELOS’s repeated requests in light of his position as Senate Majority Leader and his importance in ensuring the passage of real estate legislation beneficial to Developer-1.

Payments To Adam Skelos Arranged By CW-1

As charged, CW-1 responded to the requests from DEAN SKELOS by arranging for payments to ADAM SKELOS that would be difficult to trace to Developer-1. First, CW-1 caused a $20,000 check to be issued to ADAM SKELOS from a title insurance company dependent on Developer-1 for business, even though ADAM SKELOS did no work whatsoever in connection with the real estate transaction for which title insurance was being issued. CW-1 made this payment after ADAM SKELOS forwarded to his father, DEAN SKELOS, an e-mail that ADAM SKELOS had sent to CW-1 requesting a title insurance commission. After receiving the email, DEAN SKELOS responded “Following up, be patient” during the same time period DEAN SKELOS was contacting CW-1 and a lobbyist working for Developer-1 to renew his request for payments to his son.

In addition to the $20,000 payment CW-1 convinced the CEO of the Environmental Technology Company to hire ADAM SKELOS as a $4,000 per month “consultant” by telling the CEO that, through payments to ADAM SKELOS, DEAN SKELOS would be able to assist the Environmental Technology Company in winning government-funded contracts in New York State. For example, CW-1 e-mailed the CEO that “there is great potential for [ADAM SKELOS] to exploit his father’s contacts statewide.” Likewise, ADAM SKELOS arranged a conference call between DEAN SKELOS and a senior executive with the Environmental Technology Company who is cooperating with the Government (“CW-2”) to demonstrate that his father would assist the Company in return for payments. Later, after ADAM SKELOS had been hired by the Company on a $4,000 per month contract, CW-1 told the CEO on behalf of ADAM SKELOS and DEAN SKELOS that they would block Nassau County’s approval of a $12 million contract with the Environmental Technology Company unless payments to ADAM SKELOS were sharply increased. In addition, CW-1 e-mailed the CEO that ADAM SKELOS’s “dad called” and “I think they don’t think [the Nassau County contract is] worth pushing through” absent higher payments to ADAM SKELOS. The CEO then agreed to increase ADAM SKELOS’s payments to $10,000 per month, and CW-2 responded in an e-mail that the Environmental Technology Company was being “held hostage.”

Official Actions By Dean Skelos

As charged in the Complaint, DEAN SKELOS took official actions beneficial to Developer-1 in return for the $20,000 payment to ADAM SKELOS and Developer-1’s role in arranging for payments to ADAM SKELOS from the Environmental Technology Company. Among other things, DEAN SKELOS voted for real estate-related legislation lobbied for by Developer-1, including the renewal of tax abatement and rent regulation legislation crucial to the financial success of Developer-1 enacted in 2011, and an expansion of the tax abatement program in 2013.

With respect to the Environmental Technology Company, DEAN SKELOS and ADAM SKELOS periodically communicated to the CEO and CW-2 directly and indirectly that DEAN SKELOS would use his official position to benefit the Company so as to induce the Company to continue making payments to ADAM SKELOS. And, when the Company at times became frustrated with the limited progress in obtaining and collecting on government-funded contracts, DEAN SKELOS took official action to benefit the Company, including the following actions described in the Complaint:

• DEAN SKELOS used his official position to assist the Environmental Technology Company in applying and obtaining approvals for a $12 million contract with Nassau County, including by consulting with CW-2 on the Environmental Technology Company’s proposal and making calls to Nassau County officials to expedite the contracting process. Through these actions, ADAM SKELOS’s monthly payment from the Company more than doubled from $4,000 to $10,000.
• DEAN SKELOS pressured Nassau County officials to make payments to the Environmental Technology Company, stating at one point that his son could lose his job if payments were not expedited. For example, DEAN SKELOS was intercepted over a Court-authorized wiretap in a call with the Nassau County Executive in which he asked for an explanation for the lack of payments, complaining on behalf of ADAM SKELOS that “somebody feels like they’re getting jerked around the last two years.” Nassau County officials were concerned that if they did not pay ADAM SKELOS then DEAN SKELOS would not be responsive to the County’s legislative needs. Indeed, when Nassau County was slow in making payments to the Company, ADAM SKELOS told CW-2 on an intercepted call that Nassau County was “burning bridges left and right” and that the “State is not going to do a fucking thing for the County” because “they haven’t helped us with what we needed.”
• DEAN SKELOS used his official position to promote hydrofracking wastewater treatment regulations which would essentially require the use of a product of the type marketed by the Environmental Technology Company, and that would result in additional commission payments to ADAM SKELOS. To this end, DEAN SKELOS met privately with ADAM SKELOS and CW-2 on the Company’s fracking proposals and directed a member of his Senate Staff to arrange a meeting with a New York State government official and employees of the Environmental Technology Company. When the Governor of New York announced in December 2014 that New York State would continue to ban fracking, DEAN SKELOS repeatedly reassured ADAM SKELOS that “we’re going to totally focus on the other thing now,” referring to other legislative action that could benefit the Company.
• DEAN SKELOS used his official position in an attempt to direct a portion of a $5.4 billion sum that the State had recovered in litigation with financial services companies (the “Settlement Funds”) in a way that would benefit water projects and contracts that were being pursued by the Environmental Technology Company. For example, when ADAM SKELOS expressed concern in an intercepted call that the Governor was “pushing to spend all that money on his own” in his budget proposal, DEAN SKELOS told his son “don’t worry” and referred him to the speech that a fellow Senator would give in response to the Governor, in which DEAN SKELOS had inserted language advocating for using the Settlement Funds for “sewer and water systems.”
• DEAN SKELOS also used his official position in an attempt to enact State “design-build” legislation that Nassau county officials had explained was necessary to fully implement the $12 million contract with the Environmental Technology Company. Nassau County officials provided Dean Skelos with proposed legislation which Dean Skelos stated he would support if backed by the Governor. In a recorded call, ADAM SKELOS told CW-2 that DEAN SKELOS was “going to be sure that gets done” and that the plan involved the Nassau County executive lobbying the Governor to “[k]ind of make [the Governor] think it’s his idea and you’re supporting his agenda.” ADAM SKELOS later told CW-2 and the CEO that while design-build legislation would not be enacted as part of the budget process, DEAN SKELOS would continue to pursue it in the legislative session continuing through June 2015.

Caution Following the Arrest of the Assembly Speaker

After the Speaker of the New York State Assembly was arrested on January 22, 2015 and media outlets reported shortly thereafter that DEAN SKELOS was under investigation, the defendants became more cautious in pursuit of the Company’s legislative goals. ADAM SKELOS, for example, obtained what he referred to as his “burner phone” – a common slang term to refer to a phone that is not traceable to the user – to use for speaking to CW-2 about DEAN SKELOS’s progress in obtaining legislative benefits for the Environmental Technology Company. DEAN SKELOS is also caused the cancellation of a meeting Adam Skelos had arranged in furtherance of the scheme, commenting in an intercepted phone call “right now we are in dangerous times Adam.”

At the direction of the Government, CW-2 informed ADAM SKELOS in late March of this year that due to the limited progress on the Company’s legislative goals, the CEO of the Environmental Technology Company was considering terminating his $10,000 monthly payment. ADAM SKELOS then placed an intercepted call to DEAN SKELOS, telling his father he “lost something that I had . . . the water . . . the water thing.” In response, DEAN SKELOS told ADAM SKELOS that “we’ll try to get it back at some point.” DEAN SKELOS advised ADAM SKELOS not to “panic over this” and not to “burn bridges,” but rather to just tell the Environmental Technology Company that “hopefully we can get it all going again.” ADAM SKELOS then placed an intercepted call to the CEO of the Environmental Technology Company and stated he would draft a letter of separation “just in case I ever get questioned by anyone” but that “really nothing is going to change.”

*                      *                      *

DEAN SKELOS, 67, and ADAM SKELOS, 32, both of Rockville Centre, New York, are each charged with three counts of extortion under color of official right, two counts of soliciting bribes in connection with a federal program, and one count of conspiracy to commit honest services fraud. The extortion and honest services counts carry a maximum penalty of 20 years in prison and the soliciting bribes counts carry a maximum of 10 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 a judge.

U.S. Attorney Bharara praised the work of the FBI and the Criminal Investigators of the United States Attorney’s Office, who jointly conducted this investigation.

This case is being prosecuted by the Office’s Public Corruption Unit. Assistant U.S. Attorneys Jason Masimore, Rahul Mukhi, Tatiana Martins, and Thomas McKay 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.

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

US v. Dean and Adam Skelos Complaint

Accredo Admits to Conduct Regarding Its Distribution of Exjade

Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), and Scott J. Lampert, Special Agent in Charge of the U.S. Department of Health and Human Services, Office of Inspector General's New York Regional Office (“HHS-OIG”) announced yesterday a $60 million settlement of a civil fraud lawsuit against ACCREDO HEALTH GROUP (“ACCREDO”) concerning a kickback scheme with NOVARTIS PHARMACEUTICALS CORP. (“NOVARTIS”) involving the prescription drug Exjade. In addition to filing a Notice of Intervention against and Stipulation and Order of Settlement and Dismissal with ACCREDO, the Government has elected to intervene against NOVARTIS over the same conduct previously filed by a whistleblower. As alleged in the lawsuit, NOVARTIS provided kickbacks, in the form of patient referrals and related benefits, to ACCREDO in exchange for ACCREDO’s recommending refills to Exjade patients. In connection with the scheme, the defendants understated the serious and potentially life-threatening side effects of Exjade when promoting the drug’s benefits to patients.

Simultaneous with the filing of the Notice of Intervention against ACCREDO, U.S. District Judge Colleen McMahon approved a settlement to resolve the United States’ claims against ACCREDO. Under that settlement, ACCREDO (i) agrees to pay $45,060,598.87 to the United States; (ii) admits numerous facts concerning its relationship with NOVARTIS; and (iii) agrees to cooperate with the United States in the prosecution of the claims against NOVARTIS. ACCREDO has also agreed in principle to pay $14,939,401.13 to a group of states to settle the states’ claims based on the same alleged conduct. In January 2014, the Government entered into a multimillion dollar settlement with another codefendant, Bioscrip Pharmacy, for similar conduct.

Manhattan U.S. Attorney Preet Bharara said: “This is the second substantial settlement with an alleged co-conspirator of Novartis in connection with a scheme that used the lure of kickbacks to co-opt a healthcare provider’s independence. As alleged in our intervention papers, Novartis used Accredo to promote refills under the guise of purported ‘counseling’ and ‘education,’ and in doing so, Novartis caused patients to receive one-sided advice that did not discuss Exjade’s serious, potentially life-threatening, side effects. This settlement with Accredo restores to the public fisc tens of millions of dollars paid out for kickback-tainted drugs.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “Drug companies are required by law to provide safe and effective medications for the sole purpose of healing the ailments of their patients. Likewise, pharmaceutical companies are prohibited from employing tactics that could improperly influence a provider’s decisions. Through its relationship with Novartis, Accredo Health Group acted in its own best interest. It set aside the needs of its patients and intentionally adjusted its practices in order to conceal information from consumers. This scheme also placed a hefty price tag on our Medicare and Medicaid programs, causing more than tens of millions of dollars to be spent on Exjade shipments. Today’s settlement demonstrates the government’s commitment to protect our citizens from this type of fraud and ensure everyone receives the quality medical care they need.”

HHS-OIG Special Agent in Charge Scott J. Lampert said: “The conduct displayed by Accredo compromised patient care and undermined the integrity of our nation's health care programs. This settlement should serve as a warning to all providers that choose to let financial inducements cloud their medical judgment.”

As alleged in the Government’s second amended Complaint and in the relator’s third amended Complaint, NOVARTIS markets and manufactures Exjade, an iron chelation drug approved for use by patients who have iron overload resulting from blood transfusions. For approximately five years until 2012, NOVARTIS orchestrated a scheme whereby it offered kickbacks, in the form of patient referrals and other benefits to certain specialty pharmacies, including ACCREDO and Bioscrip, in exchange for increasing their Exjade refills through biased recommendations to patients. ACCREDO and Bioscrip were part of a NOVARTIS-created exclusive distribution network for Exjade called the Exjade Patient Assistance and Support Services (“EPASS”), and through this network NOVARTIS was able to refer Exjade patients to particular pharmacies within the network.

In particular, the Government has elected to intervene in the relator’s third amended Complaint with respect to its allegations concerning NOVARTIS and ACCREDO’s participation in an Exjade patient referral allocation scheme through which NOVARTIS gave ACCREDO additional patient referrals and related benefits in return for ACCREDO achieving the highest refill percentage for Exjade patients as compared to the refill percentages among Exjade patients at the other two pharmacies in the closed distribution network that NOVARTIS had established for Exjade.

As part of its settlement with the United States, ACCREDO made extensive factual admissions, including that:

• ACCREDO was one of three specialty pharmacies permitted to dispense Exjade as part of EPASS, NOVARTIS’s distribution network for Exjade.
• NOVARTIS controlled how many of the patient prescriptions received by EPASS were distributed among ACCREDO and the other two EPASS pharmacies.
• In June 2007, NOVARTIS began issuing monthly “Exjade Scorecards” to the EPASS pharmacies that measured, among other things, the pharmacies’ “adherence” scores. Based on discussions with NOVARTIS, ACCREDO knew that the “adherence” scores in the Exjade Scorecards were designed to show how long ACCREDO’s Exjade patients continued to order refills. ACCREDO also knew that, in calculating the adherence scores, NOVARTIS did not exclude patients who stopped ordering refills due to side effects or patients who were directed to stop therapy by their physicians.
• In late 2007 and early 2008, NOVARTIS indicated to ACCREDO that NOVARTIS was dissatisfied with ACCREDO’s performance in terms of its “adherence” scores in the Exjade Scorecards. NOVARTIS executives asked ACCREDO executives to implement an Exjade adherence improvement plan that involved additional nurse intervention. NOVARTIS executives also told ACCREDO that ACCREDO could lose undesignated patient referrals from EPASS if it continued to lag behind other EPASS pharmacies in the Exjade Scorecards.
• At a meeting in March 2008 with ACCREDO, a NOVARTIS executive made statements emphasizing the importance to NOVARTIS of ACCREDO’s adherence performance. Later that month, NOVARTIS told ACCREDO that NOVARTIS was formulating a plan to allocate undesignated patient referrals to the EPASS pharmacies based on their rankings in the Exjade Scorecards. Specifically, the EPASS pharmacy with the top adherence score in the Exjade Scorecards would receive a larger share of the undesignated patient referrals as compared to the other EPASS pharmacies. In addition, between April and June 2008, NOVARTIS managers told ACCREDO that ACCREDO’s performance in the Exjade Scorecards was below NOVARTIS’s expectation and this affected NOVARTIS’s ability to meet its sales targets for Exjade.
• In July 2008, NOVARTIS executives reiterated in statements to ACCREDO that NOVARTIS was dissatisfied with ACCREDO’s performance in relation to Exjade. Later that month, ACCREDO hired a new nurse for Exjade and assigned that nurse to make a sequence of calls to each Exjade patient.
• In making calls to Exjade patients, the nurse at ACCREDO was supposed to follow a set of call protocols that ACCREDO had developed. ACCREDO’s 2008 call protocols directed the nurse to tell patients that compliance with Exjade therapy regimen is extremely important and that, if untreated, iron overload could result in arthritis, liver or heart problems, high blood sugar, persistent abdominal pain, severe fatigue, and skin discoloration. With regard to adverse reactions, ACCREDO’s 2008 Exjade call protocols directed the nurse to advise patients about Exjade’s common adverse reactions, including diarrhea, abdominal pain, fever, and rash, but not the less common, but more severe, adverse reactions like renal or hepatic impairment.
• In October 2008, NOVARTIS informed ACCREDO about, and ACCREDO agreed to, a new patient referral allocation plan that NOVARTIS had formulated. Under that plan, NOVARTIS would allocate 60 percent of all undesignated patient referrals to the EPASS pharmacy with the top “adherence” scores in the Exjade Scorecards and allocate 20 percent of the undesignated patient referrals to each of the other two EPASS pharmacies.
• In February 2009, an Exjade executive from NOVARTIS visited ACCREDO and met with the Exjade nurse at ACCREDO. During that meeting with the NOVARTIS executive, the Exjade nurse at ACCREDO described how she handled calls with Exjade patients.
• In January 2010, the FDA required NOVARTIS to add a “black box warning” to the Exjade label to highlight that Exjade may cause renal impairment (including renal failure), hepatic impairment (including hepatic failure), and gastrointestinal hemorrhage. The FDA-mandated warning also stated that these reactions were fatal in some reported cases.
• After January 2010, no representative of NOVARTIS asked or suggested to ACCREDO that its Exjade call protocols should be revised to require the Exjade nurses to discuss the serious risks listed in Exjade’s “black box warning” when they called patients to discuss Exjade therapy.
• In February 2010, ACCREDO updated its Exjade call protocols. In terms of the adverse reactions for Exjade, the February 2010 ACCREDO Exjade call protocols continued to direct the Exjade nurses to advise patients about the common adverse reactions, such as diarrhea and rash, but not the less common, but more severe, adverse reactions discussed in the “black box warning,” such as renal or hepatic failure. As revised, the February 2010 Exjade call protocols directed the nurses to tell Exjade patients that “compliance with Exjade is very important in order to prevent the following complications that result from untreated iron overload: arthritis, high blood sugar, persistent abdominal pain, severe fatigue, skin discoloration, stroke, or death.”
• In early 2010, NOVARTIS notified ACCREDO that, under the plan they agreed on in 2008, ACCREDO would receive additional undesignated patients because ACCREDO had obtained the top adherence score in the Exjade Scorecards in the fourth quarter of 2009. Specifically, based on communications with NOVARTIS, it was ACCREDO’s understanding that it was entitled to receive 60 percent of all undesignated patients in the second, third, and fourth quarters in 2010, and for all four quarters in 2011.
• In late March 2012, NOVARTIS notified ACCREDO that, starting in April 2012, it would stop allocating additional Exjade patient referrals to the EPASS pharmacy with the highest Exjade Scorecard ranking, as NOVARTIS and ACCREDO had agreed to in October 2008.
• One month later, in April 2012, ACCREDO stopped assigning nurses to call Exjade patients to discuss their Exjade therapy.

The Government seeks treble damages and penalties under the False Claims Act for the tens of millions of dollars in reimbursements that Medicare and Medicaid paid for Exjade shipments that resulted from the kickback scheme involving NOVARTIS and ACCREDO.

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, 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., for its 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.

Preet Bharara, United States Attorney for the Southern District of New York, and Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, announced that BNP Paribas S.A. (BNPP), a global financial institution headquartered in Paris, France was sentenced today for conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) by processing billions of dollars of transactions through the U.S. financial system on behalf of Sudanese, Iranian and Cuban entities subject to U.S. economic sanctions. BNP Paribas was sentenced to a five-year term of probation, and ordered to forfeit $8,833,600,000 to the United States and pay a fine of $140,000,000. Today’s sentencing is the first time a financial institution has been convicted and sentenced based on its violations of U.S. economic sanctions.

BNPP’s sentencing follows its plea of guilty on July 9, 2014, to conspiring to violate U.S. sanctions laws. As part of its plea, BNPP admitted to moving more than $8.8 billion through the U.S. financial system on behalf of sanctioned entities, including more than $4.3 billion in transactions involving entities that were specifically designated by the U.S. government as being cut off from the U.S. financial system. The total financial penalty imposed on BNPP – $8,973,600,000, including the forfeiture and criminal fine – is the largest financial penalty ever imposed in a criminal case.

U.S. Attorney Preet Bharara said: “BNPP, the world's fourth largest bank, has now been sentenced to pay a record penalty of almost $9 billion for sanctions violations that unlawfully opened the U.S. financial markets to Sudan, Iran, and Cuba. BNPP provided access to billions of dollars to these sanctioned countries, and did so deliberately and secretly, in ways designed to evade detection by the U.S. authorities. The sentence imposed today is appropriate for BNPP’s years-long and wide-ranging criminal conduct.”

Assistant Attorney General Leslie R. Caldwell said: “BNP Paribas flouted U.S. sanctions laws to an unprecedented extreme, concealed its tracks, and then chose not to fully cooperate with U.S. law enforcement, leading to a criminal guilty plea and nearly $9 billion penalty. BNPP deliberately disregarded the law and provided rogue nations, and Sudan in particular, with vital access to the global financial system, helping that country’s lawless government to harbor and support terrorists and to persecute its own people. Today’s sentence demonstrates that financial institutions will be punished severely but appropriately for violating sanctions laws and risking our national security interests.”

Today’s sentencing is part of a resolution announced in July 2014 in which the New York County District Attorney’s Office also announced that BNPP pleaded guilty in New York State Supreme Court to falsifying business records and conspiring to falsify business records. In addition, the Board of Governors of the Federal Reserve System announced that BNPP agreed to a cease and desist order, to take certain remedial steps to ensure its compliance with U.S. law in its ongoing operations and to pay a civil monetary penalty of $508 million. The New York State Department of Financial Services (DFS) announced that BNPP agreed to, among other things, terminate or separate from the bank 13 employees, including the Group Chief Operating Officer and other senior executives; suspend U.S. dollar clearing operations through its New York Branch and other affiliates for one year for business lines on which the misconduct centered; extend for two years the term of a monitorship put in place in 2013 and pay a monetary penalty to DFS of $2.24 billion. In satisfying its criminal forfeiture penalty, BNPP will receive credit for payments it made in connection with its resolution of these related state and regulatory matters. The Treasury Department’s Office of Foreign Assets Control also levied a fine of $963 million, which will be satisfied by payments made to the Department of Justice.

Based on today’s sentencing proceedings and prior filings in the case, BNPP has admitted and acknowledged that from at least 2004 through 2012, it knowingly and willfully moved over $8.8 billion through the U.S. financial system on behalf of Sudanese, Iranian and Cuban sanctioned entities, in violation of U.S. economic sanctions. The majority of illegal payments were made on behalf of sanctioned entities in Sudan, which was subject to U.S. embargo based on the Sudanese government’s role in facilitating terrorism and committing human rights abuses. BNPP processed approximately $6.4 billion through the United States on behalf of Sudanese sanctioned entities from July 2006 through June 2007, including approximately $4 billion on behalf of a financial institution owned by the government of Sudan, even as internal emails showed BNPP employees expressing concern about the bank’s assisting the Sudanese government in light of its role in supporting international terrorism and committing human rights abuses during the same time period. Indeed, in March 2007, a senior compliance officer at BNPP wrote to other high-level BNPP compliance and legal employees reminding them that certain Sudanese banks with which BNPP dealt “play a pivotal part in the support of the Sudanese government which . . . has hosted Osama Bin Laden and refuses the United Nations intervention in Darfur.”

One way in which BNPP processed illegal transactions on behalf of Sudanese sanctioned entities was through a sophisticated system of “satellite banks” set up to disguise both BNPP’s and the sanctioned entities’ roles in the payments to and from financial institutions in the United States. As early as August 2005, a senior compliance officer at BNPP warned several legal, business and compliance personnel at BNPP’s subsidiary in Geneva that the satellite bank system was being used to evade U.S. sanctions: “As I understand it, we have a number of Arab Banks (nine identified) on our books that only carry out clearing transactions for Sudanese banks in dollars… This practice effectively means that we are circumventing the US embargo on transactions in USD by Sudan.”

Similarly, BNPP provided Cuban sanctioned entities with access to the U.S. financial system by hiding the Cuban sanctioned entities’ involvement in payment messages. From October 2004 through early 2010, BNPP knowingly and willfully processed approximately $1.74 billion on behalf of Cuban sanctioned entities. In the statement of facts, BNPP admitted that it continued to do U.S. dollar business with Cuba long after it was clear that such business was illegal in order to preserve BNPP’s business relationships with Cuban entities. BNPP further admitted that its conduct with regard to the Cuban embargo was both “cavalier” and “criminal.” In 2006, after certain Cuban payments were blocked when they reached the United States, the bank decided to strip the wire messages for those payments of references to Cuban entities and resubmit them as a lump sum in order to conceal from U.S. regulators the bank’s longstanding, and illicit, Cuban business.

BNPP also engaged in more than $650 million of transactions involving entities tied to Iran, and this conduct continued into 2012 – nearly two years after the bank had commenced an internal investigation into its sanctions compliance and had pledged to cooperate with the government. The illicit Iranian transactions were done on behalf of BNPP clients, including a petroleum company based in Dubai that was effectively a front for an Iranian petroleum company and an Iranian oil company.

U.S. District Judge Schofield recognized, in her acceptance of BNPP’s guilty plea, that BNPP’s actions “not only flouted U.S. foreign policy but also provided support to governments that threaten both our regional and national security and, in the case of Sudan, a government that has committed flagrant human rights abuses and has known links to terrorism.” The forfeiture of over $8 billion will “surely have a deterrent effect on others that may be tempted to engage in similar conduct, all of whom should be aware that no financial institution is immune from the rule of law.”

The Justice Department is exploring ways to use the forfeited funds to compensate individuals harmed by the sanctioned regimes of Sudan, Iran, and Cuba. In an effort to better understand who may have been harmed by these regimes, the Justice Department is inviting individuals or their representatives to provide information describing the nature and value of the harm they suffered. Beginning today (May 1, 2015), interested persons can learn more about this process and submit their information at www.usvbnpp.com, or call 888-272-5632 (within North America) or 317-324-0382 (internationally).

In addition to its federal criminal conviction, BNPP pleaded guilty in New York State Supreme Court to falsifying business records and conspiring to falsify business records. BNPP also agreed to a cease and desist order and to pay a civil monetary penalty of $508 million to the Board of Governors of the Federal Reserve System. The New York State Department of Financial Services announced that BNPP agreed to, among other things, terminate or separate from the bank 13 employees, including the Group Chief Operating Officer and other senior executives; suspend U.S. dollar clearing operations through its New York Branch and other affiliates for one year for business lines on which the misconduct centered; extend for two years a monitorship put in place in 2013; and pay a monetary penalty of $2.24 billion. In satisfying its criminal forfeiture penalty, BNPP will receive credit for payments it made in connection with its resolution of these related state and regulatory matters. The Treasury Department’s Office of Foreign Assets Control also levied a fine of $963 million, which will be satisfied by payments made to the Justice Department.

This case is being prosecuted by the Money Laundering and Asset Forfeiture Unit of the U.S. Attorney’s Office for the Southern District of New York and the Money Laundering and Bank Integrity Unit of the Criminal Division’s Asset Forfeiture and Money Laundering Section (AFMLS). Assistant U.S. Attorneys Andrew D. Goldstein, Martin S. Bell, Christine I. Magdo, and Micah W.J. Smith of the Southern District of New York and Deputy Chief Craig Timm and Trial Attorney Jennifer E. Ambuehl of AFMLS are in charge of the prosecution.

The New York County District Attorney’s Office also conducted its own investigation alongside the Department of Justice on this investigation. Mr. Bharara and Ms. Caldwell expressed their gratitude to the Board of Governors of the Federal Reserve, the Federal Reserve Bank of New York, the New York State Department of Financial Services and the Treasury Department’s Office of Foreign Assets Control for their assistance with this matter. They also thanked the Federal Bureau of Investigation’s New York Field Office and the Internal Revenue Service-Criminal Investigation’s Washington Field Division for their work on the investigation.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that SURESH HIRANANDANEY, LALIT CHABRIA, and ANITA CHABRIA, three senior executives of privately owned for-profit schools, pled guilty yesterday in Manhattan federal court to criminal conspiracy charges for their involvement in student visa fraud and financial aid fraud schemes. Specifically, the defendants each pled guilty to one count of conspiracy to commit student visa fraud and one count of conspiracy to commit student financial aid fraud, agreed to forfeit $7,440,000 of proceeds of the student visa fraud conspiracy to the United States Government, and agreed to pay $1,000,000 in restitution to the United States Department of Education (“ED”) for losses from the student financial aid fraud conspiracy. The defendants were arrested in May 2014, along with co-defendants Samir Hiranandaney and Seema Shah, following a long-term investigation by the United States Immigration and Customs Enforcement’s Homeland Security Investigations (“ICE-HSI”), the United States Department of State’s Diplomatic Security Service (“DOS-DSS”), and ED’s Office of the Inspector General (“ED-OIG”). SURESH HIRANANDANEY, LALIT CHABRIA, and ANITA CHABRIA entered their guilty pleas yesterday before United States District Judge J. Paul Oetken.

Manhattan U.S. Attorney Bharara stated: “Suresh Hiranandaney, Lalit Chabria, and Anita Chabira turned their for-profit schools into instruments of fraud to exploit our nation’s foreign student visa and domestic student financial aid programs for their own personal financial gain. Education fraud remains a high-priority focus of ours and we will prosecute all those who make a self-serving sham out of education.”

According to the Indictment filed in this case, the Complaint previously unsealed in this case, and other statements made at public court proceedings, including yesterday’s guilty pleas:

Each of the defendants who pled guilty yesterday was associated with the Micropower Career Institute (“MCI”), a for-profit school with five campuses in New York and New Jersey, or the Institute for Health Education (“IHE”), a for-profit school located in New Jersey. SURESH HIRANANDANEY was MCI’s President; his brother-in-law, LALIT CHABRIA, was MCI’s Vice President and IHE’s President; and his sister, ANITA CHABRIA, was MCI’s Vice President.

Foreign citizens are granted F-1 student visas to remain in the United States as long as they are pursuing full courses of study at approved schools. If a student fails to attend classes as required, the school is required to inform immigration authorities so that the authorities may terminate that student’s visa. SURESH HIRANANDANEY, LALIT CHABRIA, and ANITA CHABRIA failed to report to immigration authorities that foreign citizens were not attending classes at MCI and IHE as required.

The defendants and others fraudulently portrayed MCI and IHE to immigration authorities as legitimate institutes of higher learning where foreign students carried full course loads. In reality, the majority of foreign students at MCI and IHE did not attend the required number of classes. SURESH HIRANANDANEY, LALIT CHABRIA, and ANITA CHABRIA failed to report this to immigration authorities as required, while MCI and IHE continued to collect millions of dollars in tuition from foreign students with delinquent attendance. When a campus of MCI came under regulatory scrutiny, the defendants and others transferred foreign students with delinquent attendance to affiliated schools (such as another MCI campus or IHE) that were not under scrutiny.

In another scheme, SURESH HIRANANDANEY, LALIT CHABRIA, ANITA CHABRIA, and others falsified documents in student financial aid files at MCI in order to hide MCI’s failure to timely return financial aid funds received by MCI for domestic students who had dropped out of MCI. In violation of federal laws and regulations governing the administration of financial aid payments to eligible low-income students, MCI failed to return to ED substantial sums of financial aid funds that ED had disbursed to MCI for domestic students who dropped out of MCI without an authorized leave of absence. Specifically, the defendants and others falsified student files by altering documents in the files, or in some cases creating entirely fabricated documents, to conceal MCI’s failure to return such funds to ED and ensure that ED would not terminate MCI’s eligibility for future financial aid funds.

SURESH HIRANANDANEY, 61, LALIT CHABRIA, 54, and ANITA CHABRIA 50, each pled guilty to one count of conspiracy to commit student visa fraud and one count of conspiracy to commit student financial aid fraud, agreed to pay $7,440,000 of proceeds of the student visa fraud conspiracy in forfeiture to the U.S. Government, and agreed to pay $1,000,000 in restitution to ED for losses from the student financial aid fraud conspiracy. Each count carries a maximum of five years in prison. The defendants’ sentencing date is scheduled for September 10, 2015. The penalties described here are prescribed by Congress and provided for informational purposes only, as any sentence imposed on each of these defendants will be determined by Judge Oetken.

The remaining defendants, Samir Hiranandaney, 28, and Seema Shah, 42, face pending criminal conspiracy charges that are contained in the Indictment in this case. The charges against Samir Hiranandaney and Seema Shah are merely accusations and these defendants are presumed innocent unless and until proven guilty.

Manhattan U.S. Attorney Bharara praised ICE-HSI, DOS-DSS, and ED-OIG for their work in the investigation this case.

This case is being prosecuted by the Office’s General Crimes Unit. Assistant United States Attorneys Samson Enzer and Margaret Graham are in charge of the prosecution. Assistant United States Attorney Andrew Adams is in charge of the forfeiture aspects of the case.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that KAREN ALAMEDDINE, a/k/a “Karen Dean,” the former controller of a New York-based non-profit organization whose core mission is to cure genetic illnesses by supporting biomedical research (the “Non-Profit”), pled guilty in Manhattan federal court to embezzling more than $1.8 million from the Non-Profit, and to tax evasion for deliberately failing to report to the IRS as income the money she embezzled. ALAMEDDINE was initially charged in November 2014, and entered her guilty plea today before United States District Judge Gregory H. Woods.

Manhattan U.S. Attorney Preet Bharara said: “As she admitted in Court today, over the course of five years Karen Alameddine stole almost $2 million that she, as controller of an organization, was responsible for overseeing and safeguarding. To make matters worse, her victim was a non-profit organization dedicated to finding cures for serious diseases, and she compounded her embezzlement with tax crimes.”

According to the Complaint, the Indictment, and proceedings in Manhattan federal court:

From approximately late 2008 through early 2014, while working as the controller for the Non-Profit, ALAMEDDINE diverted over $1.85 million of the Non-Profit’s funds to her own bank accounts and for her own personal use. ALAMEDDINE executed the scheme principally by disguising QuickBooks entries to make transfers to her personal bank account appear as if they were transfers made to pay grant recipients of the Non-Profit. ALAMEDDINE further sought to disguise the fraud by inventing a fictitious accounting firm named “Davis & Greene,” purportedly based in Washington, D.C., which was, according to ALAMEDDINE, retained to prepare certain tax returns for the Non-Profit for the 2012 and 2013 tax years.

After ALAMEDDINE fraudulently transferred the funds from an account belonging to the Non-Profit to a personal bank account, she further transferred the funds to other accounts she controlled, and thereafter used those funds for various personal expenses, including to pay personal bills. Among the personal items ALAMEDDINE paid for with the embezzled money were utility bills, car payments, jewelry, the purchase of a recreational vehicle, her personal mortgages, and leisure travel.

In addition, for each of the calendar years 2009 through 2013, ALAMEDDINE filed tax returns with the Internal Revenue Service (“IRS”) in which she deliberately omitted reporting the income she received from the fraud. Those deliberate omissions resulted in ALAMEDDINE’s evasion of substantial amounts of income tax for each of the years between 2009 and 2013.

ALAMEDDINE, 57, of Perris, CA, pled guilty to one count of wire fraud, which carries a maximum sentence of 20 years in prison, and one count of tax evasion, which carries a maximum sentence of five years in prison. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. ALAMEDDINE will be sentenced by Judge Woods on August 14, 2015, at 2:30 p.m.

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

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced that DAVID RILEY, former Chief Information Officer of Foundry Networks, Inc. (“Foundry”), a California-based technology company that was acquired by Brocade Communications, Inc. (“Brocade”), in 2008, was sentenced today to 78 months in prison for his participation in an insider trading scheme that yielded approximately $39 million in ill-gotten gains. The sentence was imposed by U.S. District Judge Valerie E. Caproni. RILEY was convicted following a 13-day trial in September 2014 in which the jury unanimously concluded that RILEY passed inside information about Foundry’s acquisition by Brocade and about Foundry’s earnings for the first quarter of 2008 to Matthew Teeple, a former analyst for San Francisco-based hedge fund Artis Capital Management, L.P. (“Artis”). Teeple pled guilty to related charges in May 2014 and was sentenced principally to 60 months in prison by U.S. District Judge Robert P. Patterson on October 16, 2014.

Manhattan U.S. Attorney Preet Bharara said: “David Riley took advantage of his insider position at Foundry Networks to funnel sensitive nonpublic financial information to Matthew Teeple. This inside information enabled Teeple’s firm to reap nearly $40 million in illegal profits. This conduct has now earned Riley more than six years in federal prison.”

According to the Superseding Indictment filed February 20, 2014, other court documents, and the evidence presented at trial:

As CIO and a Vice President at Foundry, RILEY had access to monthly and quarterly financial reporting, along with other sensitive, nonpublic information (the “Inside Information”) relating to Foundry, well before such information became public. RILEY provided this Inside Information to Teeple – sometimes by telephone and sometimes during meetings the two arranged in the San Jose, California, area. On several occasions, RILEY spoke with Teeple while logged into the database that Foundry used to maintain sensitive financial information. The Inside Information that RILEY passed to Teeple included quarterly financial performance numbers during the first quarter of 2008 and information regarding Brocade’s intended acquisition of Foundry in July 2008.

Teeple passed the Inside Information he got from RILEY on to others, including others at Artis. From the Inside Information Teeple provided about Foundry, Artis ultimately reaped gains of approximately $39 million.

In addition to the prison sentence he received today, RILEY, 48, of San Jose, California, was ordered to pay a fine of $50,000.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and thanked the Securities and Exchange Commission, which has filed civil charges in a separate action.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 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 the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Telemachus P. Kasulis and Sarah E. McCallum, and Special Assistant U.S. Attorney Michael P. Holland, are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that DAVID RILEY, former Chief Information Officer of Foundry Networks, Inc. (“Foundry”), a California-based technology company that was acquired by Brocade Communications, Inc. (“Brocade”), in 2008, was sentenced today to 78 months in prison for his participation in an insider trading scheme that yielded approximately $39 million in ill-gotten gains. The sentence was imposed by U.S. District Judge Valerie E. Caproni. RILEY was convicted following a 13-day trial in September 2014 in which the jury unanimously concluded that RILEY passed inside information about Foundry’s acquisition by Brocade and about Foundry’s earnings for the first quarter of 2008 to Matthew Teeple, a former analyst for San Francisco-based hedge fund Artis Capital Management, L.P. (“Artis”). Teeple pled guilty to related charges in May 2014 and was sentenced principally to 60 months in prison by U.S. District Judge Robert P. Patterson on October 16, 2014.

Manhattan U.S. Attorney Preet Bharara said: “David Riley took advantage of his insider position at Foundry Networks to funnel sensitive nonpublic financial information to Matthew Teeple. This inside information enabled Teeple’s firm to reap nearly $40 million in illegal profits. This conduct has now earned Riley more than six years in federal prison.”

According to the Superseding Indictment filed February 20, 2014, other court documents, and the evidence presented at trial:

As CIO and a Vice President at Foundry, RILEY had access to monthly and quarterly financial reporting, along with other sensitive, nonpublic information (the “Inside Information”) relating to Foundry, well before such information became public. RILEY provided this Inside Information to Teeple – sometimes by telephone and sometimes during meetings the two arranged in the San Jose, California, area. On several occasions, RILEY spoke with Teeple while logged into the database that Foundry used to maintain sensitive financial information. The Inside Information that RILEY passed to Teeple included quarterly financial performance numbers during the first quarter of 2008 and information regarding Brocade’s intended acquisition of Foundry in July 2008.

Teeple passed the Inside Information he got from RILEY on to others, including others at Artis. From the Inside Information Teeple provided about Foundry, Artis ultimately reaped gains of approximately $39 million.

In addition to the prison sentence he received today, RILEY, 48, of San Jose, California, was ordered to pay a fine of $50,000.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and thanked the Securities and Exchange Commission, which has filed civil charges in a separate action.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 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 the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Telemachus P. Kasulis and Sarah E. McCallum, and Special Assistant U.S. Attorney Michael P. Holland, are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that DENNIS SICA pled guilty today in White Plains federal court to participating in a conspiracy to distribute heroin and fentanyl, the use of which resulted in the deaths of three individuals: Anthony Delello, Laura Brown, and Thomas Miller. SICA was arrested by state authorities on February 2, 2014, and was transferred to federal custody on June 19, 2014. He pled guilty before United States District Judge Cathy Seibel on the day trial was scheduled to begin on the one-count Indictment to which he pled.

U.S. Attorney Preet Bharara stated: “With today’s guilty plea, Dennis Sica formally acknowledged his role in causing the deaths of three young people. The outcome of this prosecution may do little to console the family members who lost their loved ones to the scourge of heroin and Sica’s willingness to exploit their addictions for personal gain. One can hope, however, that the significant penalties Sica faces for his crimes will deter those who peddle deadly drugs and avoid the tragedy that these young victims and their families have suffered.”

According to the allegations contained in the Indictment, the underlying criminal Complaint unsealed on June 19, 2014, and statements made during court proceedings:

From at least late 2013 to February 2014, SICA and others worked together in Dutchess County to sell a particularly potent form of heroin, bags of which were stamped with the brand name “Breaking Bad.” At least some of the heroin distributed by SICA was laced with fentanyl, a synthetic opioid that is significantly stronger than street heroin.

On the night of December 28, 2013, SICA sold “Breaking Bad” heroin to Anthony Delello, a 20-year-old resident of Beekman, New York. Delello snorted some of SICA’s heroin and was found dead by his girlfriend the following day. The Dutchess County Medical Examiner’s report concluded that he died from “acute heroin intoxication.”

Delello’s death did not stop SICA from selling “Breaking Bad” heroin. Four days after Delello was found dead, SICA exchanged a series of text messages with a co-conspirator in which SICA urged the co-conspirator to delete the text message history in the phone they used to sell heroin and, if asked, to deny knowing anything about Delello or the manner of his death.

Slightly more than a month after Delello’s death, two more individuals died after overdosing on “Breaking Bad” heroin. On February 1, 2014, Thomas Miller, 31, was found dead by his mother at his home in Pawling, New York. A hypodermic needle, as well as several glassine bags stamped with the words “Breaking Bad,” were found near his body. Some of the glassine bags were full, others were empty. A chemical analysis of the contents of the full glassine bags showed that they contained a mixture of quinine, fentanyl, and heroin. The medical examiner’s report indicates that Miller died of “acute intoxication by the combined effects of heroin and fentanyl.”

The same day that Miller was found dead, Laura Brown, 35, was found dead of an apparent heroin overdose in New Milford, Connecticut. Brown was found with needles and glassine bags near her body. Several of the glassine bags were stamped with the words “Breaking Bad.” The autopsy performed on Brown’s body showed that she died of “acute heroin and fentanyl intoxication.” According to Brown’s brother, he and Brown together bought “Breaking Bad” heroin from SICA two days before Brown was found dead.

On February 2, 2014, SICA was arrested by state authorities in East Fishkill, New York, after a car in which he was riding was stopped by law enforcement. During a subsequent search of the car, law enforcement officers recovered several glassine bags stamped with a “Breaking Bad” stamp identical to the one that appears on the envelopes recovered from Thomas Miller’s bedroom.

SICA, 37, of Hopewell Junction, New York, pled guilty to one count of conspiracy to distribute heroin and fentanyl resulting in death. The offense carries a mandatory minimum penalty of 20 years in prison, a maximum penalty of life in prison, and a maximum fine of $1 million or twice the gain or loss resulting from the crime. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the outstanding investigative work of the Drug Enforcement Administration’s (“DEA”) Tactical Diversion Squad and the Dutchess County Drug Task Force. The DEA Tactical Diversion Squad is composed of agents and officers of the DEA, the New York City Police Department, the Westchester County Police Department, and the Town of Orangetown Police Department. The Dutchess County Drug Task Force is composed of the City of Poughkeepsie Police Department, the Town of Poughkeepsie Police Department, the East Fishkill Police Department, and the Dutchess County Sheriff’s Office. Mr. Bharara also thanked the New York State Police Forensics Unit, the Dutchess County District Attorney’s Office, the Dutchess County Sheriff’s Office, and the police department for the City of New Milford, Connecticut, for their assistance in the investigation.

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that ALEX SAAVEDRA (“SAAVEDRA”), the former director of two Structured Employment Economic Development Corporation (“SEEDCO”) Workforce1 Career Centers, was found liable for violating the False Claims Act (the “FCA”) in connection with a federally funded program to provide assistance to unemployed and underemployed New Yorkers. The jury awarded damages to the United States in the amount of $13,000, which pursuant to the FCA will be trebled to $39,000. In addition, the FCA provides for a civil penalty of $5,500 to $11,000 for each violation. The Court will determine the amount of SAAVEDRA’s civil penalty at a later date. The verdict was returned yesterday following a one-week trial before United States District Judge Alvin K. Hellerstein.

Manhattan U.S. Attorney Preet Bharara said: “Federally funded services such as SEEDCO’s career centers are meant to help people find jobs and achieve the American dream. Unfortunately, SAAVEDRA cared more about reporting big numbers than being honest. This fraudulent conduct resulted in the misappropriation of federal funds, and made it appear that more New Yorkers were getting help than actually were. Prior to the trial, the Government reached settlements with SEEDCO and six of its former managers for the same fraudulent conduct. Now a jury has found the last defendant, the highest ranking Workforce1 Center employee, liable as well. This Office will not hesitate to pursue companies and individuals who fraudulently exploit public funding. This verdict and this case underscore that individuals, as well as entities, responsible for fraud must be held accountable.”

According to the evidence presented at trial:

SEEDCO received federal funding to operate Workforce1 Career Centers (the “WF1 Centers”) in Upper Manhattan and the Bronx. These WF1 Centers provided, among other things, employment training and job placement assistance. In order to receive federal funding for its WF1 Centers, SEEDCO was required to report its job placement performance through a database maintained by the New York City Department of Small Business Services (“SBS”), called WorkSource1. The information was necessary for the calculation of performance-based payments under the federal program.

From 2009 to 2011, SAAVEDRA, as WF1 Center director, caused the entry of false placements into WorkSource1 to make it appear that job candidates had obtained jobs by or with the involvement of SEEDCO when, in fact, they had not. These false placements resulted in performance payments, with federal funds, that SEEDCO had not earned. SAAVEDRA was present at internal all-staff meetings during which this scheme was discussed and, on at least one occasion, instructed a SEEDCO employee to report false placements.

Mr. Bharara thanked the United States Department of Labor, Office of Labor Racketeering and Fraud Investigations, for its assistance in the case. He also thanked the United States Department of Labor Employment and Training Administration, the New York City Department of Investigation, and the New York City Department of Small Business Services.

This case is being handled by the Office’s Civil Frauds Unit. Assistant United States Attorneys Carina H. Schoenberger and Ellen Blain are in charge of the case.

Preet Bharara, the United States Attorney for the Southern District of New York, and James Hunt, Special Agent in Charge of the New York Division of the Drug Enforcement Administration (“DEA”), announced that THOMAS HOEY, JR., who led a large-scale cocaine distribution conspiracy for over five years, which led to the death of another person, and who engaged in a long-term scheme to obstruct the investigation into his crimes, was sentenced today in Manhattan federal court to 151 months in prison. HOEY was indicted on December 20, 2013, and pled guilty on August 14, 2014, to charges of conspiring to distribute narcotics, conspiring to suborn perjury, and obstruction of justice. U.S. District Judge P. Kevin Castel imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara stated: “Thomas Hoey not only showed complete indifference to the life-threatening situation he himself created by providing cocaine to Kim Calo, he interfered with efforts to get her medical attention. He also waged an ongoing campaign, beginning immediately upon Ms. Calo’s collapse, to destroy evidence, lie to investigators, and obstruct a grand jury investigation by pressuring a witness to perjure herself. The sentence he has received reflects the callousness of his crimes.”

According to the Indictment, statements made during other public proceedings including today’s sentencing, and other court documents:

Between at least 2005 and 2010, HOEY conspired with others to distribute large quantities of cocaine, in social settings, in exchange for various social and sexual favors.

On January 10, 2009, Nicole Zobkiw went to a hotel room at the Kitano Hotel in midtown Manhattan with Kim Calo and HOEY. HOEY provided cocaine to both women and shortly thereafter Ms. Calo collapsed. HOEY then obstructed all efforts by Ms. Zobkiw and the staff of the hotel to get medical assistance for Ms. Calo, who subsequently died of from the combined effects of the cocaine and alcohol she ingested. HOEY also instructed his driver, Alejandro Noriega, to remove the cocaine and all evidence of cocaine use from the hotel room. HOEY then made numerous false statements to the police investigating Ms. Calo’s death about what had occurred in the hotel room that night.

On April 6, 2011, Ms. Zobkiw was subpoenaed before a federal grand jury in the Southern District of New York investigating the circumstances surrounding the death of Kim Calo. Ms. Zobkiw informed the defendant of the grand jury subpoena and asked him to provide her with a lawyer. The lawyer provided to her by HOEY was Barry Balaban. At HOEY’s direction, Balaban instructed and pressured Ms. Zobkiw to lie to the grand jury.

Ms. Zobkiw appeared before the federal grand jury on April 6, 2011, and gave false testimony about numerous matters material to the grand jury’s investigation by, among other things, denying that HOEY had provided Ms. Calo cocaine that night.

One month after lying to the grand jury, Ms. Zobkiw was brought by HOEY, under false pretenses, to an abandoned warehouse in Long Island. Inside the warehouse, Ms. Zobkiw was pressured by others working for HOEY to sign a document that essentially restated her perjurious grand jury testimony. The plan was to send this document to the United States Attorney’s Office for the Southern District of New York in an attempt to prevent criminal charges from being brought against HOEY.

HOEY pled guilty to one count of conspiring to distribute narcotics, one count of conspiring to suborn perjury, and one count of obstruction of justice. In addition to a prison term of 151 months, HOEY was sentenced to three years of supervised release, was ordered to pay a fine of $ $250,000, and was ordered to pay a $300 special assessment fee.

On February 6, 2012, following a jury trial, Ms. Zobkiw was convicted by a jury of two counts of perjury, and one count of obstruction of justice, all related to her false grand jury testimony on April 6, 2011. Ms. Zobkiw passed away before sentencing.

On April 22, 2014, following a guilty plea, Balaban was convicted of one count of conspiring to suborn perjury, and sentenced to 48 months in prison.

On December 18, 2014, following a guilty plea, Noriega was convicted of one count of misprision of a felony, and sentenced to 45 days in prison.

The arrest was the result of a long-term investigation by the DEA’s New York Organized Crime Drug Enforcement Strike Force, which comprises agents and officers of the DEA, the New York City Police Department, Immigration and Customs Enforcement – Homeland Security Investigations (HSI), the New York State Police, the U. S. Internal Revenue Service Criminal Investigation Division, the Federal Bureau of Investigation, U.S. Secret Service, the U.S. Marshal Service, New York National Guard, the New York Department of Taxation and Finance, the Rockland County Sheriff’s Office, the Clarkstown Police Department, Port Washington Police Department and New York State Department of Corrections and Community Supervision.

Mr. Bharara praised the outstanding work of the DEA agents who investigated this case. Mr. Bharara also expressed his gratitude to the New York City Police Department and the New York County District Attorney’s Office for their assistance.

This case is being handled by the Office’s Violent and Organized Crime Unit. Assistant U.S. Attorneys Margaret Garnett and Ian McGinley are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that STEVEN WESSEL, a/k/a “Wes Wessels,” pled guilty today in Manhattan federal court to securities fraud, wire fraud, and aggravated identity theft. Specifically, WESSEL admitted engaging in a scheme to defraud two investors and unlawfully using the identity of another person in furtherance of that scheme. WESSEL was arrested June 24, 2014, and pled guilty to a three-count Indictment before U.S. Magistrate Judge Ronald L. Ellis.

Manhattan U.S. Attorney Preet Bharara said: “Steven Wessel sold himself to his clients as a savvy investment adviser. But instead, he gave them nothing but lies and false promises. Wessel developed an elaborate scheme to defraud his investors, which included faking his identity and creating false investment statements. With today’s guilty plea, Wessel’s days of deception are over.”

According to the allegations contained in the Indictment, the underlying criminal Complaint unsealed on June 24, 2014, and statements made during court proceedings:

From June 2013 through April 2014, WESSEL ran a fraudulent investment scheme. WESSEL, who claimed to be the Chairman and Executive Managing Member of Steeplechase USA, LLC (“Steeplechase USA”), located in New York, New York, represented to an investor (“Investor A”) that Steeplechase USA was in the business of trading securities. WESSEL personally solicited $200,000 from Investor A on the understanding that the funds would be solely invested in securities.

Contrary to WESSEL’s promise to invest Investor A’s funds in securities, WESSEL used all of Investor A’s money for his own personal benefit, including for cash withdrawals and personal expenses, including the payment of $25,000 toward a restitution obligation from a prior judgment of conviction. WESSEL did not tell Investor A about this misappropriation. Instead, WESSEL falsely represented to Investor A that his $200,000 investment had gained tens of thousands of dollars and that Steeplechase USA’s portfolio had gained approximately 167 percent in 2013. Furthermore, in connection with this fraudulent scheme, WESSEL sent Investor A multiple emails that purported to come from Steeplechase USA’s accountant (“Accountant 1”). In those emails, WESSEL, pretending to be Accountant 1 without Accountant 1’s knowledge or permission, made multiple false statements concerning Investor A’s investment with Steeplechase USA.

When Investor A requested to withdraw his funds from Steeplechase USA, WESSEL solicited a $550,000 loan from a second investor (“Investor B”). WESSEL falsely represented that he would use Investor B’s money to provide financing for a commercial real estate project. To induce Investor B to lend him money, WESSEL, among other things, created and sent a fabricated email to Investor B. The fabricated email purported to be from a bank and made it appear as if the real estate project was legitimate.

Contrary to WESSEL’s promise to Investor B, WESSEL used all of Investor B’s money for his own benefit, including to pay $251,000 to Investor A – money that, according to WESSEL, represented Investor A’s initial $200,000 investment and $51,000 in fictitious trading profits.

WESSEL, 57, of New York, New York, pled guilty to one count of securities fraud, one count of wire fraud and one count of aggravated identity theft. The securities fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $5 million, or twice the gross gain or loss from the offense. The wire fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $250,000, or twice the gross gain or loss from the offense. The aggravated identity theft count carries a mandatory sentence of two years in prison, which must be served consecutively to the sentence imposed for the wire fraud count. The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge.

Mr. Bharara praised the work of the Criminal Investigators of the United States Attorney’s Office, who investigated this case.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Damian Williams is in charge of the prosecution. Assistant U.S. Attorney Andrew Adams of the Office’s Money Laundering and Asset Forfeiture Unit is responsible for the forfeiture of assets.

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 that DANIEL GRUBER was arrested yesterday on stalking charges related to threats he allegedly made to a New York school and its leadership.

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

During March and April 2015, DANIEL GRUBER made a series of harassing internet posts, emails, and telephone calls to various individuals associated with the school. The internet posts were made using different aliases on Google Plus, a social media platform, and became increasingly violent and threatening during the days and weeks before GRUBER’s arrest. In one of these posts, for example, GRUBER, using the alias “Daniel Wintour,” threatened to “burn [the school] to the ground.” In another post, GRUBER, using the same alias, stated that he had prayed and “intend[ed] to destroy the school.” These posts were public.

In addition to threatening the school, GRUBER also threatened multiple individuals affiliated with the school’s leadership. GRUBER told one victim, for example, that he “shoot[s] to kill,” and, on multiple occasions, warned the victim to watch for “the red dot” on his forehead. Other posts referenced and made threats to the victim’s business and family.

GRUBER, 36, was taken into federal custody yesterday in New York, New York. He is charged with one count of stalking. In connection with this charge, GRUBER faces a maximum sentence of five 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 FBI in this matter. He also thanked the New York City Police Department for its assistance with this investigation.

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

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that JAMES MEYER, a former assistant to artist Jasper Johns, was sentenced in Manhattan federal court to 18 months in prison for his role the sale of 37 works that MEYER stole from Johns’s studio in Sharon, Connecticut. MEYER pled guilty on August 27, 2014, to one count of interstate transportation of stolen goods. MEYER was sentenced by U.S. District Judge J. Paul Oetken.

Manhattan U.S. Attorney Preet Bharara said: “James Meyer betrayed the trust of his employer, Jasper Johns, by selling, for his own personal gain, works by the artist that were not authorized for sale. Thanks to the hard work of the career prosecutors in my office and the FBI, Meyer’s fraud was uncovered and he will now go to prison for his actions.”

According to the Indictment, plea allocution, statements made at today’s sentencing proceeding, and other documents filed in Manhattan federal court:

MEYER was a studio assistant for Johns for over 25 years, and was responsible for, among other things, maintaining a studio file drawer containing pieces of art that were not yet completed by Johns and not authorized by Johns to be placed in the art market.

During his period of employment for Johns, MEYER removed 83 individual pieces of art from the studio file drawer he was responsible for maintaining, and from elsewhere in Johns’s studio. Between September 2006 and February 2012, MEYER transported more than half of those pieces to an art gallery in Manhattan for the purpose of selling those works without Johns’s knowledge or permission. MEYER represented both to the owner of the gallery (the “Gallery Owner”) and to potential purchasers that these pieces had been given to him as gifts by Johns when, in fact, that was not true.

As part of his scheme, MEYER provided sworn, notarized certifications stating that each piece was an authentic Johns work, that the art had been given to him directly by Johns, that he was the rightful owner of the piece, and that he had the right to sell that particular work. In addition, MEYER conditioned the sale of each of these works on the signed agreement by the purchaser that the art would be kept private for at least eight years, during which time the piece would not be loaned, exhibited, or re-sold.

MEYER also created fictitious inventory numbers for these pieces to give the impression that they were finished works that were authorized by Johns to be sold in the art market. Additionally, to facilitate certain sales, MEYER created fake pages that he inserted into a ledger book of registered pieces of art maintained at Johns’s studio, and which he subsequently photographed, to give additional assurances to prospective buyers about the provenance, or history of ownership, of a particular piece.

During the course of the almost six-year scheme, the Gallery Owner sold 37 works of art on MEYER’s behalf for a total of approximately $10 million, of which approximately $4 million was remitted directly to MEYER.

MEYER, 53, of Salisbury, Connecticut, was also sentenced to two years of supervised release, forfeiture in the amount of $3,992,500, restitution in the amount of $13,455,719, and was ordered to pay a $100 special assessment.

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

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that STEVEN KAITZ, the chief executive officer and one of three owners and principals of G3K Displays, Inc., and related entities (“G3K”) – a New Jersey-based company that provided in-store displays for retailers – pled guilty today in Manhattan federal court to an elaborate scheme to defraud G3K’s lenders and customers out of millions of dollars. Among other things, KAITZ admitted that he and others fraudulently inflated G3K’s sales and accounts receivable to secure millions of dollars in loans, and falsely verified to G3K’s lenders and outside auditors false financial information about G3K. KAITZ was charged along with four others in January 2015, and he pled guilty today before United States District Judge Jed S. Rakoff.

Manhattan U.S. Attorney Preet Bharara said: “With today’s guilty plea, Steven Kaitz has taken responsibility for his role in a scheme to inflate his company’s sales and accounts in order to secure over $18.6 million in loans. Not only did Kaitz obtain these funds for his company through lies and misrepresentations, but he also misappropriated some of the money for himself, spending it on luxury items and kickbacks.”

According to the Indictment and statements made during the plea proceeding:

KAITZ, was one of three owners and principals of G3K, a company that manufactured and designed displays for retailers around the world, including major retailers of sports apparel and footwear.

From approximately 2012 to May 2014, in order to trick various lenders, including Veritas Financial Partners, LLC, and MVC Capital, into lending at least $18.6 million to G3K, KAITZ and others engaged in a scheme to falsely inflate G3K’s revenue and accounts receivable, and as part of the scheme, made and caused to be made materially false and misleading statements about G3K’s financial condition. To create the false impression of sales, the defendants created phony documents, including fake and falsely inflated purchase orders purporting to reflect sales to G3K’s customers. The defendants also tricked certain of the company’s customers into paying falsely inflated invoices from G3K.

The defendants took elaborate steps to keep the scheme afloat and prevent G3K’s lenders and outside auditors from discovering the fraud. For example, KAITZ was involved in the creation of fake email accounts purporting to belong to fictitious employees of Footlocker and Adidas, G3K’s two largest customers. KAITZ and his co-defendants operated these fake email accounts themselves, pretending to be employees of those customers, and then used those fake email accounts to “verify” false information about G3K’s financial condition, including its sales and accounts receivable, to G3K’s lenders and outside auditors. To keep their scheme afloat, KAITZ and the other owners of G3K also utilized shell companies to engage in “round-trip” transactions to create the false appearance that customers were paying G3K’s phony outstanding receivables.

KAITZ and the other owners of G3K further misappropriated approximately $2.8 million of the loan proceeds for their own personal use, to pay for homes and luxury cars, private school tuition, and personal credit card bills, as well as kickbacks to another co-defendant in exchange for her role in the scheme.

As of May 2014, when G3K’s lenders terminated their lending relationships with the company after discovering the fraud, G3K had approximately $18.6 million in loans outstanding.

KAITZ, 56, of Jersey City, New Jersey, pled guilty to one count of conspiracy to commit bank fraud and wire fraud, which carries a maximum sentence of 30 years in prison. As part of the plea agreement, he agreed to pay restitution in the amount of $18,600,000, and he agreed to forfeit $1,382,427. KAITZ is scheduled to be sentenced by Judge Rakoff on September 8, 2015, at 4:00 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. The charges remain pending against KAITZ’s co-defendants, who are presumed innocent unless and until they are proven guilty.

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

The case is being prosecuted by the Office’s Complex Frauds & Cybercrime Unit. Assistant U.S. Attorneys Joshua A. Naftalis and Rosemary Nidiry are in charge of the prosecution.

U.S. v. Steven Kaitz, et al. Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, and Jonathan D. Larsen, the Special Agent-in-Charge of the Newark Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today the arrest of DWAYNE BIGELOW for allegedly participating in a $9 million “pump and dump” stock fraud scheme. Twelve other participants in related pump and dump stock fraud schemes have previously been convicted. As alleged in the Superseding Indictment unsealed yesterday, BIGELOW orchestrated a scheme to manipulate the price of penny stocks through the dissemination of misleading promotional campaigns designed to induce victim investors to purchase penny stocks at artificially inflated prices, thereby allegedly permitting BIGELOW and others to sell the stock they held at a profit. BIGELOW was arrested in Florida yesterday and was presented today in federal court in the Southern District of Florida. BIGELOW will be arraigned at a later date before United States District Judge Paul A. Crotty, to whom the case is assigned.

Manhattan U.S. Attorney Preet Bharara said: “Dwayne Bigelow is alleged to have engaged in a classic pump and dump scheme where the prices of worthless stocks were inflated with the puffery and false representations of paid stock promoters. Bigelow and his co-conspirators allegedly got wealthy, while their victims got fleeced. I want to thank the IRS and the HIDTA Task Force for their work in policing this alleged fraud.”

IRS-CI Special Agent-in-Charge Jonathan D. Larsen said: “Illegal activity involving the investment industry has brought financial ruin to many Americans. As alleged in the indictment, Mr. Bigelow and his co-conspirators manipulated certain penny stocks in a pump and dump scheme that enabled them to earn profits to the tune of over $9 million dollars. IRS-Criminal Investigation is proud to bring our financial investigative skills to team up with our law enforcement partners to investigate and put a stop to this type of illegal activity.”

As alleged in the Superseding Indictment, other documents previously filed in this case, and evidence introduced in court:

DWAYNE BIGELOW and his co-conspirators orchestrated a scheme to defraud investors in multiple companies by helping to take those companies public, hiring individuals to engage in misleading promotion campaigns designed to increase the price and trading volume of the companies’ stocks, and then taking advantage of the “pumped up” price and trading volume by “dumping” their shares into the market.

The scheme worked as follows: BIGELOW and his co-conspirators targeted privately held companies, which were engaged in little to no legitimate business activity, and orchestrated so-called “reverse mergers” between the target companies and shell companies controlled by BIGELOW and others. As a result, BIGELOW and his associates and co-conspirators obtained large quantities of publicly traded shares in the targeted companies, which traded as penny stocks.

BIGELOW then paid other individuals who acted as promoters to carry out misleading promotional campaigns, including by sending e-mails touting the stocks to lists of potential investors using purportedly independent stock analysis email newsletters. These misleading promotional campaigns caused demand for stock in the targeted companies, and the prices of the target companies’ stocks, to rise. BIGELOW and his co-conspirators took advantage of the “pumped-up” stock trading volume and price by “dumping” their shares into the market until the misleading promotional campaign had run out of steam.

The Superseding Indictment alleges three pump and dump securities and wire frauds concerning the stocks of Emerging World Pharma, Inc. (“EWPI”), SMC Entertainment, Inc. (“SMCE”), and Sierra Resources Group, Inc. (“SIRG”). According to the Superseding Indictment, BIGELOW and his co-conspirators made over $9 million from manipulation of these three stocks alone.

BIGELOW, 46, of Jupiter, Florida, is charged in the Superseding Indictment with one count of conspiracy to commit securities fraud and wire fraud (Count One), three counts of securities fraud (Counts Two through Four), and three counts of wire fraud (Counts Five through Seven). The securities and wire fraud charges carry a maximum term of 20 years in prison on each count, and the conspiracy charge carries a maximum term of five years in prison. The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

This case originated out of the Government’s long-term investigation into criminal conduct at the Port of New York-New Jersey, which uncovered the charged “pump and dump” stock fraud scheme. Mr. Bharara thanked the Internal Revenue Service-Criminal Investigations’ New Jersey office, as well as the other participants in the High Intensity Drug Trafficking Area (“HIDTA”) Task Force, which includes the New Jersey Offices of the Drug Enforcement Administration and Immigration and Customs Enforcement’s Homeland Security Investigations, for their outstanding work on the investigation. Mr. Bharara also thanked the Securities and Exchange Commission and the Financial Industry Regulatory Authority for their assistance with the investigation.

This case is being handled by the Office’s Public Corruption Unit. Assistant United States Attorneys Howard S. Master, Carrie H. Cohen, and Katherine C. Reilly are in charge of the prosecution.

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

U.S. v. Dwayne Bigelow Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, Jonathan Kay, Phyllis C. Borzi, the Assistant Secretary of Labor for Employee Benefits Security (“DOL”), and Shantelle P. Kitchen, the Special Agent-in-Charge of the New York Office of the Internal Revenue Service’s Criminal Investigation Division (“IRS”), announced today the return of an indictment charging THOMAS HOEY JR. with embezzling assets from his company’s profit-sharing plan. As alleged in the Indictment, HOEY, the owner and president of a Long Island-based produce distributor (the “Company”), and trustee for the Company’s profit-sharing plan (the “Plan”), an employee benefit plan set up for the benefit of the Company’s employees, transferred more than $800,000 from the Plan to the Company’s corporate accounts. HOEY then allegedly unlawfully used the money to cover significant negative balances in the Company’s accounts, to purchase, among other things, hundreds of thousands of dollars of produce for the Company, and for HOEY’s personal expenses. As a result of the defendant’s conduct, he is charged with embezzlement from an employee benefit plan, interstate transportation of stolen money, wire fraud, and money laundering. The defendant, who is in custody following convictions for federal narcotics, perjury, and obstruction charges, was presented and arraigned in Manhattan federal court today before Judge Jesse Furman.

Manhattan U.S. Attorney Preet Bharara said: “Thomas Hoey Jr.’s alleged crime is the nightmare of any employee: the theft of a company-sponsored pension plan. Thanks to the dedicated investigative work of the Department of Labor and the IRS, Hoey will have to answer for his alleged behavior in the court of law.”

DOL Assistant Secretary Phyllis C. Borzi said: “Let this indictment remind fiduciaries that we will not tolerate benefit plan assets being misused to subsidize a lifestyle. They must conduct themselves with undivided loyalty to safeguarding the retirement security of the plan's participants, and we will vigorously pursue all legal remedies when our investigations uncover such betrayals of trust.”

IRS Special Agent-in-Charge Shantelle P. Kitchen said: “This indictment demonstrates the government’s commitment to investigate allegations of impropriety relating to ERISA qualified pension plans. Employees who will one day rely on their account balances expect their plan’s trustee to protect their interests and not exploit their plan for personal use. IRS Criminal Investigation will work with our law enforcement partners on all kinds of corporate fraud allegations, including embezzlement from employee benefit plans.”

According to the allegations contained in the Indictment:

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

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

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

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

HOEY, 47, of Garden City, New York, is charged with one count of embezzlement from an employee pension plan, one count of interstate transportation of stolen money, one count of wire fraud, and one count of money laundering. The embezzlement count carries a maximum sentence of five years in prison. The interstate transportation of stolen money and money laundering counts each carry a maximum sentence of 10 years in prison. The wire fraud count 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.

HOEY is scheduled to be sentenced by Judge P. Kevin Castel on unrelated charges this Thursday, April 23, 2015, at 2:00 p.m.

Mr. Bharara praised the work of the DOL and the IRS.

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

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

Thomas Hoey Indictment - 15 Cr 229 Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced that former Spring Valley Mayor NORAMIE JASMIN was found guilty in federal court today of engaging in a bribery scheme in which she negotiated a 50 percent stake for herself in a development company and $5,000 cash in exchange for her use of her office to obtain land and various government approvals to construct a community center in Spring Valley. She was convicted after a one week bench trial before U.S. District Judge Colleen McMahon.

Manhattan U.S. Attorney Preet Bharara said: “This office is committed to ensuring the integrity of New York public officials at all levels and wherever they may be. Today, I announce the conviction of yet another corrupt elected official who failed to live up to her oath of office. Former Spring Valley Mayor Noramie Jasmin used her official position to influence a construction project on a parcel of public land, and she accepted bribes, including a secret fifty percent share of the project, to do so. Like all citizens, the residents of Spring Valley deserved an honest mayor, not one who worked behind closed doors and behind their backs to sell public land and public office for private gain. I want to thank the FBI, the Rockland County District Attorney’s Office, and the Spring Valley Police Department for their outstanding work on this important investigation.”

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

NORAMIE JASMIN was sworn in as Mayor of the Village of Spring Valley, New York, in December 2009. From September 2011 through April 2013, JASMIN accepted bribes from an undercover FBI agent (the “UC”) and a cooperating witness working with the Government (the “CW”), on multiple occasions in exchange for official acts. The bribe scheme centered on the development of a community center in the Village of Spring Valley whose construction costs were expected to be at least $12 million. In exchange for her vote in favor of a sale of land owned by Spring Valley to a company she believed was controlled by the UC, JASMIN demanded a secret ownership stake in the company. JASMIN also asked for an advance on her profits from the scheme and accepted a $5,000 cash payment from the CW. In support of the scheme, JASMIN directed the UC to find people to pose as bidders for the project so that the transaction would appear legitimate to the other members of the Spring Valley Board of Trustees who voted on the sale. Over the course of two days, JASMIN met the UC and two other undercover FBI agents posing as straw bidders (the “Straw Bidders”) in hotel rooms and instructed the Straw Bidders on how to make a presentation before the Spring Valley Board of Trustees such that the Straw Bidders would lose their purported bids on the land sale. JASMIN then presided over the presentations made by the company in which she had a secret financial stake and the fake presentations that she had helped prepare. The following day, JASMIN presided over a Village Board of Trustees meeting, during which she asked the Board for permission to negotiate the sale of Village land to the UC’s company and then voted with a “strong yes” to grant herself that permission. When questioned as to why the Board needed to vote to grant her that permission, JASMIN remarked that she “cannot sit behind closed doors with a developer to negotiate on behalf of the Board,” precisely what she did in the days preceding that vote.

JASMIN, 51, of Spring Valley, was found guilty of one count of mail fraud and one count of extortion. Each count carries a maximum sentence of 20 years in prison and a maximum fine of $250,000, or twice the gross gain or loss from the offense. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

JASMIN is scheduled to be sentenced by Judge McMahon on August 7, 2015 at 10 a.m.

Mr. Bharara praised the outstanding investigative work of the Federal Bureau of Investigation, the Rockland County District Attorney’s Office, and Chief Paul Modica and the Spring Valley Police Department.

This case is being handled by the Office’s White Plains Division and Public Corruption Unit. Assistant United States Attorneys Douglas B. Bloom and Jessica K. Feinstein are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that MICHAEL OPPENHEIM was charged with wire, securities, and investment adviser fraud, as well as embezzlement, for allegedly 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 $20 million over a four-year period. OPPENHEIM was arrested this morning and will be presented later today in Manhattan federal court before U.S. Magistrate Judge Sarah Netburn.

Manhattan U.S. Attorney Preet Bharara said: “Michael Oppenheim is alleged to have misrepresented to investment advisory clients what he would do with their money. The allegations include that he lied to his clients and misappropriated their money. I want to thank the FBI and the SEC for their continued vigilance in protecting investors and their money.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “Investment advisers are required to act in the best interest of their clients. Oppenheim did just the opposite by allegedly taking advantage of those who trusted him. As alleged, he concealed their money in a game of hide-and-seek and personally benefitted from illegitimately obtained profits. Now that his actions have been exposed, he will be made to face the consequences of the justice system.”

According to the allegations in the Criminal Complaint unsealed today in Manhattan federal court:

From at least March 2011 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 benefit at least $20 million belonging to at least seven clients whose investment advisory accounts at the Bank he purported to manage.

In some instances, OPPENHEIM induced clients to consent to the withdrawal of hundreds of thousands, and in some cases millions, of dollars from their accounts at the Bank, based on false and misleading representations that OPPENHEIM would invest their money in low-risk municipal bonds to be held in an account at the Bank. In other instances, OPPENHEIM simply withdrew hundreds of thousands of dollars from clients’ accounts without their knowledge.

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, is charged with one count of wire fraud, one count of embezzlement, one count of securities fraud, and one count of investment adviser fraud. The embezzlement count carries a maximum of 30 years in prison. The wire fraud and securities fraud counts each carry a maximum sentence of 20 years in prison. The investment adviser fraud count carries a maximum sentence of five 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.

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

Mr. Bharara praised the work of the FBI, and thanked the SEC and FINRA for their assistance. He added that the investigation is continuing.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 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 the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, 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, Alexander Wilson, and Brooke Cucinella 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.

U.S. v. Michael Oppenheim Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, and Shantelle P. Kitchen, the Special Agent-in-Charge of the New York Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced that JEFFREY S. STEIN and MARLA STEIN, who are husband and wife, pled guilty today to obstructing the IRS by, among other things, providing to an IRS auditor phony documents designed to support false deductions both claimed on their joint tax returns for the years 2009-2012. JEFFREY S. STEIN also pled guilty to tax evasion charges for the years 2009-2012. JEFFREY S. STEIN, a vascular surgeon, and MARLA STEIN, a New York personal injury lawyer, entered their guilty pleas before U.S. District Judge Denise L. Cote.

Manhattan U.S. Attorney Preet Bharara said: “As they admitted today, Jeffrey Stein and Marla Stein not only cheated the IRS by claiming hundreds of thousands of dollars of false deductions on their tax returns, they doubled down on their fraud by using the identities of others to create false documents in an attempt to snooker the IRS again – this time during an audit. Lawyers, doctors, and indeed all taxpayers have an obligation not only to report their income and expenses truthfully, but also to deal in an honest and forthright manner with the IRS when it conducts an audit. Those who seek to mislead and defraud the IRS do so at their peril.”

IRS Special Agent-in-Charge Shantelle P. Kitchen said: “It is inexcusable when financially successful individuals, with the resources to meet their tax obligations, defraud the tax system. By doing so, they increase the burden on law abiding American taxpayers, effectively forcing them to make up the difference. As we approach the April 15th tax deadline, this investigation serves as a timely warning to those who contemplate filing fraudulent tax returns through falsifying their expenses. It also reinforces the message that falsifying books and records “after the fact,” in preparation for a tax audit, is also a criminal offense and will be dealt with accordingly. IRS-Criminal Investigation remains committed to protecting the American tax system and ensuring that everyone pays their fair share.”

According to the Information filed today in Manhattan federal court:

JEFFREY S. STEIN was a vascular surgeon who, between 2009 and 2012, conducted business principally through his own Manhattan and Long Island-based medical practice, “Jeffrey Stein, M.D.” Between 2008 and 2011, JEFFREY S. STEIN was also affiliated with and earned income from certain medical groups, including one based in Brooklyn that had contracts with the United States Department of Veterans Affairs (“V.A.”).

MARLA STEIN was an attorney who, between 2009 and 2012, performed legal services largely as an independent contractor to certain Manhattan-based personal injury law firms.

Both JEFFREY S. STEIN and MARLA STEIN reported the profits from their medical and law practices, respectively, on separate Schedules C (Profit or Loss From Business) attached to the joint U.S. Individual Income Tax Returns, Forms 1040, that they filed for the tax years 2009-2012.

Filing of False Tax Returns

In connection with the preparation of their Forms 1040 for the tax years 2009-2012, JEFFREY S. STEIN and MARLA STEIN provided false and fictitious information to their accountant in order to fraudulently reduce the amount of taxes they would have to pay to the IRS. In particular, JEFFREY S. STEIN provided the accountant with (a) wholly fictitious Schedule C expenses purportedly incurred by his medical practice, such as contract labor expenses and transcription services that were, in truth and fact, never incurred or paid; and (b) falsely inflated Schedule C expenses purportedly incurred by his medical practice, including travel and auto expenses, deductible meals and entertainment, and the amounts of wages paid to employees of his medical practice. In addition, MARLA STEIN provided this accountant with (a) wholly fictitious Schedule C contract labor and advertising expenses purportedly incurred by her law practice but which were, in truth and fact, never incurred or paid; and (b) falsely inflated Schedule C expenses purportedly incurred by her law practice, including those for office supplies and deductible meals and expenses.

In addition to the foregoing, for the tax years 2007-2013, JEFFREY S. STEIN and MARLA STEIN failed to inform their accountant that they employed and paid approximately $15,000 annually in cash wages to a household employee (“the Domestic Employee”) who performed certain cleaning and childcare services in their Upper East Side home.

As a result of the falsely inflated and wholly fictitious information provided by JEFFREY S. STEIN and MARLA STEIN to their accountant in connection with the preparation of their Forms 1040 for the 2009-2012 tax years, the accountant prepared tax returns for JEFFREY S. STEIN and MARLA STEIN that falsely and fraudulently understated their business income and, consequently, the amount of taxes due and owing to the IRS. In addition, as a result of the failure of JEFFREY S. STEIN and MARLA STEIN to inform their accountant of the cash wages paid to their Domestic Employee for the 2007-2013 tax years, JEFFREY S. STEIN and MARLA STEIN failed to pay to the IRS various employment taxes due and owing to the IRS, and also aided the Domestic Employee in avoiding detection by the IRS of the employee’s failure to report her cash wages to the IRS for the tax years 2007-2013.

Obstruction of the IRS Audit

In February 2013, the IRS notified JEFFREY S. STEIN and MARLA STEIN, the defendants, that their tax returns for the 2010 and 2011 tax years had been selected for audit, specifically with respect to their respective Schedule C expenses. In response to requests by the IRS auditor for documents supporting their claimed deductions and expenses, JEFFREY S. STEIN and MARLA STEIN created and provided to their accountant – whom they retained to represent them during the audit – various fabricated and fictitious documents and information as part of a corrupt effort to convince the IRS auditor that the expenses claimed on their respective Schedules C were legitimate.

Among the fabricated and fictitious documents created by JEFFREY S. STEIN and MARLA STEIN and provided to their accountant, in order to pass on to the IRS auditor, were the following:

(a) Using the names of four disabled military veterans (including two former patients) whose identities JEFFREY S. STEIN obtained as a result of his work for the V.A., JEFFREY S. STEIN created bogus invoices in the names of those veterans (“the Bogus Invoices”). The Bogus Invoices falsely recited that the individuals whose names were contained on the invoices had performed during 2010 and 2011, and been paid by JEFFREY S. STEIN for, various medical services rendered to JEFFREY S. STEIN’s medical practice, such as “ultrasound technologist” and “vascular technologist” services. In truth and fact, none of the individuals whose names were placed on the Bogus Invoices provided any of the services recited in the fabricated invoices, which totaled $126,525. One of the veterans whose name was placed on a Bogus Invoice by JEFFREY S. STEIN was not even alive in 2011 – a year for which JEFFREY S. STEIN created a Bogus Invoice for that individual.

(b) JEFFREY S. STEIN created invoices purportedly sent to STEIN’s medical practice in 2010 and 2011 by a Long Island hospital (“the Hospital”) reflecting payments sought by the Hospital for “surgical physician assistant cost sharing,” which invoices JEFFREY S. STEIN claimed were paid by his medical practice. In truth and fact, the services reflected in the Hospital invoices were never provided to JEFFREY S. STEIN and never paid by his medical practice as expenses.

(c) JEFFREY S. STEIN created invoices purportedly sent to STEIN’s medical practice in 2010 and 2011 by a company that provided transcription services. In truth and fact, the transcription company identified by JEFFREY S. STEIN never provided any transcription services to JEFFREY S. STEIN’s medical practice.

(d) MARLA STEIN created certain documentation indicating that two individuals, whose names and purported tax identification numbers were included thereon, had provided certain services to MARLA STEIN’s law practice and had been paid fee income by MARLA STEIN as a result. In truth and fact, neither of those individuals had provided services to MARLA STEIN’s law practice. Instead, the individuals whose identities were used were those of the Domestic Employee and a medical professional who had performed services for a member of MARLA STEIN’s family.

(e) Using genuine invoices previously provided to MARLA STEIN by photographers and a videographer who had performed services in connection with religious celebrations for members of MARLA STEIN’s family, MARLA STEIN used the names of the photographers and videographer but fraudulently altered the real invoices to make them appear as if the services reflected in the invoices had been provided to MARLA STEIN’s law practice.

JEFFREY S. STEIN, 58, of New York, New York, faces a maximum sentence of eight years in prison, based on the tax evasion and IRS obstruction charges to which he pled guilty. MARLA STEIN, 52, also of Manhattan, faces three years in prison as a result of the IRS obstruction charge to which she pled guilty. Both defendants are scheduled to be sentenced by U.S. District Judge Denise L. Cote on July 28, 2015, at 10:00 a.m. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

Mr. Bharara praised the outstanding efforts of IRS-CI in the investigation.

This case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorney Stanley J. Okula, Jr. is in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that LUIS GUSTAVO TAVAREZ was sentenced to 90 months in prison for his role in a large-scale counterfeit credit card scheme involving credit card numbers stolen from nearly 200 victims and over $600,000 in losses. TAVAREZ pled guilty on August 28, 2014, to conspiracy to commit access device fraud. TAVAREZ was sentenced by U.S. District Judge Richard J. Sullivan.

Manhattan U.S. Attorney Preet Bharara said: “In what is becoming an increasingly common fraud, Tavarez bought stolen credit card information from hackers and used it to fuel his own greed. I would like to thank the United States Secret Service for their investigative work on the case.”

According to the allegations in the Criminal Complaint, Information, plea allocution, and other court documents:

From April 2013 through April 2014, LUIS GUSTAVO TAVAREZ was one of the managers of an extensive counterfeit credit card fraud scheme operating in half a dozen states along the East Coast in 2013 and 2014. As part of the scheme, TAVAREZ purchased stolen credit card information from computer hackers who remotely compromised databases containing credit card numbers, both directly and from “carding” websites where stolen credit card numbers are sold. TAVAREZ then produced counterfeit credit cards that were encoded with the stolen account information. He personally used those counterfeit cards to make unauthorized purchases of store gift cards and retail items, and also provided them to co-conspirators who acted as “shoppers” at his direction. In total, TAVAREZ and his co-conspirators, including Deivi Martinez-Brito, Anthony Reynoso, Plinio Pineda Lopez, Vicente D. Espinal, and Warner Alvarez Almanzar, used counterfeit cards to make hundreds of purchases of store gift cards and merchandise at national retail chains in New York, New Jersey, Pennsylvania, Connecticut, Rhode Island, and Massachusetts. The gift cards and retail items were then sold to others or returned to the stores for cash refunds.

As part of the scheme, TAVAREZ and his co-conspirators obtained stolen account information from almost 200 victims and used that stolen information to make more than $625,000 in unauthorized purchases.

Two days after pleading guilty on August 28, 2014, TAVAREZ fled and became a fugitive from justice. He was apprehended by the United States Marshals Service on September 16, 2014, at a bus station in Indianapolis, Indiana, and returned for sentencing.

TAVAREZ, 34, of Bronx, New York, was also sentenced to three years’ supervised release, restitution and forfeiture judgments in the amount of $627,441.96, and was ordered to pay a $100 special assessment.

Pineda Lopez, 24, of Bronx, New York, pled guilty and was sentenced on January 12, 2015, to six months in prison and six months’ home confinement by U.S. District Judge Alison J. Nathan. Reynoso, 25, of Bronx, New York, pled guilty and was sentenced on January 29, 2015, to six months in prison and six months’ home confinement by U.S. District Judge Richard M. Berman. Martinez-Brito, 25, of New York, New York, pled guilty before U.S. District Judge Gregory H. Woods, and is scheduled for sentencing on June 2, 2015. Alvarez Almanzar, 21, of New York, New York, pled guilty before Judge Richard J. Sullivan and is scheduled for sentencing on April 17, 2015. The prosecution of Espinal, 25, of Bronx, New York, is ongoing.

Mr. Bharara praised the outstanding investigative work of the United States Secret Service. He also thanked the Office of Homeland Security Investigations for their assistance with this case, and the United States Marshals Service for their successful apprehension of TAVAREZ after he fled.

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

The charges contained in the Criminal Complaint and Information are merely accusations and the defendant whose prosecution is ongoing is presumed innocent unless and until proven guilty.

Preet Bharara, the United States Attorney for the Southern District of New York, Delano A. Reid, Special Agent in Charge of the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), and William Bratton, Commissioner of the New York City Police Department (NYPD), announced today that RALPH NOLAN was found guilty of conspiracy to commit robbery, attempted robbery, and brandishing a firearm during and in relation to the attempted robbery following a one-week trial before United States District Judge George B. Daniels. The jury convicted NOLAN Friday, April 10, 2015, for his role in connection with a December 2013 home invasion robbery in the Bronx, New York.

Manhattan U.S. Attorney Preet Bharara stated: “Ralph Nolan terrorized the occupants of a Webster Avenue apartment in the Bronx by tying them up at gunpoint during the commission of a brutal robbery. Now, justice has been served for the victims of this heinous crime.”

ATF Special Agent in Charge Reid stated: “This swift and decisive conviction will definitely resonate with the public in that it clearly shows that the ATF and its law enforcement partners will relentlessly pursue those criminals who prey on the innocent. These depraved acts will not be tolerated. The defendant will now live a large part of his future within a prison cell and be reminded daily of that fact.”

NYPD Commissioner Bratton stated: “I want to thank the NYPD investigators and the prosecutors with the US Attorney's Office, Southern District whose hard work resulted in the conviction of this individual."

According to the allegations in the Indictment against NOLAN and evidence admitted at trial:

On December 16, 2013, NOLAN and two co-conspirators planned and executed an armed home invasion robbery of an apartment in the Bronx, New York, that belonged to a quadriplegic woman. The robbers believed that the apartment contained drugs and drug proceeds. During the course of the robbery, NOLAN, who was armed with a handgun, pistol-whipped one of the apartment occupants and restrained the victims with telephone cords and cable wires before making off with electronics and other items.

NOLAN was convicted of one count of conspiracy to commit robbery and one count of attempted robbery, each carrying a maximum sentence of 20 years in prison. In addition, NOLAN was convicted of one count of brandishing a firearm during and in relation to the attempted robbery, which carries a maximum sentence of life in prison. NOLAN is scheduled to be sentenced August 11, 2015, before Judge Daniels. 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.

NOLAN, 26, of Gloversville, New York was arrested July 28, 2014. He was remanded pending sentencing.

Mr. Bharara praised the outstanding investigative work of the ATF and NYPD.

The prosecution is being handled by the Office’s Violent and Organized Crime United. Assistant U.S. Attorneys Richard Cooper and Russell Capone represented the government at trial.

Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that MARCELLO TREBITSCH was arrested this morning on wire fraud and securities charges stemming from his alleged scheme to defraud multiple investors of approximately $7 million through a fraudulent investment scheme that he allegedly perpetrated for at least five years. Among other false and misleading statements, TREBITSCH allegedly lied to investors by telling them that he would use their money to trade in securities through an investment fund that he controlled, generating double-digit returns with very low risk. Instead, TREBITSCH allegedly invested only a portion of the investors’ money and suffered enormous trading losses, which he failed to disclose to the investors. TREBITSCH allegedly used the remainder of the investors’ money for his own personal benefit and to pay back other investors.

TREBITSCH was presented today before United States Magistrate Judge Debra Freeman.

U.S. Attorney Preet Bharara said: “Investing in securities entails certain risks, but should not include the risk of being defrauded by one’s investment manager. Investment fraud is a high priority for this Office. I want to thank the FBI for working with us to protect investors and their money.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “As alleged, Trebitsch took $7 million in investor money under false pretenses. Allegedly promising double digit returns to investors, Trebitsch suffered losses on what money he did invest. Trebitsch finds himself under arrest on securities and wire fraud charges.”

According to the allegations in the two-count Complaint unsealed today in Manhattan federal court:

From 2009 through December 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 would use their money to purchase large-cap stocks through an investment fund called Allese Capital LLC, which TREBITSCH co-owned with his wife, who was a certified public accountant. TREBITSCH told the investors that he would purchase and sell stocks on a daily basis, with little or no funds invested in the market at the end of each trading day, which would minimize the risk of loss, and result in double-digit annual returns in the range of 14 to 16 percent. In fact, TREBITSCH invested only a portion of the investors’ money, 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. Rather, TREBITSCH sent the investors false and misleading monthly account statements and tax forms, which purported to show positive annual returns in range of 15 to 19 percent on the investors’ investment in Allese.

During the course of the fraudulent scheme, TREBITSCH solicited more than $7 million from multiple investors.

TREBITSCH, 37, of Brooklyn, New York, is charged with one count of wire fraud and one count of securities fraud. The wire fraud count and the securities fraud count each carry a maximum sentence of 20 years in prison; the wire fraud charge carries a maximum fine of $250,000, or twice the gross gain or loss from the offense, and the securities fraud charge carries 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. He added that the investigation is continuing.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 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 the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, 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.

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

presumed innocent unless and until proven guilty.

Trebitsch, Marcello Complaint

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 that DANIEL COONS, 35, a registered sex offender, was sentenced yesterday to 30 years in prison by United States District Judge Cathy Seibel for sexually exploiting a 14-year-old girl via Facebook. COONS coerced the girl into taking sexually explicit photographs of herself and sending them to him online. The sentencing followed COONS’s guilty plea on September 3, 2014.

Manhattan U.S. Attorney Preet Bharara said: “This case underlines the urgent need for law enforcement to continue its efforts to protect children from those who prey on them. As this sentencing demonstrates, we will use every tool available to law enforcement to prosecute and punish those who sexually exploit children.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “Crimes of this nature rob children of their innocence, creating long-lasting negative effects on our nation’s most vulnerable. Our children deserve to live in a society free from the advances of predators. This sentence is a reminder of our commitment to protect their most basic rights.”

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

On March 24, 2005, COONS was convicted in Orange County Court of Sexual Abuse in the 1st degree, Engaging in a Course of Sexual Conduct in the 2nd degree, and Sexual Abuse in the 3rd degree. He was sentenced to six months in prison and ten years’ probation. In addition, as a result of that conviction, he was required to register with the New York State Sex Offender Registry.

From at least January 29, 2013, through May 14, 2013, COONS, using the Facebook names “mike.storms.77715,” “nicholas.mathew.7,” and “jacod.davis.9,” communicated with a 14-year-old girl in Kentucky on Facebook and convinced her to take and send sexually explicit photographs. COONS used the different identities to make her believe she was speaking to three different people and tricked her into thinking that her photographs were being shared. COONS threatened the girl that, if she did not send additional sexually explicit photographs, the photos she had already sent would be posted on Facebook.

COONS used an iPhone to access Facebook notwithstanding the fact that the terms of his probation prohibited his use of Facebook. After his arrest, COONS admitted to using multiple Facebook accounts to entice underage girls to send sexually explicit images of themselves to him. COONS said that he used the different Facebook names to convince the girls that they were speaking to more than one male and to convince them that their pictures were being shared with other users. COONS admitted that he engaged in this conduct with at least 10 underage girls. In addition, COONS identified the girl in Kentucky as one of the girls with whom he communicated via Facebook and indicated that he knew the Victim was 14 years old.

Mr. Bharara praised the efforts of the FBI, the Rockland County Computer Crimes Task Force, the Middletown Police Department, the New York State Police, and the Orange County Sheriff’s Department in connection with this investigation.

In sentencing COONS, Judge Seibel underscored the “particularly cruel” nature of the offense and stated that the 30-year sentence was necessary to protect the public from further crimes by the defendant.

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that KARRIEM BARROW was sentenced today in White Plains federal court to 16 terms of life in prison plus two terms of 20 years in prison in connection with his participation in a series of armed robberies that included seven banks and a restaurant in Bronx, Westchester, and Putnam counties over a two-month period. BARROW was sentenced by U.S. District Judge Kenneth M. Karas, who presided over the nine-day jury trial that resulted in BARROW’S conviction in November 2011.

Manhattan U.S. Attorney Preet Bharara said: “Today’s sentence sends a strong and clear message that our federal and local partners will work together to ensure that those who endanger the lives of our citizens through brazen acts of violence will be met with severe punishment.”

According to the Complaint, Indictment, and evidence presented at trial:

In January 2010, BARROW and his accomplice Carl Farrington robbed the Golden China restaurant located at 881 E. Gun Hill Road in the Bronx, New York, at gunpoint. BARROW and Farrington subsequently participated in a series of armed bank robberies, robbing seven banks (see below).

BARROW was convicted of one count of conspiracy to commit armed robbery, one count of armed robbery, one count of conspiracy to commit armed bank robbery, seven counts of armed bank robbery and eight counts of using, carrying, or possessing a firearm in furtherance of a crime of violence.

Mr. Bharara praised the outstanding investigative work of the Federal Bureau of Investigation, the New York State Police, and the police departments of Westchester County, White Plains, Bronxville, Briarcliff, Greenburgh, and Carmel.

This case is being handled by the Office's White Plains Division. Assistant United States Attorneys Douglas B. Bloom and Parvin Moyne are in charge of the prosecution.

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Preet Bharara, the United States Attorney for the Southern District of New York, announced that CHRISTOPHER LUPINO and KELWYN BENJAMIN pled guilty today, and ADAM FORESTA pled guilty on March 31, 2015, each to participating in a conspiracy to commit honest services wire fraud in connection with their accepting bribes in exchange for memberships in Steamfitters Local 638, a New York City labor union. FORESTA, LUPINO, BENJAMIN, and James Sheeran were arrested in November 2014. LUPINO, BENJAMIN, and FORESTA pled guilty today in Manhattan federal court before United States District Judge William H. Pauley III.

Manhattan U.S. Attorney Preet Bharara said: “With their guilty pleas Christopher Lupino, Kelwyn Benjamin, and Adam Foresta have accepted responsibility for their roles in a scheme to swap memberships in Steamfitters Local 638 for cash bribes. We will continue to work with our law enforcement partners at the FBI, the U.S. Department of Labor, and the NYPD to stamp out union fraud wherever we find it.”

According to allegations contained in the Indictment, the underlying criminal Complaint unsealed on November 5, 2014, and statements made during court proceedings:

FORESTA, LUPINO, BENJAMIN, and Sheeran were each members of Steamfitters Local 638, a local division of a labor union that represents workers in the plumbing and pipefitting industries in New York City (the “Union”). Sheeran was an organizer for the Union and worked on membership recruitment. In that capacity, he owed fiduciary duties to Steamfitters Local 638.

In December 2013, an individual who has not been charged (“Applicant-1”) told a cooperating witness (the “CW”) that Applicant-1 had been offered membership in the Union – what is known as a “Union book” – in exchange for a $35,000 bribe. Applicant-1 asked the CW to help him/her pay for the Union book.

Over the next several months, FORESTA, LUPINO, and BENJAMIN each had conversations, which were recorded by the Federal Bureau of Investigation (“FBI”), with the CW about buying Union books for Applicant-1 and another individual who has not been charged (“Applicant-2”). During these calls, the CW was told that each Union book would cost $40,000 – $5,000 for the typical Union application fee and a $35,000 cash bribe.

In October 2014, Applicant-1 met with Sheeran, who coached Applicant-1 to provide answers to questions from Union officials to enable him to secure approval from the interviewing officials, including by misleading the Union officials. Applicant-1 and Applicant-2 met with the Union committee later that month in connection with their applications. After that meeting, LUPINO told the CW that approvals from the Union would come soon.

On November 3, 2014, a few days before Applicant-1 and Applicant-2’s memberships were to be issued, LUPINO and FORESTA arranged for FORESTA to meet with the CW to pick up the bribes for the two Union books. LUPINO told the CW to bring $70,000 in cash and that the other $10,000, which would go to the Union for application fees, should be paid for by check or money order. On November 4, 2014, FORESTA and the CW met in Manhattan. The CW gave FORESTA $35,000 in cash for one Union book – telling FORESTA he/she would pay for the second Union book the next day.

FORESTA, 45, of Staten Island, New York, LUPINO, 51, of New Monmouth, New Jersey, and BENJAMIN, 41, of New York, New York, each pled guilty to one count of conspiring to commit honest services wire fraud, which carries a maximum term of 20 years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

FORESTA, LUPINO, and BEJAMIN are all scheduled to be sentenced on July 31, 2015. Trial against Sheeran is scheduled to begin on September 15, 2015, before Judge Pauley.

Mr. Bharara praised the investigative work of the FBI, the United States Department of Labor, Office of Inspector General, Office of Labor Racketeering and Fraud Investigations, and the New York City Police Department.

The case is being prosecuted by the Office’s Violent & Organized Crime Unit. Assistant U.S. Attorneys Joshua A. Naftalis and Jordan Estes are in charge of the prosecution.

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the evidence does not support pursuing federal criminal charges in connection with the fatal shooting of Danroy Henry, Jr. Mr. Henry, a student at Pace University, was killed during an encounter with police officers from the Pleasantville and Mount Pleasant Police Departments in the early morning of October 17, 2010. Federal prosecutors informed Mr. Henry’s parents of this decision earlier today.

Federal prosecutors thoroughly reviewed the evidence regarding the events that led to and immediately followed Mr. Henry’s shooting, in order to determine whether a prosecutable violation of the federal criminal civil rights laws had occurred. To prove a violation of the federal criminal civil rights statutes, prosecutors must establish, beyond a reasonable doubt, that a law enforcement officer willfully deprived an individual of a constitutional right, meaning that the officer acted with the deliberate and specific intent to do something the law forbids. This is one of the highest standards of intent imposed by law, and is different and higher than the intent standard under the relevant state statutes. Neither accident, mistake, fear, negligence nor bad judgment is sufficient to establish a willful federal criminal civil rights violation.

After conducting an exhaustive examination of all of the evidence, including consultation with experts, career federal prosecutors determined that the evidence does not establish the exacting standard of criminal intent required for a federal criminal civil rights prosecution.

The evidence reveals the following: At approximately 11:30 p.m. on the night of October 16, 2010, Mr. Henry drove himself and several friends to Finnegan’s Grill, located in the Thornwood Shopping Center in Thornwood, New York. Shortly after 1:00 a.m., a fight broke out among several bar patrons. Mr. Henry was not involved in this altercation. As a result of the fight, however, the owner of Finnegan’s Grill closed the establishment for the evening, ejected all of the patrons, and called the police. Police officers from both the Mount Pleasant and Pleasantville Police Departments responded to the scene. Mr. Henry departed the bar, retrieved his car from the parking lot, and pulled into a fire lane in front of Finnegan’s Grill while waiting for several friends. A Mount Pleasant police officer knocked on the window of Mr. Henry’s car, at which point Mr. Henry pulled out of the fire lane. The Mount Pleasant police officer shouted for Mr. Henry to stop. Mr. Henry proceeded to drive on the access road leading from the Thornwood Shopping Center. An officer with the Pleasantville Police Department stepped in front of Mr. Henry’s car. Although there are inconsistencies in the witness accounts regarding the chronology of certain subsequent events, the weight of the evidence indicates that Mr. Henry’s car was braking when it struck the Pleasantville officer, who wound up on the hood of the car, and that the Pleasantville officer then fired through the windshield into the car, wounding one of the passengers and killing Mr. Henry. A toxicology report from the state criminal investigation, which some parties have disputed, indicated that Mr. Henry had a blood alcohol level of .13 at the time of his death.

Several considerations have persuaded federal prosecutors that they cannot prove beyond a reasonable doubt that the Pleasantville police officer intentionally violated the civil rights of Mr. Henry. First, the incident happened within a matter of seconds, without any prior interaction or relationship between the Pleasantville officer and Mr. Henry that could lead a reasonable juror to believe that the officer had a motive to violate Mr. Henry’s civil rights. Second, a reasonable person considering the totality of the evidence would likely conclude that the car driven by Mr. Henry struck the officer and injured him before the officer fired his weapon. This resulted in the officer being positioned hazardously on the hood of a moving vehicle, requiring him to make a split-second decision under conditions of extreme danger, conditions under which the law generally allows latitude to a police officer’s judgment. Third, while portions of isolated testimony from certain of the witnesses at the scene might suggest that the Pleasantville officer acted with bad intent, there is not enough consistent, credible witness testimony to prove beyond a reasonable doubt that the officer acted with the requisite willfulness to deprive Mr. Henry of his constitutional rights. Finally, although racial animus need not be shown to establish a deprivation of rights under color of law, the evidence indicated that because of the darkness, the glare of the headlights and streetlamps, and the condensation on the windows, the Pleasantville officer would in all likelihood not have been able to see who the driver was or the driver’s race.

The Office also examined the evidence regarding the immediate aftermath of the shooting, and the failure of the officers on the scene, which was chaotic, to administer medical care to Mr. Henry as they waited for the EMT crews they had called for to arrive. Here, too, the Office could not conclude that the failure of the officers to provide immediate medical care under the circumstances amounted to a willful federal criminal civil rights violation.

The Office also considered whether there had been a criminal violation of the civil rights of Brandon Cox, who was injured by a bullet as he rode in the passenger side seat in Danroy Henry’s car. This injury arose out of the same exact facts that led to Mr. Henry’s shooting, and for the same reasons, the evidence does not support pursuing federal criminal charges in connection with the injury of Mr. Cox.

This Office analyzed these issues under the standard applicable to criminal cases, which is proof beyond a reasonable doubt. The Office expresses no view regarding any claims made against any party under the standard applicable to civil cases, which is proof by a preponderance of the evidence.

Accordingly, this Office’s investigation into Mr. Henry’s death has been closed.

Mr. Bharara expressed his deep sympathy to the family of Mr. Henry for their tragic loss.

Preet Bharara, the United States Attorney for the Southern District of New York, Delano A. Reid, Special Agent in Charge of the New York Division of the United States Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), and William J. Bratton, the Police Commissioner of the City of New York (“NYPD”), announced that JOHNNY CEDEÑO was found guilty Monday of conspiracy to commit murder-for-hire, murder-for-hire, and murder in connection with a narcotics conspiracy for his role in the murder of a 16-year-old girl. CEDEÑO was convicted after a six-day jury trial before U.S. District Judge Robert W. Sweet. CEDEÑO is the 20th defendant connected to the “Solid Gold” drug crew to be convicted for acts of violence and/or drug dealing in the Bronx in the 1990’s.

Manhattan U.S. Attorney Preet Bharara said: “Thanks to the efforts of the dedicated agents, detectives, and prosecutors who relentlessly pursued justice in this and related investigations, eight previously unsolved cold-case murders, including the tragic murder of an innocent 16-year-old girl, have now been solved and prosecuted. We hope seeing justice done is some balm to Carmen Diaz’s family, who lost her way too soon.”

ATF Special-Agent-in-Charge Delano A. Reid said: “It's nearly impossible for me to convey how gratified I am to see this long and complicated case come to a close. It was only through the dogged determination and dedication of the assigned investigators and prosecutors that we can now realize the extent of the complexities and obstacles this investigation presented. Cedeno's conviction was a long time coming but the victim's family can finally derive closure from the swift conviction and hopefully can find solace in the fact that once law enforcement has you identified and targeted, your days of freedom are surely numbered.”

NYPD Commissioner William J. Bratton said: “It is our hope that this conviction brings some comfort to the victim’s family who senselessly lost a loved one to gun violence. We thank our federal law enforcement partners who worked tirelessly to see this individual brought to justice”

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

JOHNNY CEDEÑO was a drug dealer who sold large quantities of crack cocaine on Bathgate Avenue in the early 90’s. He pled guilty to a firearms charge in the summer of 1994 and, while serving his sentence in connection with that charge, hired members of a drug crew that called itself “Solid Gold” to murder a rival drug dealer from Bathgate Avenue. While attempting to carry out CEDEÑO’s orders, the shooter shot and killed Carmen Diaz, a 16-year-old girl, who was sitting on the front stoop of her apartment building. Carmen Diaz sustained 11 gunshot wounds and died in the hospital three weeks later. The drug rival who was the original target of the shooting sustained injuries but did not die.

In addition to selling enormous quantities of crack cocaine, CEDEÑO and his criminal associates in Solid Gold committed numerous acts of violence, including murder, in the early 1990’s, in the areas of Bathgate Avenue and 178th/179th Streets, and 173rd Street and Boston Road, in the Bronx. Many of those crimes remained unsolved for almost 20 years. After a series of prosecutions in the Southern District of New York, culminating in this trial, 20 members and associates of Solid Gold have now been convicted for their involvement in the organization’s drug dealing activities and a total of eight murders.

JOHNNY CEDEÑO, 58, of the Bronx, faces a mandatory minimum sentence of life in prison. The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. Judge Sweet has not yet set a sentencing date.

Mr. Bharara praised the investigative work of the ATF and the NYPD.

This case is being prosecuted by the Office’s Violent Crimes Unit. Assistant United States Attorneys Laurie A. Korenbaum and Brooke E. Cucinella are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, Robert J. Sica, the Special Agent-in-Charge of the New York Office of the United States Secret Service, and Diego Rodriguez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that HARVEY NEWKIRK, formerly counsel at a law firm in Manhattan, was arrested today for participating in a scheme to fraudulently induce lenders to provide millions of dollars to a company associated with a co-conspirator (“CC-1”) for the attempted purchase of a nationally circulated magazine and related assets (the “Magazine”). NEWKIRK surrendered this morning to the Secret Service, and was presented this afternoon in Manhattan federal court before U.S. Magistrate Judge James L. Cott.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Harvey Newkirk shirked his ethical responsibilities as a lawyer when he participated in a multimillion-dollar fraud scheme, in which deception and misrepresentations were legion, in order to obtain the funds to purchase a national magazine. Fortunately, thanks to our law enforcement partners at the Secret Service and the FBI, Newkirk was apprehended and must now answer for his alleged conduct.”

Secret Service Special Agent-in-Charge Robert Sica said: “The arrest of Harvey Newkirk is another example of the Secret Service's expertise in combating fraud and financial crimes. Our success in this case and other similar investigations is a result of the extraordinary work of our investigators and our close work with our network of law enforcement partners.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “Lying to lenders, creating fictitious documents, and purporting to be someone’s attorney are serious crimes. Newkirk’s alleged elaborate fabrications – in a ridiculous attempt to purchase a nationally circulated magazine – have finally been unveiled.”

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

From August 2013 to February 2014, in connection with the potential purchase of the Magazine by a media company (the “Media Company”) associated with CC-1, NEWKIRK and CC-1 made a series of misrepresentations to lenders to induce these lenders to provide millions of dollars in capital to the Media Company for the purchase of the Magazine.

As part of the scheme, in order to mislead lenders into believing that they would receive sufficient collateral for their loans, NEWKIRK falsely promised lenders that assets owned by the father of CC-1 (the “Executive”) would be pledged as security for the loans. NEWKIRK made these promises without the authorization or knowledge of the Executive. In one instance, NEWKIRK and CC-1 provided a lender with account statements that purported to show the Executive’s holdings in the stocks of at least three publicly traded companies. NEWKIRK misled the lender into believing that the Executive’s alleged stock holdings in these companies, as reflected in the account statements, would serve as collateral for the loan. In truth, however, the account statements were fake documents and the Executive was not providing any financial support for the purchase of the Magazine.

Furthermore, after one of the lenders (“Lender-2”) placed approximately $5.5 million in escrow at the Manhattan law firm at which NEWKIRK was then counsel (the “Law Firm”), CC-1 arranged for a fraudulent email to be sent that purported to have been from Lender-2 to NEWKIRK. In response to that fraudulent email, NEWKIRK released approximately $4.9 million of Lender-2’s money from the escrow account to fund the Media Company’s purchase of the Magazine. NEWKIRK also attempted to forward $535,000 of Lender-2’s money to a different potential lender, in order to pay a debt owed to that potential lender. NEWKIRK did so without Lender-2’s knowledge or authorization.

Throughout the course of the scheme, NEWKIRK repeatedly lied to lenders regarding his relationship with the Executive, falsely purporting to be the Executive’s attorney despite having met the Executive on only one prior occasion. In addition, NEWKIRK attempted to hide from the Executive the existence of a lawsuit filed by one lender, in which that lender sought to obtain the Executive’s assets that NEWKIRK had pledged to the lender without the Executive’s knowledge. NEWKIRK also falsely represented to another lender, from whom NEWKIRK and CC-1 were seeking $20,000,000 in financing for the Magazine purchase, that approximately $12,000,000, representing funds provided by, or secured by the personal assets of, the Executive for the Magazine purchase, had been placed in escrow at the Law Firm. In fact, no funds were ever held in escrow at the Law Firm in connection with the Magazine purchase, other than the $5.5 million placed in escrow by Lender-2, and subsequently misappropriated by NEWKIRK.

In March 2015, during a consensual interview with law enforcement, NEWKIRK admitted that the Executive had not been NEWKIRK’s client despite NEWKIRK’s multiple representations to the contrary to various lenders throughout the course of the attempted purchase of the Magazine.

On November 4, 2014, CC-1 pled guilty before the Honorable Jed S. Rakoff to, among other things, charges related to CC-1’s participation in the scheme to defraud lenders for the attempted Magazine purchase.

NEWKIRK, 39, of New Rochelle, New York, is charged with one count of conspiracy to commit wire fraud and one count of wire fraud, each of which carries a maximum term of 20 years in prison. He is also charged with one count of aggravated identity theft, which carries a mandatory minimum and maximum sentence of two years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the investigative work of the United States Secret Service and the FBI.

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

U.S. v. Harvey Newkirk Complaint