Southern District of New York

Preet Bharara, the U.S. Attorney for the Southern District of New York, announced today that PETER AMREIN, a Swiss citizen and former asset manager at a Swiss asset management firm, pleaded guilty to conspiring with U.S. taxpayer-clients and others to help U.S. taxpayers hide millions of dollars in offshore accounts from the Internal Revenue Service (IRS), and to evade U.S. taxes on the income earned in those accounts. AMREIN pleaded guilty before U.S. District Judge Sidney H. Stein.

U.S. Attorney Preet Bharara said: “Peter Amrein’s guilty plea today is another example of individuals being held culpable, in addition to institutions, for their criminal violations of U.S. tax laws. Regardless of the elaborate scheme you might employ, we will use all of our investigative powers to ensure that all citizens pay their fair share, and that those who assist them in evading our laws are also held responsible.”

According to the allegations in the Superseding Information and the prior Indictment, as well as statements made during the plea proceeding and other documents filed in Manhattan federal court:

AMREIN worked as a client advisor at a Swiss bank (Swiss Bank No. 3) and, later, as an asset manager at a Swiss asset management firm (the Swiss Asset Management Firm). In those roles, between 1998 and 2012, AMREIN helped U.S. taxpayers evade taxes and hide millions of dollars in undeclared accounts at various Swiss banks, including Wegelin & Co., which was charged and pleaded guilty in the Southern District of New York for its conduct in conspiring with U.S. taxpayers to evade taxes. AMREIN, among other things, worked with an attorney based in Zurich, Switzerland, to establish sham foundations, which were organized under the laws of non-U.S. countries such as Liechtenstein, so that the undeclared assets of certain of AMREIN’s U.S. taxpayer-clients could be maintained in the names of these foreign foundations rather than in the clients’ own names. AMREIN did so in order to help his clients conceal their ownership of these undeclared accounts from the IRS.

In 2008, it became publicly known that UBS AG (UBS) was being investigated by United States law enforcement for helping U.S. taxpayers maintain undeclared accounts in Switzerland. Because of the investigation of UBS, one of the Swiss banks where AMREIN had opened undeclared accounts for U.S. taxpayers (Swiss Bank No. 4) informed AMREIN that it was going to close these undeclared accounts. In order to assist his clients in continuing to maintain undeclared accounts, AMREIN searched for other banks in Switzerland that, despite the public investigation of UBS, were still willing to open undeclared accounts for U.S. taxpayers. AMREIN found such a bank (Swiss Bank No. 1). Thereafter, AMREIN opened undeclared accounts for U.S. taxpayer-clients at Swiss Bank No. 1 in the name of sham foundations, and transferred the clients’ undeclared assets from Swiss Bank No. 4 to these accounts at Swiss Bank No. 1.

For some of these clients, AMREIN, with the assistance of others, helped send funds back to the United States and to other foreign jurisdictions in ways that were designed to ensure that U.S. authorities would not discover the existence of the clients’ undeclared accounts. For instance, AMREIN instructed a client advisor at Swiss Bank No. 1 (the Swiss Bank No. 1 Client Advisor) to empty one of the accounts by sending checks in amounts smaller than $9,900 to the beneficial owner of the account, i.e., the U.S. taxpayer. On another occasion, AMREIN instructed the Swiss Bank No. 1 Client Advisor to transfer the balance of one of the accounts, which was then valued at more than $2.4 million, to another account controlled by the U.S. taxpayer in Belize City, Belize. Moreover, as late as 2011, AMREIN continued to look for other Swiss banks that were still willing to open undeclared accounts for U.S. taxpayers. For example, in June 2011, AMREIN met with a client advisor at a Swiss bank (Swiss Bank No. 2), to discuss opening undeclared accounts for U.S. taxpayer-clients at Swiss Bank No. 2.

Mr. Bharara praised the outstanding investigative work of the IRS-Criminal Investigations. He also thanked the Department of Justice’s Tax Division for their significant assistance in the investigation.

AMREIN, 53, a Swiss citizen, pleaded guilty pursuant to a plea agreement to one count of conspiracy to defraud the IRS, to evade federal income taxes, and to file false federal income tax returns. AMREIN faces a maximum sentence of five years in prison. The statutory maximum sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. AMREIN is scheduled to be sentenced before Judge Stein on July 1, 2015.

This case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Sarah E. Paul, Jason H. Cowley, and Daniel B. Tehrani are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and Andriana Vamvakas, the New York District Director of the U.S. Department of Labor's Office of Labor Management Standards ("DOL-OLMS"), announced the indictment of former union president JOHN EARVIN for engaging in a fraudulent scheme to embezzle funds from the United Federation of Law Enforcement Officers (“UFLEO” or the “Union”). The UFLEO represents Special Inspectors employed by the Metropolitan Transportation Authority of New York (“MTA”). EARVIN was arrested today and will be arraigned later today in Manhattan federal court before Judge Gabriel W. Gorenstein. The case has been assigned to Judge Paul A. Engelmayer.

According to the allegations in the Indictment filed in Manhattan federal court yesterday:

From February 2007 through April 2010, EARVIN was the Union’s president, supervising the affairs of the Union and managing the Union’s finances, including through sole control of the Union’s bank account (the “Account”). Through his presidency, EARVIN allegedly perpetrated a scheme to defraud the Union by diverting Union dues payments deposited into the Account for his own benefit, principally by making hundreds of ATM withdrawals at off-track betting facilities and other locations and making personal use of the funds. In furtherance of the scheme, and to prevent its discovery, EARVIN, as alleged, repeatedly lied to Union members about the Account by, for example, claiming that he could not provide an accounting of funds to Union members because an independent auditor was reviewing the Union’s finances. As a result of the scheme, EARVIN is accused of defrauding the Union and its members of approximately $48,012.

EARVIN, 67, of New Rochelle, New York is charged with one count of wire fraud, which carries a maximum sentence of 20 years in prison. The Indictment also seeks forfeiture of crime proceeds. The statutory maximum penalty is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

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

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

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

U.S. v. John Earvin Indictment

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”), today announced charges against PETER SENESE, the Founding Director of the I CARE Foundation (“I CARE”), which advertises itself as a “self-funded non-profit organization dedicated to preventing child abduction and trafficking.” Since at least 2013, SENESE allegedly defrauded parents whose children were victims of international abduction by falsely representing that he, working with the worldwide resources of I CARE, could rescue their children and return to them to the United States in exchange for money for his purported rescue operation expenses. SENESE was arrested this morning in Brooklyn, New York, and will be presented later today before U.S. Magistrate Judge Gabriel W. Gorenstein.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Peter Senese fed a pack of lies to desperate parents by telling them, among other things, that he and his company could, for a price, locate and recover their internationally kidnapped children. In fact, he could do no such thing, but that didn’t stop him from allegedly repeatedly reaching out to the parents for more money to fund his non-existent rescue mission. This type of alleged fraud that preys on the especially vulnerable and desperate is a top priority for us, and we will work to ensure those who commit these outrageous crimes are held to strict account.”

FBI Assistant Director Diego Rodriguez said: “As alleged, Senese’s supposed self-funded corporation to prevent child abduction and trafficking turned out to be nothing more than a ruse. He allegedly preyed on the anguish of suffering families, left them open to be victimized a second time, and accepted their payments to fund his personal venture without ever having access to the worldwide resources of which he spoke. Fortunately, his journey ends today. The FBI and our law enforcement partners often work hand in hand on cases involving the mysterious disappearance of a child, and we will continue to protect the welfare of those faced with this terrible tragedy. ”

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

Through his websites (www.stopchildabduction.org and www.petersenese.com) and elsewhere, SENESE promotes I CARE as “a self-funded not-for-profit 501-C-3[sic] corporation” that “does not accept outside financial contributions and has reunited numerous internationally kidnapped children while preventing an exponentially larger number of children from abduction.” SENESE also represents that I CARE includes “some of the leading figures in the world dedicated to protecting children from abduction and trafficking” and that “there have been many, many children of international parental child abduction who have been reunited and returned home due directly to the great efforts, financial, legal, and investigative resources” of I CARE.

Between at least November 2013 and February 2015, SENESE specifically represented to victims that he could recover their children from other countries by working with a team of former members of the U.S. Army component Delta Force (“Delta Force”), of which SENESE claimed to have also been a member. SENESE repeatedly represented to one victim (“V-1”) that he could recover V-1’s child (“Child-1”) from India in a matter of weeks, but that he needed a few thousand dollars from V-1 to cover his operational expenses. In the months that followed, SENESE repeatedly represented that he was very close to recovering Child-1, appeared on a local radio program with V-1, and sent numerous text messages and emails stating, in part, that he was either in India or an unspecified “remote location” and that Child-1 would be returned to the United States in a matter of hours or days. During the same period, SENESE repeatedly asked for additional funds, typically ranging from $3,000 to $5,000 per month to cover his operational expenses.

In fact, SENESE has not traveled outside of the country for years. While SENESE represented that he was in foreign locations, he was actually in Miami, Florida; New York, New York; or Los Angeles, California. SENESE also has never had any affiliation with the United States military, and the children SENESE promised to recover have not been recovered.

SENESE, 49, of Brooklyn, New York, is charged with one count of wire fraud, which carries a maximum sentence of 30 years in prison. The statutory maximum sentence is prescribed by Congress and is provided here for informational purposes, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the outstanding work of the FBI for its investigative efforts and ongoing support and assistance with the case.

The prosecution is being handled 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 defendant is presumed innocent unless and until proven guilty.

U.S. v. Peter Senese Complaint

Preet Bharara, United States Attorney for the Southern District of New York, and Assistant Attorney General for National Security John P. Carlin announced that HAROON ASWAT pled guilty today in Manhattan federal court to terrorism charges related to ASWAT’s efforts to establish a terrorist training camp in the United States. ASWAT was arrested in Zambia in July 2005. In August 2005, ASWAT was deported from Zambia to the United Kingdom, where he was arrested pursuant to a provisional arrest warrant that was issued in response to a request by the U.S. Government in connection with this case. ASWAT was extradited to the United States from the United Kingdom on October 21, 2014. ASWAT pled guilty today to one count of conspiring to provide material support to al Qaeda, and one count of providing material support to al Qaeda.

Manhattan U.S. Attorney Preet Bharara said: “Haroon Aswat fought his extradition to the United States for almost 10 years. He then pled guilty to material support charges within just six months of arriving here, showing again our legal system’s capacity for swift justice. For providing support to al Qaeda, Aswat now comes face-to-face with justice and faces up to 20 years in prison, and after the completion of his term he will be deported.”

Assistant Attorney General for National Security John P. Carlin said: “With this guilty plea, Haroon Aswat is being held accountable for his provision of material support to al Qaeda and his role in a plot to establish a terrorist training camp on American soil. Aswat was arrested almost 10 years ago, and his guilty plea is a testament to our determination to bring to justice all those who wish to harm the United States, whether at home or abroad, no matter how long it takes. I would like to extend my gratitude to all of the many agents, analysts and prosecutors whose dedication and persistence made possible the guilty plea in this case.”

According to the allegations contained in the Indictment, statements made at related court proceedings including today’s guilty plea, and evidence presented at prior trials:

In late 1999, ASWAT, along with co-defendants Mustafa Kamel Mustafa, a/k/a “Abu Hamza” (“Abu Hamza”), Ouassama Kassir, and Earnest James Ujaama, attempted to create a terrorist training camp in the United States to support al Qaeda, which has been designated by the United States Secretary of State as a foreign terrorist organization. ASWAT conspired with Abu Hamza, Kassir, and Ujaama to establish the terrorist training camp on a rural parcel of property located in Bly, Oregon. The purpose of the Bly, Oregon camp was for Muslims to receive various types of training – including military-style jihad training – in preparation to fight jihad in Afghanistan. As used by the conspirators in this case, the term “jihad” meant defending Islam against purported enemies through violence and armed aggression, including, if necessary, by using murder to rid Muslim holy lands of non-believers in Islam.

In a letter faxed from Ujaama, in the United States, to Abu Hamza, in the United Kingdom, the property in Bly was described as a place that “looks just like Afghanistan,” and the letter noted that the men at Bly were “stock-piling weapons and ammunition.” In late 1999, after transmission of the faxed letter, Abu Hamza directed ASWAT and Kassir, both of whom resided in London, England, and attended Abu Hamza’s mosque there, to travel to Oregon to assist in establishing the camp. On November 26, 1999, ASWAT and Kassir arrived in New York, and then traveled to Bly.

ASWAT and Kassir traveled to Bly for the purpose of training men to fight jihad. Kassir told witnesses that he supported Usama Bin Laden and al Qaeda, and that he had previously received jihad training in Pakistan. Kassir also possessed a compact disc that contained instructions on how to make bombs and poisons. After leaving Bly, ASWAT and Kassir traveled to Seattle, Washington, where they resided at a mosque for approximately two months. While in Seattle, Kassir, in ASWAT’s presence, provided men from the mosque with additional terrorist training lessons – including instructions on different types of weapons, how to construct a homemade silencer for a firearm, how to assemble and disassemble an AK-47, and how an AK-47 could be altered to be fully automatic and to launch a grenade. On another occasion, with ASWAT sitting by his side, Kassir announced to the men in Seattle that he had come to the United States for martyrdom and to destroy, and he informed his audience that some of them could die or get hurt.

A ledger recovered in September 2002 from an al Qaeda safe house in Karachi, Pakistan, listed a number of individuals associated with al Qaeda, including ASWAT. The al Qaeda safe house was used by Khalid Sheikh Mohammed, al Qaeda’s chief operational planner and the alleged planner of the terrorist attacks of September 11, 2001.

ASWAT pled guilty to one count of conspiracy to provide material support to a foreign terrorist organization (al Qaeda), and one count of providing material support to a foreign terrorist organization (al Qaeda), each of which carries a maximum term of 10 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.

Abu Hamza and Kassir were previously convicted for their roles in attempting to establish a terrorist training camp in the United States. On May 12, 2009, after a four-week jury trial in the Southern District of New York, Kassir was found guilty of charges relating to his efforts to establish the terrorist training camp in Bly, and his operation of several terrorist websites. On September 15, 2009, U.S. District Judge John F. Keenan sentenced Kassir to life in prison.

On May 19, 2014, after a four-week jury trial in the Southern District of New York, Abu Hamza was found guilty of charges relating to his role in the conspiracy to establish the terrorist training camp in Bly, as well as his role in a hostage-taking in Yemen in 1998 that resulted in four deaths, and his support of violent jihad in Afghanistan in 2000 and 2001. On January 9, 2015, U.S. District Judge Katherine B. Forrest sentenced Abu Hamza to life in prison.

Mr. Bharara praised the outstanding efforts of the Federal Bureau of Investigation’s Manhattan-based Joint Terrorism Task Force – which principally consists of agents of the FBI and detectives of the New York City Police Department, and includes officers of numerous federal, state, and local law enforcement agencies – the United States Marshals Service, and the Metropolitan Police Department of London, England. Mr. Bharara also thanked the U.S. Department of Justice’s National Security Division and Office of International Affairs for their ongoing assistance.

This case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys John Cronan, Ian McGinley, and Shane Stansbury are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced the conviction yesterday of RAFAEL ANTONIO GARAVITO-GARCIA for conspiracy to engage in narco-terrorism, and other terrorism and narcotics charges. Following an eight-day trial before U.S. District Judge Jed S. Rakoff, the jury found GARAVITO-GARCIA guilty of all four counts with which he was charged: conspiracy to engage in narco-terrorism (Count One), conspiracy to distribute five kilograms or more of cocaine, knowing or intending that the cocaine would be imported into the United States (Count Two), conspiracy to provide material support and resources to the Fuerzas Armadas Revolucionarios de Colombia (the “FARC”) (Count Three), and conspiracy to acquire and transfer anti-aircraft missiles (Count Four). GARAVITO-GARCIA was arrested in Colombia on April 5, 2013, following a long-term investigation conducted by the Drug Enforcement Administration’s (“DEA”) Special Operations Division, and arrived in the Southern District of New York on July 22, 2014. The guilty verdict marks the first time in the District a defendant has been convicted at trial of conspiracy to engage in narco-terrorism, although in prior cases there have been pleas of guilty to the narco-terrorism conspiracy charge.

Manhattan U.S. Attorney Preet Bharara said: “As a unanimous jury has found, Rafael Antonio Garavito-Garcia was at the heart of a conspiracy to import cocaine into the U.S. and arm a terrorist organization with sophisticated weaponry that would be used against U.S. forces in Colombia. Thanks to the outstanding work of the DEA, another dangerous international criminal no longer poses a threat. He now awaits sentencing on these serious crimes.”

According to court documents and the evidence presented at trial:

Beginning in the summer of 2012, GARAVITO-GARCIA communicated with confidential sources (the “CSs”) working with the DEA who purported to be representatives and/or associates of the FARC. The communications occurred by telephone, over e-mail, and in a series of audio-recorded and videotaped meetings. Following initial recorded meetings in Brazil, GARAVITO-GARCIA accompanied the CSs to Guinea Bissau, where he introduced them to two local men, whom he indicated were his associates in that country. GARAVITO-GARCIA later introduced the CSs to a Colombian man, whom GARAVITO-GARCIA identified as his drug trafficking partner.

During meetings in Guinea-Bissau beginning in June 2012, and continuing through November 2012, GARAVITO-GARCIA agreed to receive and store multi-ton shipments of FARC-owned cocaine in Guinea-Bissau. He agreed, in particular, to receive the cocaine in Guinea-Bissau and to store the cocaine there pending the eventual shipment of some of the cocaine to the United States, where it would be sold for the financial benefit of the FARC. GARAVITO-GARCIA also agreed to sell some of the cocaine himself, and to provide the FARC with some of the proceeds of his drug sales. Also during those meetings, GARAVITO-GARCIA and his associates agreed to help arrange to purchase weapons for the FARC, including surface-to-air missiles, by importing them into Guinea-Bissau for the nominal use of the Guinea-Bissau military.

For example, on June 30, 2012, during a recorded meeting in Guinea Bissau with the CSs, GARAVITO-GARCIA and his Guinea Bissau-based associates agreed to assist in the distribution of FARC cocaine by facilitating the shipment of cocaine to Guinea Bissau inside loads of military uniforms. They also agreed to establish a front company in Guinea Bissau to facilitate the export of cocaine from Guinea Bissau to the United States. On July 2, 2012, GARAVITO-GARCIA introduced the CSs to General Antonio Indjai, who was then head of the Guinea-Bissau Armed Forces, and helped win Indjai’s support for the drug and weapons deal. During another recorded meeting in Guinea Bissau the following day, GARAVITO-GARCIA met with the CSs and a Guinea Bissau military representative and discussed the benefits of using Guinea Bissau as a transshipment point for cocaine obtained in South America and destined for the United States. GARAVITO-GARCIA also discussed with the others the process for offloading the cocaine once it arrived in Guinea Bissau, and the nature of the weapons to be supplied to the FARC to combat American forces assisting the Colombian authorities, including surface-to-air missiles and AK-47 assault rifles.

Thereafter, on August 31, 2012, during a recorded meeting in Bogota, Colombia, GARAVITO-GARCIA and his Colombian partner agreed to facilitate the receipt of approximately 4,000 kilograms of cocaine from the FARC in Guinea Bissau, with the understanding that approximately 500 kilograms of that cocaine would later be sent to customers in the United States and Canada. During a recorded meeting in Guinea Bissau on November 13, 2012, GARAVITO-GARCIA explained to a Guinea Bissau military official that the FARC needed anti-aircraft missiles to be used against United States helicopters operating in Colombia. The military official then advised one of the CSs that the weapons transaction could be executed once the FARC brought money to Guinea Bissau.

GARAVITO-GARCIA was arrested in Bogota, Colombia, on April 5, 2013.

GARAVITO-GARCIA, 70, of Bogota, Colombia, was convicted of one count of conspiracy to commit narco-terrorism, which carries a mandatory minimum sentence of 20 years, and a maximum sentence of life in prison. In addition, GARAVITO-GARCIA was convicted of one count of conspiracy to import cocaine into the United States, which carries a mandatory minimum sentence of 10 years, and a maximum sentence of life in prison; one count of conspiracy to provide material support to a designated foreign terrorist organization, namely, the FARC, which carries a maximum sentence of 15 years in prison; and one count of conspiracy to acquire and transfer anti-aircraft missiles, which carries a mandatory minimum sentence of 25 years in prison, and a maximum sentence of life in prison. The mandatory minimum and maximum potential sentences are prescribed by Congress and are provided here for informational purposes, as any sentencing of the defendant will be determined by the judge.

Sentencing before Judge Rakoff is scheduled for July 20, 2015, at 4:00 p.m.

In April 2013, an indictment was unsealed charging General Antonio Indjai with conspiracy to commit narco-terrorism, conspiracy to import cocaine into the United States, conspiracy to provide material support to the FARC, and conspiracy to acquire and transfer anti-aircraft missiles. Indjai is currently a charged defendant located outside the arrest jurisdiction of the United States.

The conviction was the result of the close cooperative efforts of the United States Attorney’s Office for the Southern District of New York, DEA’s Special Operations Division’s Bilateral Investigation Unit and FAST, the DEA Lisbon Country Office, the DEA Bogota Country Office, the U.S. Department of Justice’s Office of International Affairs and its National Security Division, and the U.S. State Department.

This prosecution is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant United States Attorneys Aimee Hector, Shane Stansbury, and Ilan Graff are in charge of the prosecution.

PREET BHARARA, the United States Attorney for the Southern District of New York, and LESLIE R. CALDWELL, the Assistant Attorney General for the Criminal Division of the United States Department of Justice, announced that BENITO CHINEA and JOSEPH DEMENESES , the former Chief Executive Officer and former Managing Director, respectively, of a United States broker-dealer (the “Broker-Dealer”), were each sentenced to four years in prison today for carrying out a scheme to pay bribes to Maria De Los Angeles Gonzalez De Hernandez (“Gonzalez”), who was a senior official in Venezuela’s state economic development bank, Banco de Desarrollo Económico y Social de Venezuela (“BANDES”). CHINEA and DEMENESES, working with others, arranged the bribe payments to Gonzalez in exchange for her directing BANDES’s financial trading business to the Broker-Dealer. CHINEA and DEMENESES each had previously pled guilty to conspiring to violate the Foreign Corrupt Practices Act and the Travel Act. They were sentenced today by U.S. District Judge Denise Cote.

Previously, on May 3, 2013, Gonzalez, along with two employees of the Broker-Dealer, Tomas Alberto Clarke Bethancourt (“Clarke”) and Jose Alejandro Hurtado (“Hurtado”) were arrested on charges relating to this bribery scheme. On June 12, 2013, a managing director of the Broker-Dealer, Ernesto Lujan (“Lujan”), was arrested on related charges as well. Each of these four defendants has since entered guilty pleas.

Manhattan U.S. Attorney Preet Bharara said: “Benito Chinea and Joseph DeMeneses paid bribes to an officer of a state-run development bank in exchange for lucrative business she steered to their firm. Chinea and DeMeneses profited for a time from the corrupt arrangement, but that profit has turned into prison and now they must forfeit their millions of dollars in ill-gotten gains as well as their liberty.”

Assistant Attorney General Leslie R. Caldwell said: “These Wall Street executives orchestrated a massive bribery scheme with a corrupt official in Venezuela to illegally secure tens of millions of dollars in business for their firm. The convictions and prison sentences of the CEO and Managing Director of a sophisticated Wall Street broker-dealer demonstrate that the Department of Justice will hold individuals accountable for violations of the FCPA and will pursue executives no matter where they are on the corporate ladder.”

According to the allegations in the Indictment, the defendants’ pleas, and other documents previously filed in Manhattan federal court:

Background on the Broker-Dealer and BANDES

At all times relevant to the charges, CHINEA was the chief executive officer and DEMENESES was a managing director in the Broker Dealer, which was headquartered in New York, with offices in Miami, Florida. In 2008, the Broker-Dealer established a group called the Global Markets Group, which included DEMENESES, Lujan, and Clarke, and which offered fixed income trading services to institutional clients. One of the Broker-Dealer’s clients was BANDES, which operated under the direction of the Venezuelan Ministry of Finance. The Venezuelan government had a majority ownership interest in BANDES and provided it with substantial funding. Gonzalez was an official at BANDES and oversaw the development bank’s overseas trading activity. At her direction, BANDES conducted substantial trading through the Broker-Dealer. Most of the trades executed by the Broker-Dealer on behalf of BANDES involved fixed income investments for which the Broker-Dealer charged BANDES a mark-up on purchases and a mark-down on sales.

The Bribery Scheme

From at least late 2008 through at least 2012, CHINEA and DEMENESES, along with Lujan, Clarke, Hurtado, and Gonzalez, participated in a bribery scheme in which Gonzalez directed trading business she controlled at BANDES to the Broker-Dealer, and in return, agents and employees of the Broker-Dealer, including CHINEA and DEMENESES, split the revenue the Broker-Dealer generated from this trading business with Gonzalez. During this time period, the Broker-Dealer generated over $60 million in mark-ups and mark-downs from trades with BANDES. Agents and employees of the Broker-Dealer, including CHINEA, DEMENESES, Lujan, Clarke, and Hurtado, devised a split with Gonzalez of the commissions paid by BANDES to the Broker-Dealer.

To further conceal the scheme, the kickbacks to Gonzalez were often paid using intermediary corporations and offshore accounts that she held in Switzerland, among other places. For example, DEMENESES, Lujan, and Clarke used an account in Switzerland to transfer at least $1.5 million to an account Gonzalez controlled in Switzerland. In addition to Gonzalez receiving the bribe payments, other participants in the scheme, including CHINEA and DEMENESES, also received millions in proceeds generated from the scheme.

In addition to the prison terms, Judge Cote sentenced CHINEA, 48, who resides in Manalapan, New Jersey, and DEMENESES, 45, who resides in Fairfield, Connecticut, to three years of supervised release each. CHINEA was ordered to forfeit $3,636,432 and DEMENESES was ordered to forfeit $2,670,612. Each defendant was also ordered to pay a $40,000 fine and a $100 special assessment fee.

Mr. Bharara praised DOJ’s Criminal Division and the Federal Bureau of Investigation for their work in the investigation. He also thanked the Securities and Exchange Commission for its assistance in 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 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 United States Attorneys Harry A. Chernoff and Jason H. Cowley, and Fraud Section Deputy Chief James Koukios and Trial Attorney Kevin Gingras, are in charge of the prosecution.

Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that PURNA CHANDRA ARAMALLA was sentenced today to 36 months in prison, and ordered to pay over $7 million in restitution, for conducting a scheme to defraud Medicaid, Medicare, and the New York State-funded AIDS Drug Assistance Program (“ADAP”) through the purchase and sale of illegally diverted prescription drugs, including HIV medication. ARAMALLA was also sentenced for tax evasion. He was sentenced by U.S. District Judge Paul A. Crotty.

Manhattan U.S. Attorney Preet Bharara said: “Purna Aramalla’s prescription drug diversion scheme defrauded millions of dollars from programs established to provide health care assistance for the elderly and indigent. The scheme also jeopardized the health of anyone induced to sell his or her prescription or medication, and anyone who unwittingly purchased repackaged drugs.”

ARAMALLA, a pharmacist, owned and operated A Fair Deal Pharmacy Inc. in Queens, New York, and Quality Drug Inc. in the Bronx, New York. Using these pharmacies, ARAMALLA carried out a multimillion-dollar scheme to defraud the New York State Medicaid, Medicare, and ADAP programs through the sale of diverted prescription drugs, that is, drugs not obtained from legitimate sources.

As part of the scheme, ARAMALLA purchased prescription drugs, including high-cost medications used to treat HIV, that were obtained from patients who sold the drugs rather than use them to treat their illnesses. ARAMALLA then repackaged and resold those prescription drugs to his customers, as if they were new drugs obtained from legitimate sources. ARAMALLA requested and received reimbursement from Medicaid, Medicare, and ADAP in connection with these sales, even though these programs would not have been willing to reimburse the cost of second-hand drugs. In addition, in some cases, these programs had already paid for the prescription drugs when they were initially dispensed. In order to make the diverted drugs appear to be new drugs from legitimate sources, ARAMALLA and his co-conspirators used lighter fluid and other means to dissolve the adhesive on the patient labels on prescription bottles so that they could be removed and replaced with new labels.

ARAMALLA also sought and obtained reimbursement for prescription drugs that were never actually dispensed to patients. Instead, customers with prescriptions for drugs essentially “sold” their prescriptions to ARAMALLA, agreeing not to take delivery of the drugs in exchange for a share of the reimbursed proceeds.

From January 2010 to September 2013, ARAMALLA’s pharmacies received more than $10 million in reimbursements from Medicaid, Medicare, and ADAP that cannot be accounted for by ARAMALLA’s purchases from legitimate wholesalers.

In addition to his prison term, ARAMALLA, 67, of Port Washington, New York, was ordered to forfeit $7,503,605, pay restitution to his victims in the same amount, file amended tax returns for the years 2010 through 2012, and pay back taxes and applicable penalties.

Mr. Bharara praised the outstanding investigative work of the New York FBI Health Care Fraud Task Force and the Internal Revenue Service. He also thanked the U.S. Department of Health and Human Services, Office of Inspector General, the New York State Office of Medicaid Inspector General, and the New York City Human Resources Administration.

The New York FBI Health Care Fraud Task Force was formed in 2007 in an effort to combat health care fraud in the greater New York City area. The task force comprises agents, officers, and investigators from the Federal Bureau of Investigation, the New York City Police Department, the New York State Insurance Fraud Bureau, U.S. Department of Labor, U.S. Office of Personnel Management Inspector General, U.S. Food and Drug Administration, New York State Attorney General's Office, New York State Office of Medicaid Inspector General, New York State Health and Hospitals Inspector General, and the National Insurance Crime Bureau.

The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Niketh Velamoor and Andrew Adams are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ROGER KEY, a/k/a “Luchie,” a violent and large-scale drug trafficker who operated in Manhattan and the Bronx, New York, was sentenced today in Manhattan federal court to life plus 30 years in prison in connection with his role in carrying out two murder-for-hire conspiracies – resulting in the murder of one victim and the near-fatal shooting of an innocent bystander – attempted murder, and narcotics and firearms offenses. KEY was convicted in April 2014 following a three-week jury trial before U.S. District Judge Sidney H. Stein, who also imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara said: “With today’s sentence, Roger Key has been punished with life in prison for his lethal laundry list of murder, gun, and drug-related offenses, and the Southern District of New York is safer as a result. I would like to thank our federal and local law enforcement partners for helping us to develop and bring this case.”

According to court documents, the evidence presented at trial, and today’s proceedings:

From 2009 through September 2012, KEY supplied powder cocaine and crack cocaine to various drug organizations operating in Manhattan and the Bronx. KEY also used, carried, and possessed firearms during the narcotics conspiracy.

In September 2010, KEY hired a co-conspirator to murder Terry Harrison. Harrison was shot and killed on September 10, 2010, at 681 Courtlandt Avenue in the Bronx. Harrison was the leader of a rival drug-trafficking crew with whom KEY and his co-conspirators were engaged in a violent conflict over drug-trafficking territory in the Bronx.

From October 2011 through December 2011, KEY hired a co-conspirator to kill Matthew Allen, and aided and abetted the attempted murder-for-hire of Matthew Allen on November 16, 2011, which resulted in the non-fatal shooting of another victim, at 302 Brooklyn Avenue, Brooklyn, New York.

In addition to the prison term, KEY, 38, of the Bronx, New York, was sentenced to 10 years of supervised release.

At trial, KEY was convicted of narcotics conspiracy, conspiracy to commit the murder-for-hire of Matthew Allen, the attempted murder-for-hire of Matthew Allen, conspiracy to commit the murder-for-hire of Terry Harrison, and firearms possession and use in connection with both the narcotics conspiracy and the Matthew Allen murder plot. KEY was acquitted at trial of the murder-for-hire of Terry Harrison, murder in connection with a drug crime, and a firearms possession charge in connection with that murder.

KEY is the last of 18 defendants originally charged in this case to be convicted and sentenced in proceedings before Judge Stein. He is also the last of a total of four individuals who have been convicted and sentenced for offenses relating to the conspiracy to commit the murder-for-hire and the attempted murder-for-hire of Matthew Allen.

Mr. Bharara praised the outstanding work of the Federal Bureau of the Investigation, the Westchester County Violent Crimes Task Force, and the New York City Police Department, including the 40th Precinct Detective Squad and the Manhattan North Narcotics Major Case Unit, who conducted the investigation of the case. Mr. Bharara also thanked the New York County District Attorney’s Office, who provided critical assistance in the investigation and prosecution of the case.

This case is being overseen by the Office’s Violent & Organized Crime Unit. Assistant United States Attorneys Abigail S. Kurland and Adam Fee are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that SHANE FUSCO pled guilty today to bank fraud charges.

FUSCO is charged with one count of conspiracy to commit bank fraud and one count of bank fraud.

Manhattan U.S. Attorney Bharara stated: “Shane Fusco brazenly defrauded dozens of small businesses up and down the Eastern seaboard of hundreds of thousands of dollars in goods using fraudulent bank checks and fraudulent personal checks. In the end, Fusco will face justice for trying to steal close to a million dollars in goods.”

FBI Assistant Director Diego Rodriguez stated: “Fusco conned more than two dozen businesses out of nearly $1 million in a scheme that served to further enrich his lifestyle. Stealing money from victims in this way not only compromises the livelihood of business owners, but could also lead to long-term financial consequences for the victim companies. As evidenced by today’s plea, the time has come for Fusco to pay the price for his crimes.”

According to the Information filed in White Plains federal court and public information:

For almost two years, FUSCO fraudulently created bank and personal checks in a scheme to obtain vehicle parts and jewelry, among other items, from 34 businesses and one individual. FUSCO was eventually caught using a fake check in an attempt to buy tires while driving a stolen truck that was hitched to a stolen trailer.

FUSCO faces a maximum sentence of 30 years in prison on each count in the Information. He is scheduled to be sentenced on July 8, 2015. The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes, any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the outstanding efforts of the United States Attorney’s Office for the District of Connecticut, the FBI, the United States Secret Service Connecticut Financial Crimes Task Force, the Orange County Sherriff’s Office, and the Connecticut State Police.

This case is being handled by the Office’s White Plains Division. Assistant U.S. Attorney John P. Collins, Jr., is in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, Thomas Zugibe, Rockland County District Attorney, James Hunt, Special Agent in Charge of the New York Division of the Drug Enforcement Administration (“DEA”), and Ed Day, Rockland County Executive, announced the unsealing of an Indictment charging 17 defendants with conspiring to distribute oxycodone and heroin in and around Rockland County.

Twelve of the seventeen defendants charged in the Indictment unsealed today were arrested today or had previously been taken into custody. Those defendants are expected to be presented in White Plains federal court today before Magistrate Judge Judith C. McCarthy. In a related prosecution, New York State has charged an additional 12 defendants.

U.S. Attorney Bharara stated: “What we have more and more in this country is poison by prescription. The abuse of prescription painkillers, and oxycodone in particular, has become a crisis of epidemic proportions. Today we announce the unsealing of charges against members of a massive drug trafficking organization who sought to capitalize on this increasingly deadly epidemic. The federal Indictment names 17 defendants, and the Rockland County DA is bringing a related prosecution against 12 additional defendants. We will not permit prescription painkillers and other illegal drugs to decimate our community, our state, or our nation. This has to stop, and we will do everything we can to stop it.”

District Attorney Zugibe stated: “Dealers in this operation are alleged to have sunk to a new low, selling prescription drugs and heroin at popular locations where parents drop off their kids to see a movie, attend a birthday party or spend time ice skating with friends. With today’s federal indictment, we take a giant step to ensure a feeling of safety and security in our community – making certain that Rockland County continues to be a great place to live and work. Our success in this ongoing investigation is the direct result of the exceptional cooperation with U.S. Attorney Preet Bharara, the DEA and state and local law enforcement agencies. My office is dedicated to continuing to work with our partners to target, investigate and bring to justice those who prey on our community.”

DEA SAC Hunt stated: “Throughout the nation, opioid overdose and abuse statistics have become reality in our local towns, suburban communities and inner city. Diverted prescription pain medication and heroin drug crews are public health enemy #1. Today’s arrests of Victor Esteban and his alleged drug crew demonstrate law enforcement’s commitment to arresting those responsible for arming addicts with their drug of choice and protecting residents from the possibility of being another statistic.”

County Executive Day said: “We are losing an average of two local residents each month to the scourge of heroin and prescription drugs. It’s happening to wealthy families and to poor families. It doesn’t know any boundaries. This operation demonstrates how police and prosecutors continue to work together to dig in at the local level and hammer away at the drug markets plaguing our neighborhoods. I want to commend District Attorney Zugibe and U.S. Attorney Bharara for leading a dedicated team in the support of making Rockland County a safer community.”

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

The defendants were part of a sophisticated drug trafficking organization (the “Organization”) that operated in the area of Rockland County, New York. The Organization, led by defendant VICTOR ESTEBAN, distributed massive quantities of oxycodone and heroin, often in highly public locations, including at the Palisades Center Mall in West Nyack, New York.

Since 2014, members and associates of the Organization have conspired to distribute more than 50,000 oxycodone tablets, with a value in excess of $1 million, in and around Rockland County. The defendants obtained the oxycodone through deceptive means, including the use of forged and fraudulent prescriptions. For example, defendant JUSHAWN STEVENS used his home computer to fill out official blank New York State prescriptions with fraudulent information about purported patients and prescribing doctors. Law enforcement officers also identified a defendant posing as a doctor on the phone when a pharmacy called to inquire about an oxycodone prescription. After generating fraudulent prescriptions, the defendants employed lower-level members of the Organization, known as “runners,” to go to pharmacies across New York State to fill the fraudulent prescriptions.

The principal supplier of heroin to the Organization was JUAN AGRAMONTE, who was based in the Bronx. ESTEBAN pooled money with other defendants to purchase significant quantities of heroin from AGRAMONTE, which they then distributed in locations around Rockland County.

The defendants distributed oxycodone and heroin in a multitude of public places. They sold these illicit drugs in the parking lots of the Palisades Center Mall in West Nyack, New York, at the Mt. Ivy Trailer Park in Pomona, New York, and in various motels around Rockland County, where they would rent rooms to meet with customers.

Certain defendants also celebrated their oxycodone and heroin trafficking activity on social media sites like Twitter and Instagram. Some of the defendants referred to themselves as the “TMC” crew, meaning “Too Much Cash.” For example, on one occasion, a defendant posted a message on Twitter saying, “Shout out my TMC bros we taking over the streets.” On another occasion, a defendant posted a message on Twitter saying, “I make money without a 9-5 gimmie some feens a trap fone and I’ll be fine . . . ,” meaning that he did not need a legitimate job, but rather only some drug addicts and a “trap phone” with which to arrange drug deals. This defendant also posted a message saying, “The feds just wanna see me in jail.”

The Indictment charges 17 defendants and contains two counts. Charts containing the names, ages, residences, charges, and maximum penalties for the defendants are set forth below. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

Mr. Bharara praised the outstanding investigative work of the Drug Enforcement Administration’s Tactical Diversion Squad (Group TDS-NY), which comprises agents and officers from the DEA, the New York City Police Department, Town of Orangetown Police Department and the Westchester County Police Department. He also thanked the Rockland County District Attorney’s Office for its participation, and the Internal Revenue Service for its assistance.

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

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

US v. Esteban et al Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced that MOHAMMED ALAZZAM was sentenced today in Manhattan federal court to 78 months in prison, and to restitution in the amount of $36,195,000. ALAZZAM was sentenced for organizing and leading a conspiracy to distribute untaxed cigarettes in and around New York City and Westchester County, and bail jumping. The sentence was imposed by the Honorable Loretta A. Preska, United States District Judge.

U.S. Attorney Preet Bharara said: “For years, Mohammed Alazzam ran an underground black market for untaxed cigarettes, costing more than $36 million in tax revenue and netting millions of dollars for himself. His conduct deprived New York’s system for taxing cigarettes – which is designed to protect public health and save lives – of millions of dollars. Today’s sentence requires Alazzam to pay for his greed by forfeiting money and his liberty.”

According to the Indictment, court hearings, and today’s proceedings:

From late 2008 through May 2011, when ALAZZAM and his co-conspirators were arrested in this case, a criminal organization led by ALAZZAM and Yacoub Kanan (the “Alazzam Organization”) ran a black market for untaxed, contraband cigarettes in the New York metropolitan area. The Alazzam Organization obtained its supply of contraband cigarettes from, among other places, the Poospatuck Reservation, in Suffolk County, New York, in quantities ranging from 300 cartons to more than 1,000 cartons at a time, for which no New York State or city taxes were paid. Once obtained, the supply of contraband cigarettes was routinely stored by the Alazzam Organization in private storage facilities, including in Yonkers, New York, and Mt. Vernon, New York. The contraband cigarettes were thereafter distributed from the storage facilities to others by way of the backs of pick-up trucks and other vehicles that traveled to and from the facilities regularly.

ALAZZAM was the leader of the organization. He organized the criminal conspiracy by, among other things, arranging for a regular supply of contraband cigarettes, paying for the supply in amounts of more than $100,000 on a sometimes weekly basis, arranging for and renting storage locations to store the cigarettes, recruiting and instructing members of the conspiracy to transport and sell the contraband cigarettes, and, when those members were arrested, bailing them out and arranging for their representation by counsel.

The Alazzam Organization was responsible for distributing approximately 100 cases of contraband cigarettes per week during the conspiracy, from December 2008 until the arrest of Alazzam and his co-conspirators in May 2011. This resulted in a total estimated tax loss of $36,195,000. The estimated wholesale value of the contraband cigarettes is $26,250,000, and the retail value is far greater. During the conspiracy, ALAZZAM bragged that his personal net profit from the criminal organization was in excess of a million dollars annually.

On May 13, 2011, ALAZZAM and ten co-conspirators were indicted for conspiracy to traffic untaxed cigarettes. While charges in this case were pending and less than two months before the scheduled trial, ALAZZAM, who had been released on conditions of bail, fled to Jordan. He thereby failed to appear for pre-trial conferences and the scheduled trial, which appearances were required as a condition of his release. On September 13, 2013, ALAZZAM voluntarily returned to the U.S. and surrendered to law enforcement officers. ALAZZAM pled guilty in April 2014.

ALAZZAM is the eighth defendant and member of the conspiracy to be sentenced in the case. Yacoub Kanan remains at large, while the other two defendants pled guilty and await sentencing.

In addition to the prison time and restitution, ALAZZAM, 49, of Westchester County, was ordered to forfeit $2,500,000.

Mr. Bharara praised the efforts of the Bureau of Alcohol, Tobacco, Firearms, and Explosives for their investigation in this case.

The prosecution is being handled by the Office’s White Plains Division. Assistant United States Attorneys Benjamin Allee and Rachel Maimin are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that MOHAMMED ALAZZAM was sentenced today in Manhattan federal court to 78 months in prison, and to restitution in the amount of $36,195,000. ALAZZAM was sentenced for organizing and leading a conspiracy to distribute untaxed cigarettes in and around New York City and Westchester County, and bail jumping. The sentence was imposed by the Honorable Loretta A. Preska, United States District Judge.

U.S. Attorney Preet Bharara said: “For years, Mohammed Alazzam ran an underground black market for untaxed cigarettes, costing more than $36 million in tax revenue and netting millions of dollars for himself. His conduct deprived New York’s system for taxing cigarettes – which is designed to protect public health and save lives – of millions of dollars. Today’s sentence requires Alazzam to pay for his greed by forfeiting money and his liberty.”

According to the Indictment, court hearings, and today’s proceedings:

From late 2008 through May 2011, when ALAZZAM and his co-conspirators were arrested in this case, a criminal organization led by ALAZZAM and Yacoub Kanan (the “Alazzam Organization”) ran a black market for untaxed, contraband cigarettes in the New York metropolitan area. The Alazzam Organization obtained its supply of contraband cigarettes from, among other places, the Poospatuck Reservation, in Suffolk County, New York, in quantities ranging from 300 cartons to more than 1,000 cartons at a time, for which no New York State or city taxes were paid. Once obtained, the supply of contraband cigarettes was routinely stored by the Alazzam Organization in private storage facilities, including in Yonkers, New York, and Mt. Vernon, New York. The contraband cigarettes were thereafter distributed from the storage facilities to others by way of the backs of pick-up trucks and other vehicles that traveled to and from the facilities regularly.

ALAZZAM was the leader of the organization. He organized the criminal conspiracy by, among other things, arranging for a regular supply of contraband cigarettes, paying for the supply in amounts of more than $100,000 on a sometimes weekly basis, arranging for and renting storage locations to store the cigarettes, recruiting and instructing members of the conspiracy to transport and sell the contraband cigarettes, and, when those members were arrested, bailing them out and arranging for their representation by counsel.

The Alazzam Organization was responsible for distributing approximately 100 cases of contraband cigarettes per week during the conspiracy, from December 2008 until the arrest of Alazzam and his co-conspirators in May 2011. This resulted in a total estimated tax loss of $36,195,000. The estimated wholesale value of the contraband cigarettes is $26,250,000, and the retail value is far greater. During the conspiracy, ALAZZAM bragged that his personal net profit from the criminal organization was in excess of a million dollars annually.

On May 13, 2011, ALAZZAM and ten co-conspirators were indicted for conspiracy to traffic untaxed cigarettes. While charges in this case were pending and less than two months before the scheduled trial, ALAZZAM, who had been released on conditions of bail, fled to Jordan. He thereby failed to appear for pre-trial conferences and the scheduled trial, which appearances were required as a condition of his release. On September 13, 2013, ALAZZAM voluntarily returned to the U.S. and surrendered to law enforcement officers. ALAZZAM pled guilty in April 2014.

ALAZZAM is the eighth defendant and member of the conspiracy to be sentenced in the case. Yacoub Kanan remains at large, while the other two defendants pled guilty and await sentencing.

* * *

In addition to the prison time and restitution, ALAZZAM, 49, of Westchester County, was ordered to forfeit $2,500,000.

Mr. Bharara praised the efforts of the Bureau of Alcohol, Tobacco, Firearms, and Explosives for their investigation in this case.

The prosecution is being handled by the Office’s White Plains Division. Assistant United States Attorneys Benjamin Allee and Rachel Maimin are in charge of the prosecution.

15-078

Preet Bharara, the United States Attorney for the Southern District of New York, John C. Cruden, the Assistant Attorney General for the Environment and Natural Resources Division of the Department of Justice, and Dan Ashe, the U.S. Fish and Wildlife Director, announced that XIAO JU GUAN, a/k/a “Tony Guan,” 39, of Richmond, British Columbia, was sentenced today in Manhattan federal court to 30 months in prison for smuggling rhinoceros horns, elephant ivory, and coral from the United States to Canada. In addition to the prison term, Judge Swain ordered Guan to forfeit wildlife items found during a search of his Canadian antiques business.

Manhattan U.S. Attorney Preet Bharara said: “Trafficking in rhinoceros horns and elephant ivory poses a literally existential threat to these endangered or vulnerable species, who die a cruel, pointless death due to greed. These living creatures are not among us as a source of wanton plunder. Without strict enforcement of international agreements and U.S. laws, these extraordinary animals may disappear from the face of the earth. Tony Guan has learned the price of putting profit over the prolonged existence of rhinos and elephants.”

Assistant Attorney General John C. Cruden said: “Wildlife smuggling is a transnational crime that knows no borders and requires an international response. Cooperation between the United States and Canadian law enforcement was crucial to cracking this case. The United States greatly appreciates the assistance of Environment Canada in bringing Guan to justice. International law enforcement collaboration is essential if we are to prevent elephant and rhino species from being extinguished in our own lifetime.”

U.S. Fish and Wildlife Director Dan Ashe said: “The illegal trade in rhinoceros horn is the number one threat to many populations of African rhinos, and is driving the species towards extinction. The wholesale slaughter of these magnificent animals in the wild is taking place so a few callous individuals can line their own pockets. But global law enforcement cooperation through avenues such as the Fish and Wildlife Service’s Operation Crash is bringing people like Guan to justice, and we thank our Canadian and other international partners for the critical role they play in cases such as this. Together we will end the scourge of rhino horn and other wildlife trafficking.”

“The successful outcome of this investigation, and the ongoing success of Operation Crash, is another example of the strong collaboration that exists between Environment Canada’s Enforcement Branch, the U.S. Fish and Wildlife Service, and our partners in conservation enforcement agencies across Canada and the United States,” said Gord Owen, Chief Enforcement Officer, Environment Canada.

Calling it "a very serious offense," Judge Swain said that Guan "helped to feed a hot market for these goods" and further stated that the defendant's conduct "feeds demand for the slaughter of rare and already endangered species."

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

GUAN was arrested in March 2014 as part of “Operation Crash,” a nationwide crackdown on the illegal trafficking in rhinoceros horns, for GUAN’s role in smuggling and attempting to smuggle rhinoceros horns, as well as items carved from elephant ivory and coral, from auction houses throughout the United States to Canada.

GUAN, the president and owner of Bao Antiques in Richmond, British Columbia, was arrested after flying from Vancouver to New York and purchasing two endangered black rhinoceros horns from undercover special agents with the U.S. Fish and Wildlife Service at a storage facility in the Bronx. After purchasing the horns, GUAN had the undercover agents drive him and a female accomplice acting as his interpreter to a nearby express mail store where he mailed the horns to an address in Point Roberts, Washington, less than a mile from the Canadian border and 17 miles from his business. GUAN falsely labeled the box of black rhinoceros horns as containing “handicrafts.” GUAN indicated that he had people who could drive the horns across the border and that he had done so many times before.

At the same time GUAN was arrested in the United States, Canadian authorities executed a search warrant at his antique business in Richmond, B.C. Canadian law enforcement officers seized various wildlife objects from the business, nine of which have been positively identified as wildlife objects purchased in the U.S. via a Manhattan-based internet auction business. These items, made from elephant ivory and coral, were smuggled out of the U.S. and into Canada without the required declaration or permits under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (“CITES”). Some were shipped directly to Canada and others were sent, at GUAN’s direction, to addresses near the U.S./Canadian border in Point Roberts, Washington. GUAN also recruited college-age family members and acquaintances to assist him with smuggling the wildlife items. Photos of some of the smuggled wildlife artifacts are enclosed. In addition, during the search of GUAN’s business, Canadian law enforcement also discovered illegal narcotics, including approximately 50,000 ecstasy pills.

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

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

* * *

Mr. Bharara commended the U.S. Fish and Wildlife Service for its outstanding work in this investigation. He also thanked the Department of Justice’s Environment and Natural Resources Division, and Canada’s Wildlife Enforcement Directorate.

The case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorney Janis M. Echenberg and Senior Litigation Counsel Richard A. Udell with the Environmental Crimes Section of the Department of Justice are in charge of the prosecution.

15-079

Preet Bharara, the United States Attorney for the Southern District of New York, John C. Cruden, the Assistant Attorney General for the Environment and Natural Resources Division of the Department of Justice, and Dan Ashe, the U.S. Fish and Wildlife Director, announced that XIAO JU GUAN, a/k/a “Tony Guan,” 39, of Richmond, British Columbia, was sentenced today in Manhattan federal court to 30 months in prison for smuggling rhinoceros horns, elephant ivory, and coral from the United States to Canada. In addition to the prison term, Judge Swain ordered Guan to forfeit wildlife items found during a search of his Canadian antiques business.

Manhattan U.S. Attorney Preet Bharara said: “Trafficking in rhinoceros horns and elephant ivory poses a literally existential threat to these endangered or vulnerable species, who die a cruel, pointless death due to greed. These living creatures are not among us as a source of wanton plunder. Without strict enforcement of international agreements and U.S. laws, these extraordinary animals may disappear from the face of the earth. Tony Guan has learned the price of putting profit over the prolonged existence of rhinos and elephants.”

Assistant Attorney General John C. Cruden said: “Wildlife smuggling is a transnational crime that knows no borders and requires an international response. Cooperation between the United States and Canadian law enforcement was crucial to cracking this case. The United States greatly appreciates the assistance of Environment Canada in bringing Guan to justice. International law enforcement collaboration is essential if we are to prevent elephant and rhino species from being extinguished in our own lifetime.”

U.S. Fish and Wildlife Director Dan Ashe said: “The illegal trade in rhinoceros horn is the number one threat to many populations of African rhinos, and is driving the species towards extinction. The wholesale slaughter of these magnificent animals in the wild is taking place so a few callous individuals can line their own pockets. But global law enforcement cooperation through avenues such as the Fish and Wildlife Service’s Operation Crash is bringing people like Guan to justice, and we thank our Canadian and other international partners for the critical role they play in cases such as this. Together we will end the scourge of rhino horn and other wildlife trafficking.”

“The successful outcome of this investigation, and the ongoing success of Operation Crash, is another example of the strong collaboration that exists between Environment Canada’s Enforcement Branch, the U.S. Fish and Wildlife Service, and our partners in conservation enforcement agencies across Canada and the United States,” said Gord Owen, Chief Enforcement Officer, Environment Canada.

Calling it "a very serious offense," Judge Swain said that Guan "helped to feed a hot market for these goods" and further stated that the defendant's conduct "feeds demand for the slaughter of rare and already endangered species."

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

GUAN was arrested in March 2014 as part of “Operation Crash,” a nationwide crackdown on the illegal trafficking in rhinoceros horns, for GUAN’s role in smuggling and attempting to smuggle rhinoceros horns, as well as items carved from elephant ivory and coral, from auction houses throughout the United States to Canada.

GUAN, the president and owner of Bao Antiques in Richmond, British Columbia, was arrested after flying from Vancouver to New York and purchasing two endangered black rhinoceros horns from undercover special agents with the U.S. Fish and Wildlife Service at a storage facility in the Bronx. After purchasing the horns, GUAN had the undercover agents drive him and a female accomplice acting as his interpreter to a nearby express mail store where he mailed the horns to an address in Point Roberts, Washington, less than a mile from the Canadian border and 17 miles from his business. GUAN falsely labeled the box of black rhinoceros horns as containing “handicrafts.” GUAN indicated that he had people who could drive the horns across the border and that he had done so many times before.

At the same time GUAN was arrested in the United States, Canadian authorities executed a search warrant at his antique business in Richmond, B.C. Canadian law enforcement officers seized various wildlife objects from the business, nine of which have been positively identified as wildlife objects purchased in the U.S. via a Manhattan-based internet auction business. These items, made from elephant ivory and coral, were smuggled out of the U.S. and into Canada without the required declaration or permits under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (“CITES”). Some were shipped directly to Canada and others were sent, at GUAN’s direction, to addresses near the U.S./Canadian border in Point Roberts, Washington. GUAN also recruited college-age family members and acquaintances to assist him with smuggling the wildlife items. Photos of some of the smuggled wildlife artifacts are enclosed. In addition, during the search of GUAN’s business, Canadian law enforcement also discovered illegal narcotics, including approximately 50,000 ecstasy pills.

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

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

Mr. Bharara commended the U.S. Fish and Wildlife Service for its outstanding work in this investigation. He also thanked the Department of Justice’s Environment and Natural Resources Division, and Canada’s Wildlife Enforcement Directorate.

The case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorney Janis M. Echenberg and Senior Litigation Counsel Richard A. Udell with the Environmental Crimes Section of the Department of Justice are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that JAMES ROSEMOND, a/k/a “Jimmy the Henchman,” was sentenced today in Manhattan federal court to life plus twenty years in prison for offenses arising from his role in ordering a crew of men to murder Lowell Fletcher, an associate of the rap group known as “G-Unit,” in retaliation for an assault on Rosemond’s son by Fletcher and other G-Unit associates. ROSEMOND was found guilty of all the counts against him in the indictment, which charged him with committing murder-for-hire, conspiracy to commit murder-for-hire, and two firearms offenses, following a jury trial in December 2014 before United States District Judge Colleen McMahon.

U.S. Attorney Preet Bharara said: “James Rosemond had Lowell Fletcher murdered, and after the deed, Rosemond bragged to a criminal associate that he would never be caught for the murder because Fletcher was merely a ‘gangbanger’ who died in the Bronx. This prosecution has proven Rosemond wrong. The sentence imposed on Rosemond today demonstrates that murdering anyone, anywhere in the Southern District of New York, will not be tolerated.”

According to court papers, including the Government’s sentencing memorandum, and the evidence admitted at trial:

JAMES ROSEMOND was the head of Czar Entertainment, a rap music management company, and also the head of a large-scale cocaine trafficking organization. In 2007, members and associates of a rival rap group known as “G-Unit” – including Marvin Bernard, a/k/a “Tony Yayo,” and his associate Lowell Fletcher, a/k/a “Lodi Mac” – assaulted ROSEMOND’s son. ROSEMOND’s son was not seriously injured in the assault, and Fletcher ended up serving prison time for his involvement in the assault. Nevertheless, ROSEMOND recruited a crew of men to murder Fletcher upon his release from prison – men with whom ROSEMOND had developed criminal relationships through his involvement in the cocaine trade – by promising at least $30,000 in payment for killing Fletcher. At ROSEMOND’s direction, members of the murder crew selected a dark and quiet location for the murder in the vicinity of Mount Eden and Jerome Avenues in the Bronx, and lured Fletcher to that spot. When Fletcher arrived there in the evening on September 27, 2009, a member of the murder crew stepped out of the shadows and fired five bullets into Fletcher’s back using a .22 caliber handgun with a silencer. Fletcher died later that night. On October 2, 2009, ROSEMOND had a trusted employee of his cocaine organization provide a kilogram of cocaine – worth about $30,000 in street value – as payment for the murder.

In imposing today’s sentence, Judge McMahon said that Rosemond’s criminal conduct was “heinous,” “vile,” and “disgusting.”

U.S. Attorney Bharara thanked and praised the U.S. Drug Enforcement Administration, the New York City Police Department, the U.S. Department of Homeland Security, and the U.S. Marshals Service for their outstanding work in this investigation.

The case is being prosecuted by the Office’s Violent and Organized Crime Unit. Assistant U.S. Attorneys Laurie Korenbaum, Nola Heller, Samson Enzer, and Thomas McKay are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that ANTOINE BURROUGHS and LEON WHITFIELD pled guilty to robbery charges in connection with the home invasion robbery and murder of Gerardo Antoniello on September 9, 2009. Antoniello was killed during the home invasion robbery of his father, Bartolomeo Antoniello, who was targeted for the cash proceeds of the pizza shop he owned in Queens, New York. BURROUGHS and WHITFIELD pled guilty today before United States District Judge Gregory B. Woods.

U.S. Attorney Preet Bharara said: “At the direction of an associate of the Gambino Crime Family, Antoine Burroughs and Leon Whitfield targeted and attempted to rob a Queens pizza shop owner in his home, and then brutally murdered his son as he tried to protect his father. With today’s pleas, the perpetrators of this crime will be held accountable.”

According to the allegations in the Indictment and statements made at various proceedings in this case, including the guilty pleas:

BURROUGHS and WHITFIELD were hired by Frank LaCorte, an associate of the Gambino Crime Family, to commit a home invasion robbery. On September 9, 2009, BURROUGHS and WHITFIELD attempted to rob Bartolomeo Antoniello at his home in Queens, New York. BURROUGHS and WHITFIELD were targeting the cash proceeds of Antoniello’s pizza shop. Antoniello’s son, Gerardo Antoniello, was home at the time, and attempted to protect his father. BURROUGHS and WHITFIELD brutally beat and pistol-whipped the father and son, and the father was seriously injured. During the struggle, Gerardo Antoniello was shot in the head and died later of his injuries. He was 29 years old.

As a result of these criminal activities, the two men have pled guilty as follows:

BURROUGHS pled guilty to one count of robbery conspiracy, which carries a maximum sentence of 20 years in prison, and one count of attempted robbery, which carries a maximum sentence of 20 years in prison. As a part of his plea, BURROUGHS admitted to shooting and killing Antoniello during the robbery.

WHITFIELD pled guilty to one count of robbery conspiracy, which carries a maximum sentence of 20 years in prison, and one count of attempted robbery, which carries a maximum sentence of 20 years in prison. As a part of his plea, WHITFIELD admitted that he carried a fake gun during the robbery and that BURROUGHS shot and killed Antoniello during the struggle.

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

Both defendants are scheduled to be sentenced by Judge Woods on July 29, 2015.

Frank LaCorte was convicted in Queens County Court for his role in organizing this and numerous other home invasion robberies and in June 2012 was sentenced to a term of 50 years to life in prison.

Mr. Bharara praised the work of the Federal Bureau of Investigation, the New York City Police Department, the Queens District Attorney’s Office, and the United States Marshals Service.

The case is being handled by the Office’s Violent and Organized Crime Unit. Assistant U.S. Attorney Rachel Maimin is in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that MIKHAIL ZEMLYANSKY was found guilty yesterday on racketeering conspiracy, securities fraud, mail fraud, and wire fraud charges following a four-week jury trial before United States District Judge J. Paul Oetken. The jury convicted ZEMLYANSKY of racketeering stemming from the largest single no-fault automobile insurance fraud scheme ever charged, and his two investment fraud schemes, Lyons Ward & Associates and the Rockford Group.

U.S. Attorney Preet Bharara said: “Mikhail Zemlyansky now stands convicted of spearheading three fraud schemes: one in which the defendant and his co-conspirators billed insurance companies for over $100 million in fraudulent medical treatments, and two that swindled investors out of over $18 million. Worse yet, Zemlyansky laundered the fruits of his crimes through check-cashing entities and shell companies, and invested his criminal proceeds on luxury items. Today’s verdict ensures that he will be punished for the vortex of fraud he orchestrated.”

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

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

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

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

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

Finally, ZEMLYANSKY’S organization operated high-stakes illegal poker games in Mill Basin, Brooklyn, that netted profits of tens of thousands of dollars per game.

ZEMLYANSKY was convicted of one count of conspiracy to commit racketeering, which carries a maximum sentence of 20 years in prison. In addition, ZEMLYANSKY was convicted of one count of conspiracy to commit securities fraud, which carries a maximum sentence of five years; mail fraud and wire fraud, which carries a maximum sentence of 20 years; as well as substantive counts of securities fraud, mail fraud and wire fraud, each carrying a maximum of 20 years. ZEMLYANSKY is scheduled to be sentenced on July 15, 2015, at 3:00 p.m., before Judge Oetken. 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.

ZEMLYANSKY, 37, of Hewlett, New York, was initially arrested on February 29, 2012, and is the 34th defendant convicted in this case. ZEMLYANSKY was remanded pending sentencing following his conviction.

At ZEMLYANSKY’S first trial in the fall of 2013, a mistrial was declared on Count One – which also charged ZEMLYANSKY with racketeering conspiracy – after the jury failed to reach a unanimous verdict. At that trial, ZEMLYANSKY was acquitted of eight counts of charges related to the no-fault insurance fraud scheme and money laundering.

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

The case is being prosecuted by the Office’s Violent & Organized Crime Unit. Assistant U.S. Attorneys Daniel S. Goldman, Daniel S. Noble, and Joshua A. Naftalis are in charge of the prosecution. Assistant U.S. Attorney Carolina Fornos of the Office’s Money Laundering & Asset Forfeiture Unit is responsible for the forfeiture aspects of the case.

Bank Agrees to Terminate Employment Relationship with Responsible Executives

Preet Bharara, the United States Attorney for the Southern District of New York, Eric T. Schneiderman, the Attorney General for the State of New York, Thomas E. Perez, the U.S. Secretary of Labor (“DOL”), and Andrew J. Ceresney, Director of the Division of Enforcement for the Securities and Exchange Commission (“SEC”), announced today proposed settlements of civil lawsuits against and investigations of THE BANK OF NEW YORK MELLON (“BNYM” or the “Bank”) alleging that BNYM engaged in fraud and other misconduct when providing foreign exchange (“FX”) services to its customers. Specifically, BNYM agreed to pay a total of $714 million to settle lawsuits brought by the United States and New York State, private class action lawsuits brought by BNYM customers, and investigations by the SEC and DOL, all of which concern BNYM’s misconduct in connection with its standing instruction (“SI”) FX product. As part of the proposed settlement with the United States and the settlement with New York State, BNYM admits to and accepts responsibility for conduct alleged in the civil fraud lawsuits, including that contrary to representations to clients that it provided “best rates” and “best execution,” the Bank actually gave clients the worst reported interbank rates of the trading day. BNYM must terminate its employment relationship with certain executives with responsibilities related to the SI product, including DAVID NICHOLS (“NICHOLS”), who is a defendant in the United States’ lawsuit, and must reform its practices further to improve and increase the information provided to customers. NICHOLS also admits and accepts responsibility for conduct alleged in the United States’ complaint. The proposed settlement of the United States’ civil fraud lawsuit and proposed settlements of the customer class action lawsuits are subject to court approval. The United States submitted its proposed settlement to United States District Judge Lewis A. Kaplan today for review and approval.

Manhattan U.S. Attorney Preet Bharara said: “The Bank of New York Mellon’s custody clients, many of whom are public pension funds and non-profit organizations, trusted the Bank to be honest about the financial services it was providing and to deal with them fairly. BNYM and its executives, motivated by outsized profits and bonuses, breached this trust and repeatedly misled clients to believe that the pricing they were getting on foreign exchange was far better than it actually was. The Bank, after three years of litigation, has finally admitted what was always clear from the evidence – contrary to its various representations, including a claim of ‘best rates,’ the bank in fact gave clients prices at or near the worst interbank rates reported during the trading day. The bank repeatedly deceived its customers and is paying a heavy penalty for it. We will not hesitate to pursue and punish financial institutions and their executives who exploit their customer base to improve their bottom lines.”

Attorney General Schneiderman said: “Investors count on financial institutions to tell them the truth about how their investments are being managed. The Bank of New York Mellon misled customers and traded at their expense. Today’s settlement shows that institutions and individuals responsible for defrauding investors will be held accountable and will face serious consequences for their wrongdoing. This excellent outcome also shows what can be achieved when law enforcement agencies collaborate on an important matter such as this one.”

U.S. Secretary of Labor Thomas E. Perez said: “This case is a reminder that financial institutions charged with safeguarding retirement plan assets sometimes put the institution’s interests ahead of those of the investors they represent. Today’s settlement offers more proof that when they do so, we at the department along with our colleagues at federal and state agencies will hold them accountable.”

SEC Division of Enforcement Director Andrew J. Ceresney said: “BNYM misled registered investment company clients regarding its pricing of their foreign currency transactions. The bank said that it priced transactions according to ‘best execution standards’ and at market rates at the times of the trades, but in fact priced these transactions near the end of the day at or near the worst rates reported during the entire trading day.”

On October 4, 2011, the United States and New York State each filed civil fraud lawsuits against BNYM, one of the world’s largest custody banks, alleging that BNYM engaged in a scheme to defraud custodial clients who used BNYM’s FX services since at least 2001. The United States amended its complaint in 2012 to add as a defendant NICHOLS, a Managing Director at BNYM who had responsibilities with respect to BNYM’s representations to clients about the SI product.

The United States’ lawsuit was brought under the Financial Institutional Reform, Recovery and Enforcement Act of 1989 ("FIRREA”), which authorizes the United States to recover civil penalties for frauds involving or affecting financial institutions. This Office has pioneered the use of FIRREA to civilly prosecute financial institutions and their executives for engaging in fraud. Judge Kaplan issued a landmark decision in April 2013 endorsing the Government’s use of FIRREA in this case to pursue a financial institution for engaging in fraudulent conduct affecting its own federally insured deposits by putting them at risk. Two other Southern District of New York judges have followed Judge Kaplan’s decision in other financial fraud cases brought by this Office.

New York State’s lawsuit was brought pursuant to the Martin Act, which permits the State to seek damages and other relief for fraud.

As outlined in the lawsuits, BNYM offers FX services to its custodial clients, for whom it holds domestic and international financial assets, including currency. In particular, BNYM offers the SI product, pursuant to which BNYM automatically provides currency exchange on an as-needed basis when, for example, the client buys or sells foreign assets.

The complaints allege that BNYM provided its clients with very limited information about how it determined what currency exchange rates or prices would be used for standing instruction FX, and that what little information BNYM did provide to clients about pricing was false, incomplete, and/or misleading. For example, the complaints allege that BNYM’s FX executives, including NICHOLS, misled clients by representing that the product offered “best execution,” which is commonly understood to mean that the client receives the best available market price at the time that the currency trade is executed. As explained in the complaints, instead of providing clients with the most favorable prices available at the time the trades were executed, BNYM actually gave its SI clients the worst prices -- ones at the outer margins of the interbank daily range. According to the complaints, BNYM generated enormous profits based on the difference or “spread” between the actual interbank rate at the time of execution and the less favorable rates it gave to SI clients.

In January 2012, the United States entered into a partial settlement with BNYM resolving the Government’s injunctive claims and requiring the Bank to reform its business practices. In particular, BNYM was required, among other things, to disclose how SI transactions were priced, to make certain pricing data available to custodial clients, and to stop describing the SI product as “free” or claiming that it offered “best execution.”

Pursuant to the proposed settlements and other agreements, BNYM will pay a total of $714 million, of which $335 million will collectively be paid to the United States and New York State. Pursuant to the proposed settlement with the United States, BNYM will pay a civil penalty of $167.5 million. BNYM will similarly pay $167.5 million to the State of New York, nearly all of which will be directed to a fund that will compensate BNYM’s customers who were victims of BNYM’s misconduct. Two New York State agencies – the New York State Deferred Compensation Plan and the State University of New York (“SUNY”) – were among the victims and will be compensated for their losses.

BNYM will also pay $335 million to resolve private class action lawsuits filed by the Bank's customers.

To resolve DOL’s claims under the Employee Retirement Income Security Act (“ERISA”), BNYM will pay $14 million to the Bank’s ERISA plan customers (in addition to approximately $70 million that will be distributed to ERISA plan customers through the other settlements).

The SEC’s Division of Enforcement has reached a preliminary agreement with BNYM to recommend to the Commission a settlement of the SEC’s investigation concerning BNYM’s SI product. The settlement will include an administrative order finding that, in violation of Sections 31(a) and 34(b) of the Investment Company Act, BNYM prepared and provided its registered investment company clients with trade confirmations and monthly transaction reports that were misleading in light of the representations made because they did not specify the time the standing instruction transactions were executed or provide information about how specific rates were assigned. The proposed settlement is subject to finalization, review and approval by the Commission. Under the terms of the proposed settlement, BNYM will pay $30 million to the SEC.

In connection with the proposed settlements of the United States’ lawsuit and the settlement of New York State’s lawsuit, BNYM admits, acknowledges, and accepts responsibility for committing conduct alleged in the federal and state complaints, including the following:

How BNYM Priced Standing Instruction Foreign Exchange Transactions

1) If the client was purchasing foreign currency, the client received a price at or close to the highest reported interbank rate for that day or session (at or near the least favorable interbank price for the client reported during the trading day or session), and if the client was selling foreign currency, the client received a price at or close to the lowest reported interbank rate of the day or session (also at or near the least favorable interbank price for the client reported during the trading day or session).

2) Because SI clients received pricing at or near the high end of the reported interbank range for their currency purchases and at or near the low end of the reported interbank range for their sales, the Bank was generally buying low from, and selling high to, its own clients. The Bank recorded the difference or “spread” between the rates it gave clients and the interbank market price at the time the SI transactions were priced as “sales margin.”

BNYM’s Representations to Its Clients

1) The Bank made numerous representations to existing and potential clients concerning the SI product, including:

(i) The service provided “benefits” to its clients, including “FX execution according to best execution standards.”

(ii) The Bank “ensures best execution on foreign exchange transactions through the following mechanisms: As a major market participant, the Bank is actively engaged in making markets and taking position in numerous currencies so that we can provide the best rates for our clients.”

(iii) “Understanding the fiduciary role of the fund manager, it is our goal to provide best execution for all foreign exchange executed in support of our clients’ transactions.”

(iv) “We price foreign exchange at levels generally reflecting the interbank market at the time the trade is executed by the foreign exchange desk.”

(v) The Bank’s “primary focus is on securing the best possible rates for our clients rather than on trading for the bank’s own account.”

BNYM Did Not Provide Its SI Clients with the Best Price

1) Contrary to the representations set forth above, including that BNYM offered “best rates,” the Bank gave SI clients prices that were at or near the worst interbank rates reported during the trading day or session.

2) The Bank generally did not disclose its SI FX pricing methodology discussed above to its custodial clients or their investment managers.

3) The Bank was aware that many clients did not fully understand the Bank’s pricing methodology for SI transactions.

4) The Bank was aware that many market participants equated “best execution” with best price, or considered best price to be one of the most important factors in determining best execution.

As part of the proposed settlement with the United States, NICHOLS also admits, acknowledges and accepts responsibility for conduct alleged in the United States’ complaint, including the following:

1) From 2002 through 2011, NICHOLS was a Managing Director at the Bank who, among other duties, participated in the drafting and dissemination of the Bank’s description of “best execution” and the SI product. The description was disseminated to certain existing and prospective custody clients through responses to requests for proposals (“RFP”) and in other communications, and included the following statements:

(i) “Understanding the fiduciary role of the fund manager, it is our goal to provide best execution for all foreign exchange executed in support of our clients’ transactions.”

(ii) “Since The Bank of New York Mellon is one of the largest global custodians, our clients gain the ongoing benefit of aggregation of transactions across our broad customer base; accordingly, we price foreign exchange at levels generally reflecting the interbank market at the time the trade is executed by the foreign exchange desk.”

(iii) “Best execution encompasses a variety of services designed to maximize the proceeds of each trade, while containing inherent risks and the total cost of processing.”

2) NICHOLS had oversight of the Global Markets website and approved the content, which included the following statement: the Bank’s SI clients “benefit from . . . FX execution according to best execution standards.”

3) NICHOLS understood how the Bank priced SI transactions and also knew:

(i) The Bank generally did not disclose its SI FX pricing methodology discussed above to its custodial clients or their investment managers.

(ii) Many clients did not fully understand the Bank’s pricing methodology for SI transactions.

(iii) Many market participants equated “best execution” with best price, or considered best price to be one of the most important factors in determining best execution.

As part of the proposed U.S. and State settlement, BNYM must terminate its employment relationship with executives involved in the conduct alleged in the lawsuit, including NICHOLS. BNYM must also make further reforms to its business practices by providing clients additional pricing information about new standing instruction services BNYM currently offers to clients.

Mr. Bharara thanked the New York Attorney General's Office as well as counsel for the private litigants with whom this Office cooperated to litigate the multiple FX cases against the Bank and bring them to a successful conclusion.

The United States' FIRREA lawsuit arose in part from a whistleblower who filed a declaration pursuant to FIRREA.

The United States’ case has been 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 financial fraud.

Assistant U.S. Attorneys Pierre G. Armand, Lawrence H. Fogelman, Jeffrey K. Powell, and Arastu Chaudhury are in charge of the case.

U.S. v. Bank of New York Mellon et al. Stipulation & Settlement

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”), William J. Bratton, Commissioner of the New York City Police Department (“NYPD”), and Michael A. Fedorko, Superintendent of Police and Director of Public Safety for the Port Authority of New York and New Jersey (“PAPD”), announced that ELEHECER BALAGUER was arrested today for aiming the beam of a laser pointer at aircraft in the vicinity of LaGuardia Airport. BALAGUER surrendered to the FBI this morning, and appeared before U.S. Magistrate Judge Debra C. Freeman in Manhattan federal court earlier today.

U.S. Attorney Preet Bharara said: “As charged, Elehecer Balaguer’s actions were simple but potentially disastrous: pointing a powerful laser at airplanes carrying hundreds of people and then at a police helicopter. In fact these actions had dire consequences that could have been worse yet, including impairing and damaging the vision of pilots with the possibility of creating real danger to the aircraft. I commend the NYPD Aviation Unit pilots who, at great risk to themselves, located the source of these incidents.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “The behavior displayed by Mr. Balaguer was more than careless. Pointing a laser at an aircraft during its operation creates a dangerous situation for pilots, passengers, and innocent bystanders on the ground. The FBI will vigorously pursue these criminal acts. For the safety of all who fly, we remind the public to alert law enforcement of any known incidents of laser strikes.”

Police Commissioner William J. Bratton said: “Pointing a laser pointer at the operator of an aircraft is an irresponsible act that poses a real and immediate danger. It is important that the public understands that the intentional misuse of this device has the potential to create a devastating outcome and is against the law.”

According to the Complaint filed in Manhattan federal court today:

On March 9, 2015, three pilots of commercial airplanes arriving at or departing from LaGuardia Airport in Queens were stuck in the eyes with a bright green beam, causing the pilots to lose focus temporarily and, in two instances, briefly blinding the pilots. 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 who was 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 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 pilots also to lose sight temporarily. The pilots on board the NYPD Helicopter 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, 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, is charged with 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 a judge.

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.

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

U.S. v. Elehecer Balaguer Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, announced that STEVEN HART pled guilty today to obstruction of justice and perjury relating to an investigation that the U.S. Securities and Exchange Commission (the “SEC”) had conducted into potential violations of the federal securities laws. HART, who was employed at an investment management firm headquartered in Englewood Cliffs, New Jersey (the “Investment Firm”), lied in sworn testimony to the SEC that he had obtained consent from the president of the Investment Firm (the “Investment Firm President”) to conduct match trades between a fund managed by the Investment Firm and a fund controlled and owned in part by HART. Moreover, when representatives of the SEC called the Investment Firm in an attempt to speak with the Investment Firm President, HART, on three occasions, answered the phone and pretended to be either the Investment Firm President or another employee. HART entered his guilty plea today before the Honorable Katherine P. Failla.

Manhattan U.S. Attorney Preet Bharara said: “Steven Hart went to great lengths to try to derail and avoid an investigation into his trading conduct. But, as his plea today shows, no one is above the law, including the law that governs investigations, and obvious attempts to change the course of a legal investigation will not be tolerated.”

According to the Information filed in Manhattan federal court and statements made during today’s proceeding:

HART worked at the Investment Firm, which managed several funds. HART, who reported directly to the Investment Firm President, served as a portfolio manager at the firm and, in that capacity, exercised trading authority over the brokerage accounts for one of the funds managed by the Investment Firm (the “Fund”). At the same time, HART also controlled and directed Octagon Capital Partners, LP (“Octagon”), a private investment fund with its principal place of business in New York, New York. Through Octagon, HART invested his own money and the money of several of his associates.

In or about 2009, the SEC was investigating HART’s trading activities at the Investment Firm (the “SEC Investigation”). First, the SEC was investigating whether HART, in his capacity as a portfolio manager at the Investment Firm, had conducted improper “match trades” or “cross trades” between his personal fund, Octagon, and the Fund. The SEC was also investigating whether HART had traded in securities based on material nonpublic information (“MNPI”) relating to confidentially marketed securities offerings – information that HART had obtained while being solicited to invest in these offerings.

As part of this investigation, SEC officials, among other things, issued a subpoena to the Investment Firm, care of the Investment Firm President, seeking the production of several different categories of documents. HART received the subpoena at the Investment Firm before it was seen by any other employee and produced documents to the SEC in New York, New York, without (1) informing anyone else at the Investment Firm about the subpoena, or (2) informing the SEC that it was HART alone who responded to the subpoena.

Moreover, in the course of providing sworn testimony to the SEC, HART made several materially false statements. He falsely testified that the Investment Firm President had agreed that HART should conduct match trades involving the Fund as part of an investment strategy for the Fund. HART also falsely testified that he and the Investment Firm President had discussed the SEC Investigation, and that the Investment Firm President was aware that HART had been subpoenaed to testify before the SEC.

On multiple occasions, HART impersonated other employees of the Investment Firm during telephone conversations with the SEC. Specifically, on December 8, 2009, an SEC attorney called the Investment Firm to speak with the firm’s President about the SEC Investigation. HART received the phone call and pretended to be another employee of the Investment Firm. The SEC attorney asked HART, who was pretending to be another employee, to ask the Investment Firm President to return the call, which HART failed to do. The following day, the same SEC attorney again called the Investment Firm to speak with the firm’s President. HART again received the phone call and, on this occasion, pretended to be the Investment Firm President. During that call, HART, pretending to be the Investment Firm President, falsely stated that: (1) the Investment Firm President was aware that HART had engaged in improper trading activity, but nevertheless wanted HART to remain an employee of the Investment Firm; and (2) the Investment Firm President was aware of, and had approved, Hart’s match trading activity as a means for the Fund to dispose of restricted shares of stock.

Finally, on December 11, 2009, the same SEC attorney, along with a second SEC attorney, called the Investment Firm to speak with the firm’s President. HART again received the phone call and again pretended to be the Investment Firm President. During that call, HART, speaking as the Investment Firm President, falsely stated to the SEC attorneys that: (1) HART’s match trading activity was an intentional strategy of the Investment Firm to take a loss on the trading in exchange for the ability to sell otherwise restricted shares of stock; (2) HART was still a valued employee of the Investment Firm who had earned the Investment Firm far more than whatever amount HART had gained through match trading; and (3) HART had fully disclosed to the Investment Firm President that HART had traded based on MNPI and that this was a one-time mistake that would not happen again. Each of these statements was false.

HART, 42, of New York, New York, faces a maximum sentence of ten years in prison. He is scheduled to be sentenced by Judge Failla on July 2, 2015. 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.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Jason H. Cowley is in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that PETER PHILLIP NASH, a/k/a “Samesamebutdifferent,” a/k/a “Batman73,” a/k/a “Symmetry,” a/k/a “Anonymousasshit,” pled guilty today to narcotics trafficking and money laundering charges in connection with his role in operating “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. U.S. District Judge Thomas P. Griesa presided over the plea proceedings.

According to the allegations in the Indictment, and statements made at today’s plea and other court proceedings:

From January 2011, up to and including October 2, 2013, the “Silk Road” website hosted a sprawling black-market bazaar on the Internet, where illegal drugs and other illicit goods and services were regularly bought and sold by the site’s users. During its more than two-and-a-half years in operation, Silk Road was used by several thousand drug dealers and other unlawful vendors to distribute hundreds of kilograms of illegal drugs and other illicit goods and services to well over a hundred thousand buyers, and to launder hundreds of millions of dollars deriving from these unlawful transactions.

The owner and operator of Silk Road, Ross William Ulbricht, a/k/a “Dread Pirate Roberts,” a/k/a “DPR,” a/k/a “Silk Road,” ran the website with the assistance of a small support staff, including both site administrators and forum moderators. The site administrators were responsible for, among other things, monitoring user activity on Silk Road for problems, responding to customer service inquiries, and resolving disputes between buyers and vendors. The forum moderators were responsible for, among other things, monitoring user activity on discussion forums associated with the site, providing guidance to forum users concerning how to conduct business on Silk Road, and reporting any significant problems discussed on the forums to the site administrators and to Ulbricht. Ulbricht paid the site administrators and forum moderators salaries ranging from approximately $50,000 to approximately $75,000 per year for their services.

From January 2013, up to and including October 2, 2013, NASH worked as the primary moderator on the Silk Road discussion forums. NASH was arrested in December 2013 along with co-defendants Andrew Michael Jones, a/k/a “Inigo,” and Gary Davis, a/k/a “Libertas,” who worked as site administrators on Silk Road. NASH, Jones, and Davis were each paid salaries by Ulbricht for their roles on Silk Road’s customer support staff.

NASH, 41, of Brisbane, Australia, pled guilty to one count of narcotics conspiracy, which carries a maximum sentence of life in prison, and one count of money laundering conspiracy, which carries a maximum sentence of 20 years in prison. The maximum sentences are prescribed by Congress and are provided for informational purposes only, as the sentence will be determined by the judge. NASH is scheduled to be sentenced on May 26, 2015.

Ulbricht was convicted following trial on February 4, 2015, on charges relating to narcotics trafficking, computer hacking, trafficking in fraudulent identification documents, and money laundering. He is scheduled to be sentenced on May 15, 2015, before U.S. District Judge Katherine B. Forrest.

Jones pled guilty on October 2, 2014, before U.S. District Judge Thomas P. Griesa. He is currently scheduled to be sentenced on October 1, 2015.

Davis is currently pending extradition in Ireland.

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 Drug Enforcement Administration’s (“DEA”) New York Organized Crime Drug Enforcement Strike Force, which comprises agents and officers of the DEA, the Internal Revenue Service, 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 New York 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. Additionally, Mr. Bharara praised the foreign law enforcement partners whose contributions to the success of the investigation and prosecution have been invaluable, namely, the Australian Federal Police, the Irish Republic’s Computer Crime Investigation Unit of the An Garda Siochana, 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.

Mr. Bharara also noted that the investigation remains ongoing.

The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorneys Serrin Turner and Tim Howard are in charge of the prosecution.

The charges contained in the Indictment remain pending and are merely accusations against Davis, who is presumed innocent unless and until proven guilty.

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 two major actions filed in federal court in the District of Columbia and Manhattan against COMMERZBANK AG (“COMMERZ”), and COMMERZBANK AG NEW YORK BRANCH (“COMMERZ NEW YORK”).

First, a criminal Information was filed today in federal court in the District of Columbia charging COMMERZ NEW YORK with felony violations of the Bank Secrecy Act, in connection with COMMERZ’s and COMMERZ NEW YORK’s relationship with the Olympus Corporation (“Olympus”) and COMMERZ NEW YORK’s failure to, among other things, maintain an effective anti-money laundering program, detect reportable transactions under U.S. law and prevent them from being processed by COMMERZ NEW YORK. The criminal BSA charges are contained in a four-count felony Information (the “Information”) which also charges COMMERZ with conspiring to violate the International Emergency Economic Powers Act (“IEEPA”) based on COMMERZ’s role in processing, from 2001 through at least 2008, $263 million of transactions that were prohibited under U.S. law. The case is assigned to United States District Judge Beryl Howell.

Second, the United States has entered into an agreement (the “Agreement”) with COMMERZ and COMMERZ NEW YORK (collectively, the “Company”) under which the Company agrees to accept responsibility for its conduct by stipulating to the accuracy of an extensive Statement of Facts; to pay a $300 million forfeiture amount to the victims of the Olympus fraud; to refrain from future criminal conduct and cooperate fully with the Government; and to continue reforms of its Bank Secrecy Act (“BSA”)/Anti-Money Laundering (“AML”) compliance program. Assuming the Company’s continued compliance with the Agreement, the Government has agreed to defer prosecution on the Information for a period of three years, after which time the Government will seek to dismiss the charges. The $300 million forfeiture amount to the victims of the Olympus fraud will be paid through a parallel civil forfeiture complaint filed in Manhattan federal court.

COMMERZ and COMMERZ NEW YORK will pay a total of $1.45 billion in penalties to resolve the Olympus-related AML charges, IEEPA violations, and payments to regulators.

Manhattan U.S. Attorney Preet Bharara said: “Today, Commerz New York stands charged with Bank Secrecy Act criminal offenses for its acute, institutional anti-money laundering deficiencies that made it a conduit for over a billion dollars of the Olympus fraud. These criminal charges follow a multi-year investigation and a guilty plea by a former Commerzbank Singapore employee who helped set up the structure that allowed for the Olympus fraud. Institutions, not just individuals, have an obligation to follow the law, and anti-money laundering laws in particular are critical for financial institutions to follow. With today’s resolution, the bank, as part of a deferred prosecution agreement, has accepted responsibility in a detailed statement of facts, agreed to continue reforming its anti-money laundering practices, and will pay $300 million that will go to victims of the Olympus fraud.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “Today we announce more charges against yet another bank. Commerz New York violated the Bank Secrecy Act designed to prevent the movement of money, often with nefarious intent. Commerzbank enabled Olympus to evade detection for years. And worse yet, failed to create a process to prevent this criminal behavior. Management at banks and financial institutions should heed this warming: This behavior will be investigated, vigorously.”

According to the allegations in the criminal Information and other documents filed today in the United States District Court for the District of Columbia, and felony plea documents related to an Olympus executive filed previously in the District Court for the Southern District of New York:

Since 2008, and continuing until at least 2013, COMMERZ NEW YORK violated the BSA and its implementing regulations. Specifically, COMMERZ NEW YORK failed to maintain adequate policies, procedures, and practices to ensure its compliance with United States law, including its obligation to detect and report suspicious activity. As a result of the wilful failure of COMMERZ NEW YORK to comply with United States law, a multibillion-dollar securities fraud was operated through COMMERZ and COMMERZ NEW YORK.

Olympus was a Japan-based manufacturer of medical devices and cameras. Its common stock is listed on the Tokyo Stock Exchange, and its American Depository Receipts trade in the United States. From at least the late 1990s through 2011, Olympus perpetrated a massive accounting fraud designed to conceal from its auditors and investors hundreds of millions of dollars in losses. In September 2012, Olympus and three of its senior executives pled guilty in Japan to inflating the company’s net worth by approximately $1.7 billion.

Olympus used COMMERZ and COMMERZ NEW YORK to perpetrate its fraud. COMMERZ, through its branch and affiliates in Singapore, both loaned money to off-balance-sheet entities created by or for Olympus to perpetrate its fraud, and transacted more than $1.6 billion through COMMERZ NEW YORK in furtherance of the fraud.

The Suspicions at COMMERZ

COMMERZ and COMMERZ NEW YORK were used in furtherance of the Olympus fraud during two different time periods. From approximately 1999 through 2000, Olympus perpetrated its fraud primarily through COMMERZ and its Singapore branch and affiliates. Among other things, Olympus used special purpose vehicles to facilitate the fraud, some of which were created by COMMERZ – including several executives based in Singapore – at Olympus’s direction, using funding from COMMERZ. One of those Singapore-based executives, Chan Ming Fon, was involved in creating the Olympus structure in 1999 while at Commerzbank (Southeast Asia) Ltd., and later managed an Olympus-related entity in 2005-2010 on behalf of which he submitted false confirmations to Olympus’s auditors. In September 2013, Chan pled guilty in Manhattan federal court to conspiracy to commit wire fraud.

From 1999 through 2000, Olympus executives asked COMMERZ executives to provide certain false documents to Olympus’s auditors, which would have failed to disclose that certain Olympus assets were pledged as collateral for loans from a COMMERZ affiliate. COMMERZ obtained a legal opinion, which, in the words of one COMMERZ executive written to an Olympus executive, “ma[de] clear that our bank could be subject to both civil and criminal penalties if we are seen to be assisting or facilitating you in the non-disclosure.” Although COMMERZ ultimately declined to provide the false documents, its executives suggested a variety of ways Olympus could nonetheless fail to disclose the pledge.

In 2000, Olympus took its business away from COMMERZ and transferred it to another bank. In 2005, however, Olympus – and its fraud – returned to COMMERZ. From that point until at least 2010, COMMERZ executives expressed strong suspicions about the Olympus transactions and structure. One senior executive worried that Olympus would have to “write off [the] full amount” of the relevant transactions, and wondered about the effects on COMMERZ if “any negative news is splash[ed] on the front page.” A senior legal and compliance officer responsible for COMMERZ’s Singapore branch and affiliates wrote at the time that he was “concerned” about fraud, asset stripping, market manipulation, and tax offenses, and that “[i]f the [Olympus] structure and transactions can not [be] explained we must file Suspicious Transaction report as a matter of law and [COMMERZ] policy.”

The New York Wires

In March 2010, two wire transfers in the amount of approximately $455 million and $67 million, respectively, related to the Olympus scheme were processed by COMMERZ NEW YORK through the correspondent account for the Singapore branch of COMMERZ. Those wires caused COMMERZ NEW YORK’s automated AML monitoring software to “alert.”

At the time, COMMERZ NEW YORK had conducted no due diligence on the Singapore branch and affiliates of COMMERZ, consistent with COMMERZ’s policy of not conducting due diligence on its own branches. In response to the alerts, however, COMMERZ NEW YORK sent a request for information to COMMERZ in Frankfurt and COMMERZ’s Singapore branch, inquiring about the transactions. The Singapore branch responded in a brief e-mail, dated April 20, 2010, referring to the Olympus-related entities involved in the wires:

GPA Investments Ltd. ist [sic] a Caymen [sic] Islands SPV, Creative Dragons SPC-Sub Fund E is a CITS administered fund both of which are part of an SPC structure to manage securities investments for an FATF country based MNC.

According to the Relationship Manager the payment reflects the proceeds from such securities investments to be reinvested.

COMMERZ’s Singapore branch did not relay any of the concerns about the Olympus-sponsored structures and transactions.

Based on its response, COMMERZ NEW YORK closed the alert without taking any further action other than to note that in March 2010 alone, GPA Investments had been involved in six transactions through COMMERZ NEW YORK totalling more than $522 million. In fact, between 1999 and 2010, a total of more than $1.6 billion in furtherance of the Olympus fraud was cleared through COMMERZ NEW YORK. COMMERZ NEW YORK failed to file a SAR in the United States concerning Olympus or any of the Olympus-related entities until November 2013 – more than two years after the Olympus accounting fraud was revealed.

COMMERZ NEW YORK’s Compliance Deficiencies

COMMERZ NEW YORK had the same designated BSA Officer continuously from approximately 2003 until early 2014. Over those years, she raised concerns about AML compliance, both to her superiors at COMMERZ NEW YORK, and with COMMERZ Frankfurt.

Under the BSA, a financial institution is required to detect and report suspicious activity. This is accomplished, in part, through conducting due diligence, and enhanced due diligence where appropriate, of the correspondent relationship – which COMMERZ NEW YORK failed to do – and by sending requests for further information to the correspondent bank when potentially suspicious transactions are detected. COMMERZ NEW YORK frequently had difficulties getting responses to requests for information generated in connection with automated transaction monitoring “alerts.” Because requests for information went unanswered for as long as eight months without SARs being filed, alerts were often closed without any response to the pending request. As a result of these deficiencies, COMMERZ NEW YORK cleared numerous AML “alerts” based on its own perfunctory internet searches and searches of public source databases but without ever receiving responses to its requests for information.

On June 24, 2010, a COMMERZ NEW YORK-based compliance officer who had primary responsibility for automated transaction monitoring wrote in an e mail to the BSA Officer and the Head of Compliance in New York (who had previously served as the Head of Compliance in Asia) that “we currently have 90 alerts a day,” with “808 alerts outstanding,” which “could lead to a possible back log.” He continued, “I also wanted to make you aware that we have currently over 130 Frankfurt RFIs [i.e., requests for information] outstanding,” noting “a decrease in response to the RFIs” from Frankfurt. The following day, the Head of Compliance in New York forwarded the e mail to COMMERZ’s Global Head of Compliance, adding that “things are not getting better with regards to th[ose] findings. (see below). I will forward you the DRAFT memo on potential revision of staffing needs.” Although the Global Head of Compliance thereafter instituted new procedures designed to increase the speed of responses to RFIs from New York, problems persisted with the timely flow of information from business units outside the U.S. to compliance officers in New York.

COMMERZ and COMMERZ NEW YORK also failed to conduct adequate due diligence or to obtain “know your customer” information with respect to correspondent bank accounts for COMMERZ’s own foreign branches and affiliates. These systemic deficiencies reflected a failure to maintain adequate policies, procedures, and controls to ensure compliance with the BSA and regulations prescribed thereunder and to guard against money laundering.

IEEPA Violations

According to admissions contained in the deferred prosecution agreement, from 2002 to 2008, COMMERZ knowingly and willfully moved $263 million through the U.S. financial system on behalf of Iranian and Sudanese entities subject to U.S. economic sanctions. COMMERZ engaged in this criminal conduct using numerous schemes designed to conceal the true nature of the illicit transactions from U.S. regulators.

For example, in the deferred prosecution agreement, COMMERZ acknowledged that it used non-transparent payment messages, known as cover payments, to conceal the involvement of sanctioned entities, and also removed information identifying sanctioned entities from payment messages, in transactions processed through COMMERZ NEW YORK and other financial institutions in the United States. Specifically, in 2003, COMMERZ designated a group of employees in the Frankfurt back office to review and amend Iranian payments so that the payments would not be stopped by U.S. sanctions filters. In doing so, COMMERZ ensured that Iranian payment messages did not mention the Iranian entity, as transactions may have otherwise been stopped pursuant to the U.S. sanctions.

COMMERZ admitted that it hid these practices from COMMERZ NEW YORK. For example, in 2003, when two state-owned Iranian banks wanted to begin routing their U.S. dollar clearing business through COMMERZ, a COMMERZ back office employee emailed other COMMERZ employees directing: “If for whatever reason CB New York inquires why our turnover has increase[d] so dramatically, under no circumstances may anyone mention that there is a connection to the clearing of Iranian banks!!!!!!!!!!!!!.”

COMMERZ admitted that this conduct continued even though its senior management was warned that the bank’s practices for Iranian clients “raised concerns.” For example, in October 2003, the head of COMMERZ’s internal audit division stated in an email to a member of COMMERZ’s senior management that Iranian bank names in payment messages going to the United States were being “neutralized” and warned: “it raises concerns if we consciously reference the suppression of the ordering party in our work procedures in order to avoid difficulties in the processing of payments with the U.S.A.”

In another scheme designed to avoid U.S. sanctions, COMMERZ admitted that, in 2004, it agreed with an Iranian bank client that, rather than sending direct wire payments to the United States, the Iranian bank would pay U.S. beneficiaries with COMMERZ-issued checks listing only the Iranian bank’s account number and address in London with no mention of the Iranian bank’s name.

Additionally, COMMERZ admitted that in 2005, it created a “safe payment solution” for an Iranian shipping company client, which allowed the client to conduct transactions using the U.S. financial system. The safe payment solution involved routing payments through special purpose entities controlled by the Iranian company, which were incorporated outside of Iran and bore no obvious connection to the Iranian client. COMMERZ and its client switched use of such special purpose entities when COMMERZ NEW YORK’s sanctions compliance filters were updated to detect the use of a particular special purpose entity. COMMERZ continued to process payments on behalf the Iranian client even after the client had been designated by OFAC as an entity subject to U.S. sanctions for its involvement in weapons of mass destruction proliferation.

In addition, COMMERZ admitted that, from 2002 to 2007, it provided Sudanese sanctioned entities with access to the U.S. financial system by engaging in similar schemes to remove reference to Sudanese companies from the transaction records.

The Deferred Prosecution Agreement

As a result of the foregoing conduct, this Office has entered into a Deferred Prosecution Agreement with the Company which has been submitted today to Judge Howel1. Pursuant to the Agreement, the Company has agreed to the following terms and conditions. First, the Company has agreed to waive indictment and to the filing of the Information, charging the Company with violations of the Bank Secrecy Act. Count Two of the Information charges that the Company failed to maintain an effective anti-money laundering program, from in 2008 through in or about 2013, as required under the BSA. Count Three of the Information alleges that the Company violated the BSA by failing to file Suspicious Activity Reports with respect to correspondent banking transactions. Count Four of the Information charges that the Company failed to obtain adequate due diligence on foreign institutions owned by or affiliated with the Company, information that if collected and maintained would have reasonably allowed for the detection and reporting of instances of money laundering and other suspicious activity.

Second, pursuant to the Agreement, the Company agrees to acknowledge responsibility for its conduct by, among other things, stipulating to the accuracy of a detailed Statement of Facts.

Third, the Company agrees to a $300 million non-tax deductible payment, in the form of a civil forfeiture, which the Government intends to distribute to the victims of the Olympus fraud, consistent with the applicable Department of Justice regulations, through the ongoing remission process. To effectuate that forfeiture, the Office has today filed a parallel civil forfeiture complaint in the Southern District of New York, which has been assigned to United States District Judge Paul Gardephe.

Fourth, the Company agrees to various cooperation obligations, including (1) an obligation to report any criminal conduct by any employee acting within the scope of his employment at the Company; (2) reporting to the Offices any BSA-related investigation or proceeding in which the Company is involved; and (3) committing no subsequent federal crimes.

Fifth, the Company agrees to continue reforming its Bank Secrecy Act/Anti-Money Laundering compliance programs and procedures, as required under the prior formal enforcement actions taken by the Federal Reserve and the additional actions taken concurrently by the Federal Reserve and the New York State Department of Financial Services (“DFS”), and to provide quarterly reports and other information to this Office about its progress.

In consideration of these obligations, the Government has agreed to defer prosecution on the Information for a period of three years, after which time – assuming that the Company does not violate the Agreement – the Government will seek to dismiss the charges.

In separate actions, the Federal Reserve Board and DFS announced that they had also reached agreements with COMMERZ and COMMERZ NEW YORK with respect to its BSA crimes.

Mr. Bharara praised the work of the FBI. He also thanked the Federal Reserve Board, the Internal Revenue Service, Criminal Investigation, and DFS.

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. Attorney Bonnie Jonas is in charge of the prosecution.

US v. $300000000 15 Civ. 1825 (SDNY Civil Forfeiture Complaint)

U.S. v. Commerzbank AG, et al Information

Preet Bharara, the United States Attorney for the Southern District of New York, announced today the guilty plea of DANIEL PAGANO, a Captain of the Genovese Organized Crime Family of La Cosa Nostra (the “Genovese Crime Family”). PAGANO pled guilty before U.S. District Judge Ronnie Abrams to participating in a racketeering conspiracy. As part of his plea, PAGANO admitted to being a leader of the criminal enterprise. PAGANO is scheduled to be sentenced by Judge Abrams on July 10, 2015.

Manhattan U.S. Attorney Preet Bharara said: “Danny Pagano, a capo in the Genovese Crime family, has now admitted to being a leader in a racketeering conspiracy that spanned nearly five years. Today’s plea demonstrates that La Cosa Nostra is not a thing of the past or a relic of movie myth. Our efforts with our law enforcement partners are aimed at making it so.”

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

The Genovese Crime Family is part of a nationwide criminal organization known by various names, including the “Mafia” and “La Cosa Nostra” (“LCN”), which operates through entities known as “Families.” The Genovese Crime Family operates through groups of individuals known as “crews” and “regimes,” most of which are based in New York City. Each “crew” has as its leader a person known as a “Caporegime,” “Capo,” “Captain,” or “Skipper,” who is responsible for supervising the criminal activities of his crew and providing “Soldiers” and associates with support and protection. In return, the Capo typically receives a share of the illegal earnings of each of his crew’s Soldiers and associates, which is sometimes referred to as Atribute.@ DANIEL PAGANO is a Caporegime or Captain in the Genovese Crime Family.

Each crew consists of “made” members, sometimes known as “Soldiers,” “wiseguys,” “friends of ours,” and “good fellows.” Soldiers are aided in their criminal endeavors by other trusted individuals, known as “associates,” who sometimes are referred to as “connected” or identified as “with” a Soldier or other member of the Family. Associates participate in the various activities of the crew and its members. In order for an associate to become a made member of the Family, the associate must first be of Italian descent and typically needed to demonstrate the ability to generate income for the Family and/or the willingness to commit acts of violence.

From 2009 through August 2014, PAGANO, along with other members and associates of the Genovese Crime Family, committed a wide array of crimes including operating an illegal gambling business. PAGANO, a Captain, exercised a leadership role within the Family by, among other things, settling disputes between and among associates of the Family.

PAGANO, 61, of Rockland County, faces a maximum sentence of 20 years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara thanked the Federal Bureau of Investigation (“FBI”), the Rockland County District Attorney’s Office, the Drug Enforcement Administration, U.S. Immigration and Customs Enforcement’s Homeland Security Investigations, the New York City Police Department (“NYPD”), and the New York State Police.

This investigation was a result of the Department of Justice's Organized Crime and Drug Enforcement Task Force Program, and it combined the resources and expertise of its member federal agencies in cooperation with local law enforcement. The investigation was conducted by the FBI-NYPD Joint Organized Crime Task Force.

The prosecution is being handled by the Office’s Violent and Organized Crime Unit. Assistant United States Attorneys Jennifer Burns, Abigail Kurland, and Rahul Mukhi are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, today announced that MAHABUBUZ ZAMAN was sentenced today to 88 months in prison for his participation in an elaborate bank fraud scheme that yielded more than two million dollars in ill-gotten gains. ZAMAN had been found guilty on November 12, 2014, by a Manhattan jury of conspiracy to commit bank fraud, conspiracy to commit identification document fraud, and use of a false passport, after a two-week jury trial. ZAMAN was sentenced today by U.S. District Judge Alison J. Nathan, who also presided over the jury trial.

Manhattan U.S. Attorney Preet Bharara said: “Mahabubuz Zaman may have enjoyed the riches of this multimillion-dollar bank fraud scheme for years. But now, thanks to the hard work of Immigration and Customs Enforcement’s Homeland Security Investigations, and prosecutors, Zaman will be spending the next seven years in federal prison.”

According to the Superseding Indictment, other court documents, and the evidence introduced at trial:

From approximately 2008 through November 2012, ZAMAN and his co-conspirators allegedly engaged in a bank fraud scheme in which they created hundreds of counterfeit checks, deposited those counterfeit checks into bank accounts they had opened in the names of sham companies in order to fraudulently inflate the balances in those accounts, and then withdrew funds from those bank accounts before the financial institutions were able to determine the fraudulent nature of the checks. In addition to the check fraud, the defendant and his partners-in-crime also obtained fraudulent mortgages and ran up credit card debt using false identities. The scheme victimized approximately 15 different banks, resulting in more than two million dollars in losses to the banks.

As part of the scheme, the conspirators incorporated sham companies and then opened bank accounts in the names of those sham companies. The individuals opening the accounts (the “accountholders”) often used false identities, including names and social security numbers, and presented false identification documents, including false Bangladeshi passports and forged United States visas. The accountholders were generally instructed to make small legitimate deposits at first so that the banks would make funds immediately available upon future fraudulent deposits.

ZAMAN and his co-conspirators obtained copies of legitimate checks and then used the payor account information that appeared on those checks to create counterfeit checks made payable to the sham companies they had incorporated as part of the scheme. The accountholders deposited the counterfeit checks into the sham company bank accounts at various banks. The accountholders often made deposits at numerous branches of the same bank on the same day. These deposits often were made on a Thursday or Friday so that the defendant and his co-conspirators could withdraw the illegal proceeds over the weekend when the banks were closed and were less likely to determine that the checks were counterfeit.

Once the defendant and his co-conspirators confirmed that funds from the counterfeit checks were available for withdrawal, the accountholders were directed to withdraw the funds from the counterfeit checks, typically over the weekend. The defendant and his co-conspirators often withdrew the funds from global cash access machines at casinos in Atlantic City, New Jersey, which did not have daily withdrawal limits. The accountholders often used false identification documents, including false Bangladeshi passports and fake United States visas, when making the withdrawals.

ZAMAN was one of the leaders of the scheme who recruited accountholders and directed both accountholders and higher-ranking members of the crew in the scheme’s operations, fronting the money for the scheme’s expenses and collecting a large share of its profits. In addition, ZAMAN was primarily responsible for the crew’s fraudulent mortgage operations.

In addition to the prison term, Judge Nathan sentenced ZAMAN to three years of supervised release, and ordered him to pay restitution and forfeiture in the amount of $2,638,700, and a $300 special assessment.

Manhattan U.S. Attorney Bharara praised the investigative work of the New York Field Office of the U.S. Immigration and Customs Enforcement’s Homeland Security Investigations. He also thanked United States Citizenship and Immigration Services, the Queens County District Attorney’s office, the New Jersey State Police, the New York City Police Department, the New York State Police, and the United States Secret Service for their assistance in the matter.

The prosecution of this case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorneys Lisa Korologos and Alexander Wilson are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and John P. Carlin, Assistant Attorney General for National Security, announced that DINO BOUTERSE, a citizen of Suriname who assisted in the formation of that country’s Counter-Terrorism Unit, was sentenced today in Manhattan federal court to 195 months in prison for attempting to provide material support and resources to Hezbollah, a designated terrorist organization, along with narcotics trafficking and firearms offenses. BOUTERSE, who was arrested in Panama on August 29, 2013, and arrived in the United States on August 30, 2013, pled guilty before U.S. District Judge Shira A. Scheindlin, who also imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara said: “Dino Bouterse was supposed to oppose terrorism. Instead, Bouterse betrayed his official position and tried to support and aid Hezbollah, including his agreement to assist Hezbollah in acquiring weapons, and conspiring to import cocaine to the U.S. Today he has been sentenced to a lengthy prison term for those odious crimes.”

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

In 2013, BOUTERSE used his position within the government of Suriname to assist individuals he believed were members of Hezbollah, who informed BOUTERSE that they intended to conduct terrorist attacks against American interests. In exchange for a multimillion-dollar payment, BOUTERSE agreed to allow large numbers of purported Hezbollah operatives to use Suriname as a permanent base for, among other things, attacks on American targets. In furtherance of his efforts to assist Hezbollah, BOUTERSE (i) supplied a false Surinamese passport to a purported Hezbollah operative for the purpose of clandestine travel, including travel to the United States; (ii) discussed heavy weapons that he could provide to Hezbollah; and (iii) instructed the purported Hezbollah members about how Hezbollah operatives, supplied with a Surinamese cover story, could enter the United States.

In June 2013, BOUTERSE and a co-defendant, Edmund Quincy Muntslag, met in BOUTERSE’s office in Suriname with confidential sources (the “CSs”) working with the Drug Enforcement Administration (“DEA”) to discuss importing cocaine into the United States using commercial airline flights. During the meeting, BOUTERSE showed the CSs a rocket launcher and a kilogram of cocaine.

Approximately one month later, BOUTERSE and Muntslag worked to provide transportation and security for cocaine being sent through Suriname to the United States. As a test run, BOUTERSE and Muntslag sent 10 kilograms of cocaine on a commercial flight departing from Suriname. BOUTERSE personally verified the arrangements for the 10-kilogram cocaine shipment in a text message. The cocaine was intercepted by law enforcement officials after it departed Suriname.

In July 2013, BOUTERSE met with one of the CSs to discuss opening Suriname to the CSs’ purported Hezbollah associates.

Later that month, BOUTERSE met in Europe with one of the CSs and with two other men who purported to be associated with Hezbollah. During this meeting, BOUTERSE discussed initially hosting 30 to 60 Hezbollah members in Suriname for training and operations. He also indicated that he wanted a Hezbollah cell in Suriname to act, in part, as a personal armed force. BOUTERSE confirmed his understanding that the purported Hezbollah operatives would operate in South America against American targets, and he agreed to supply Surinamese passports to the operatives – and to assist with their applications for visas to travel from South America into the United States. In addition, in response to a request for surface-to-air missiles and rocket-propelled grenades, BOUTERSE stated that he would need “two months” and that he would provide a list of what he could supply. Finally, at the July 2013 meeting in Europe, BOUTERSE agreed to create a false Surinamese passport for one of the purported Hezbollah operatives, so that BOUTERSE and the Hezbollah operative could travel to Suriname to inspect the facilities that BOUTERSE had agreed to prepare for the Hezbollah contingent.

At a subsequent meeting in August 2013, BOUTERSE delivered a Surinamese passport with false identifying information to a purported Hezbollah operative. As had been discussed at the July 2013 meeting in Europe, the purported Hezbollah operative was to use the fraudulent passport to travel to Suriname. BOUTERSE indicated that everything was ready in Suriname for the arrival of the purported Hezbollah members, and that some “toys” – a code-word for weapons – would be available for inspection.

Following this meeting, BOUTERSE was arrested by Panamanian law enforcement and transferred to the custody of the DEA.

On August 29, 2014, BOUTERSE pled guilty to (i) attempting to provide material support to Hezbollah, a Foreign Terrorist Organization; (ii) conspiring to import five kilograms or more of cocaine into the United States; and (iii) using and carrying, or aiding and abetting the use and carrying of, a firearm or during and in relation to a drug-trafficking crime. In addition to his prison term, BOUTERSE, 42, a citizen of Suriname, was ordered to pay a $300 special assessment fee.

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

This case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant United States Attorneys Michael D. Lockard, Adam Fee, Michael Ferrara, and Edward Y. Kim 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 Office of the Federal Bureau of Investigation (“FBI”), announced that JON CRUZ, a teacher and debate coach at the Bronx High School for Science, was arrested today on charges relating to producing, receiving, and possessing child pornography.

U.S. Attorney Preet Bharara said: “Whenever child pornography charges are brought, it is among the most difficult and disturbing situations law enforcement must face, particularly as it relates to the victims. What makes this case even more disturbing than the charges themselves is, as alleged, Jon Cruz was involved in child pornography while he was working with children every day through his job as a teacher and debate coach. Now the justice process must take over.”

FBI Assistant Director in Charge Diego Rodriguez said: “It takes a special depravity to produce child pornography. This type of insidious behavior must stop. And others who think they can hide in the Deep Web—or are beyond the reach of law enforcement—should think again. Our youth deserve our unwavering commitment to their security, particularly from a coach and teacher at their school.”

According to the Complaint unsealed today in Manhattan federal court:

From July 2014 through December 2014, JON CRUZ engaged in multiple chats over a mobile communication application with minor victims from different states. In those chats, CRUZ, who was aware of the ages of the victims, offered to pay the victims to take nude photographs of themselves and send the photographs to CRUZ. In at least one case, CRUZ paid a fifteen-year-old male over $500 to take sexually explicit photographs of himself and to send the photographs to CRUZ.

CRUZ, 32, was arrested this morning in New York, NY. He is charged with one count of production of child pornography, one count of receiving child pornography, and one count of possessing child pornography. For production of child pornography, CRUZ faces a mandatory minimum sentence of 15 years in prison and a maximum sentence of 30 years in prison. For his receipt of child pornography, he faces a mandatory minimum sentence of 5 years in prison and a maximum sentence of 20 years in prison. For his possession of child pornography, he faces 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.

CRUZ is a teacher at the Bronx High School for Science, where he has been employed since 2006. CRUZ is also the head coach of the Bronx Science Speech and Debate Team. Persons with information about children with whom CRUZ may have had inappropriate sexual contact, or from whom he may have solicited sexually explicit images or videos, are urged to contact the FBI hotline established for this investigation at (212) 384-2166 or FBI-BHS@ic.fbi.gov.

Mr. Bharara praised the investigative work of the New York and New Mexico offices of the FBI in this matter. He also thanked the New York State Police and the Bernalillo, New Mexico County Sheriff’s Office for their assistance with this investigation.

This case is being handled by the Office’s General Crimes Unit. Assistant United States Attorney Shawn Crowley 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.

US v. Jon Cruz 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 Field Office of the Federal Bureau of Investigation (“FBI”), announced today that ERIC SALDARRIAGA, a licensed private investigator in New York City, pled guilty to a criminal Information charging him with conspiracy to commit computer hacking. SALDARRIAGA pled guilty before U.S. District Judge Richard J. Sullivan.

Manhattan U.S. Attorney Preet Bharara said: “Eric Saldarriaga crossed the line as a private investigator by hiring hackers to unlawfully and secretly access over 60 email accounts, including accounts belonging to people he was investigating. With today’s plea, Mr. Saldarriaga will face the repercussions of his illegal actions.”

FBI Assistant Director Diego Rodriguez said: “Eric Saldarriaga didn't honorably serve his clients when he abused his powers to the detriment of his victims. Unlawfully accessing personal information is no minor crime. As today’s guilty plea suggests, those who exploit their authority in this way will be made to answer for their actions.”

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

The defendant, a licensed private investigator, owned a company that provided private investigation services to members of the public for a fee. Beginning in 2009, SALDARRIAGA, through services advertised on the internet (the “Hacking Services”), hired individuals to hack into the e-mail accounts of numerous victims. SALDARRIAGA used the Hacking Services to access, unlawfully and secretly, the e-mail accounts of individuals he investigated on behalf of his clients, as well as individuals in whom SALDARRIAGA was interested for personal reasons.

SALDARRIAGA paid the Hacking Services to provide him with login credentials, including usernames and passwords, for victims’ e-mail accounts. SALDARRIAGA then unlawfully accessed and reviewed victims’ e-mail communications. In total, SALDARRIAGA hired Hacking Services to hack into, and provide unauthorized access to, at least 60 different e-mail accounts.

SALDARRIAGA, 41, of Queens, New York, pled guilty to one count of conspiracy to commit computer hacking, which carries a maximum sentence of five years in prison. SALDARRIAGA is scheduled to be sentenced by Judge Sullivan on June 26, 2015. 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 FBI for their outstanding work in the investigation.

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

U.S. v. Eric Saldarriaga Information

Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, the Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Andrew Vale, the Special Agent in Charge of the Albany Division of the FBI, announced today that GREGORY W. GRAY, JR., was arrested yesterday in Florida on securities fraud, wire fraud, and perjury charges stemming from his scheme to defraud investors in multiple funds created and controlled by GRAY of approximately $5 million dollars.

Among other illicit activity, GRAY allegedly fraudulently induced an investor (“Investor-1”) to invest $5 million in a fund controlled by GRAY, based on the false representation that GRAY would invest that money, through the fund, in shares of Uber Technologies, Inc. (“Uber”). In fact, GRAY allegedly did not invest any of Investor-1’s $5 million in Uber, instead using that $5 million investment to repay investors who believed they had invested in shares of Twitter, Inc. (“Twitter”), including Investor-1 himself, who also believed he had invested in Twitter. In support of the scheme, GRAY allegedly forged a stock transfer agreement, which he provided to Investor-1, purporting to show that GRAY, through a fund he controlled, had used the $5 million investment to purchase over 175,000 shares of Uber. In fact, and as GRAY well knew, he had purchased no Uber shares whatsoever.

GRAY was presented today before a United States Magistrate Judge in federal court in West Palm Beach, Florida.

U.S. Attorney Preet Bharara said: “As alleged, Gregory Gray dangled the opportunity to invest in new companies like Twitter and Uber to entice his victims into fraudulent investment schemes and, in an effort to extricate himself from one scam, he devised another. Then, as the Complaint charges, he made things worse by lying about it to the SEC. The investments Gray allegedly offered were fake but the charges he faces are real.”

FBI Assistant Director in Charge Diego Rodriguez said: “With the cachet of Uber and Twitter, Gray allegedly convinced investors to join his fund. Instead of making real investments, he allegedly used the money to pay off old debts. Mr. Ponzi may be dead, but the illicit behavior for which he is known is alive and well. We will continue policing our markets to protect their integrity and investors.”

FBI Special Agent in Charge Andrew Vale said: “Yesterday’s arrest is the result of the hard work and cooperation between the FBI, SEC and the U.S. Attorney’s Office to bring this individual to justice. This multimillion-dollar fraud scheme demonstrates the significant impact white collar criminals can have on the hard-working individuals of our communities, and the FBI, in concert with our federal partners, will continue the dedicated pursuit of those who violate the law for personal gain.”

According to the three-count Complaint unsealed yesterday in Manhattan federal court:

From at least April 2014 through February 2015, GRAY engaged in a Ponzi scheme to defraud investors who believed they had invested in funds GRAY controlled at Archipel Capital, LLC (“Archipel”), where GRAY was the Senior Managing Director.

From June 2012 through November 2013, GRAY raised over $5.2 million, from approximately 52 investors, for four Archipel “Social Media Funds.” GRAY promised to use that capital to purchase shares of Twitter before the company’s initial public offering (“IPO”). Based on GRAY’s representations to investors, GRAY promised to purchase over 200,000 pre-IPO Twitter shares.

GRAY frequently commingled funds of the various Archipel investment vehicles that he managed. Ultimately, GRAY’s withdrawals from the Social Media Funds left those funds with insufficient money to purchase the full complement of pre-IPO Twitter shares he had promised investors.

On November 6, 2013, Twitter had its IPO and began trading on the New York Stock Exchange. At that time, contrary to his representations to investors, GRAY had purchased only 80,000 pre-IPO Twitter shares for a total cost of $1,875,000. GRAY accordingly owed his investors millions of dollars’ worth of Twitter shares.

In an attempt to make up the shortfall of Twitter stock, in April 2014, GRAY persuaded Investor-1 to invest $5 million in Archipel’s “Late Stage Fund,” which GRAY also controlled. GRAY promised that, through that fund, he would use Investor-1’s $5 million investment to purchase a purported multimillion-dollar, privately held allotment of Uber shares. However, instead of using the $5 million as promised, GRAY instead used the money to make cash payments to investors in the Social Media Funds and to purchase post-IPO Twitter shares for those same investors, including Investor-1 himself.

When Investor-1 requested documentation of the purchase of Uber shares as promised, GRAY provided Investor-1 with a fabricated stock transfer agreement (the “Uber Stock Transfer Agreement”) that purported to show that the Late Stage Fund had purchased 175,438 Uber shares. In truth and in fact, and as GRAY well knew, the fund had not purchased any Uber shares.

On February 24, 2015, GRAY gave sworn testimony to the SEC. During his testimony, GRAY falsely stated, in substance and in part, that the Uber Stock Transfer Agreement reflected a bona fide purchase of Uber shares by the Late Stage Fund.

GRAY, 39, was arrested yesterday at his home in Lake Worth, Florida. He is charged with one count of securities fraud, one count of wire fraud, and one count of perjury in connection with his testimony to the SEC. The securities fraud count and the wire fraud count each carry a maximum sentence of 20 years in prison. The perjury 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.

Mr. Bharara praised the work of the Federal Bureau of Investigation, and thanked the SEC for its 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 Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Damian Williams and Michael Ferrara 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.

U.S. v. Gregory Gray Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, Leslie R. Caldwell, the Assistant Attorney General of the Justice Department’s Criminal Division, and Michael E. Horowitz, the Justice Department Inspector General, announced that JOHANNES THALER and RIZVE AHMED, a/k/a “Caesar,” were sentenced yesterday in White Plains federal court to 30 months and 42 months in prison, respectively. THALER and AHMED were sentenced in connection with a bribery scheme with a third defendant, former FBI Special Agent Robert Lustyik, who awaits sentencing. The sentences were imposed by the Honorable Vincent L. Briccetti, United States District Judge.

According to the Complaint, the Indictment, court hearings, and yesterday’s proceedings:

Lustyik was a Special Agent with the Federal Bureau of Investigation (“FBI”) who worked on the counterintelligence squad in the White Plains Resident Agency. THALER was Lustyik’s friend, and AHMED was an acquaintance of THALER. From in or about September 2011 through March 2012, Lustyik, THALER, and AHMED engaged in a bribery scheme. As part of the scheme, Lustyik and THALER solicited payments of money from AHMED, in exchange for Lustyik’s agreement to provide internal, confidential documents and other confidential information to which Lustyik had access by virtue of his position as an FBI Special Agent. The documents and information pertained to a prominent citizen of Bangladesh (“Individual 1”). AHMED perceived himself on the opposite side of a political rivalry with Individual 1. AHMED sought, among other things, to obtain information about Individual 1, to locate Individual 1, and to harm Individual 1 and others associated with Individual 1.

As part of the scheme, Lustyik and THALER exchanged text messages, including messages about how to pressure AHMED to pay them additional money in exchange for confidential information. For example, in text messages, Lustyik told THALER, “we need to push [AHMED] for this meeting and get that 40 gs quick . . . . I will talk us into getting the cash . . . . I will work my magic . . . . We r sooooooo close.” THALER responded, “I know. It’s all right there in front of us. Pretty soon we’ll be having lunch in our oceanfront restaurant . . . .”

For another example, in or about late January 2012, Lustyik, upon learning that AHMED was considering using a different source to obtain confidential information about Individual 1, texted THALER, “I want to kill C . . . . I hung my ass out the window n we got nothing? . . . . Tell [AHMED], I’ve got [Individual 1’s] number and I’m pissed. . . . I will put a wire on n get [AHMED and his associates] to admit they want [a Bangladeshi political figure] offed n we sell it to Individual 1].” Lustyik further texted THALER, “So bottom line. I need ten gs asap. We gotta squeeze C.”

THALER, 51, of New Fairfield, Connecticut, and AHMED, 35, of Danbury, Connecticut, were each sentenced for bribery and conspiracy to commit fraud, to which each previously pled guilty.

Lustyik, 52, of Westchester County, pled guilty on December 23, 2014, to all five counts in the Indictment in which he is charged. Lustyik pled guilty to (1) conspiracy to engage in a bribery scheme; (2) soliciting bribes by a public official; (3) conspiracy to defraud the citizens of the United States and the FBI; (4) theft of government property; and (5) unauthorized disclosure of a Suspicious Activity Report. Lustyik is scheduled to be sentenced by Judge Briccetti on April 30, 2015, at 9:30 a.m.

Mr. Bharara praised the efforts of the Department of Justice Office of the Inspector General, which conducted the investigation in this case.

The prosecution is being handled by the Office’s White Plains Division and by the Public Integrity Section of the U.S. Department of Justice. Assistant United States Attorney Benjamin Allee and Trial Attorney Emily Rae Woods are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, Acting Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division, and Ronald J. Verrochio, the Inspector-in-Charge of the Miami Office of the U.S. Postal Inspection Service (“USPIS”), announced today the unsealing of an Indictment in Manhattan federal court charging KENNETH LEVIN, the owner of a company that purported to sell lucrative vending machine “business opportunities,” and six employees of the company, TAYLOR LEVIN, SEARS HOBBS, JAMES CONLEY, MARCEL HARRIS, STEPHEN FRIEDMAN, and JONATHAN CAMPBELL, for their alleged participation in a nearly $9 million scheme that victimized at least 1,300 consumers across the country. KENNETH LEVIN, TAYLOR LEVIN, SEARS HOBBS, JONATHAN CAMPBELL, and STEPHEN FRIEDMAN were taken into custody earlier this morning and will be presented before to U.S. District Judge Katherine B. Forrest, to whom the case is assigned. MARCEL HARRIS and JAMES CONLEY remain at large.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, the defendants preyed on prospective customers by inventing facts and making false promises to make a proposed vending machine ‘business opportunity’ appear more attractive. As I have noted before, we are taking a close look at fraud that targets consumers and we will aggressively prosecute such conduct wherever we find it.”

Acting Assistant Attorney General Benjamin Mizer said: “Business opportunity fraud insidiously targets Americans in search of a better future for their families. Instead of becoming successful entrepreneurs, customers become victims, and often lose their life’s savings.”

USPIS Inspector-in-Charge Ronald Verrochio said: “These arrests occurring during National Consumer Protection Week offer a great opportunity for us to highlight our message of fraud prevention. We are committed to investigating these schemes and educating consumers on how to protect themselves from these types of frauds.”

According to the allegations contained in the Indictment and statements made in court:

From approximately January 2005 to December 2011, the defendants perpetrated a scheme to defraud more than 1,000 consumers by making material misrepresentations in an effort to induce those consumers to invest thousands of dollars in purported vending machine “business opportunities.” Through a company located in Manhattan, New York (“Company-1”), and its successor companies (the “Business Opportunity Companies”), the defendants and other employees falsely promised customers that if they purchased packages of five or ten vending machines, the customers would be provided access to pre-established, high-profit locations for the machines, and would be connected with experienced “locators,” who would facilitate placing the vending machines in those pre-determined locations. They further falsely promised to provide training and ongoing customer assistance on how to operate a successful vending machine business, and misled customers about the features of the vending machines – including purposefully concealing the fact that the machines were manually operated, accepting only exact change, rather than automatic machines that accept bills and provide change. Despite the defendants’ claims, there were no pre-determined locations available, locators were inexperienced and ill-equipped to find profitable locations for the vending machines, and the Business Opportunity Companies delivered little or no follow-up service or assistance to their customers.

The defendants also misled prospective customers about the profits customers could earn from the machines. They assured prospective customers that they would earn significant profits from the vending machines in a relatively short period of time. Several of the defendants also misled customers into believing that the defendants personally owned vending machines that were profitable. They made these assertions knowing that there were scores of dissatisfied customers who, rather than making any profit, had lost their entire investment. Through their scheme, the Business Opportunity Companies obtained nearly $9 million from more than 1,300 customers throughout the United States.

The Business Opportunity Companies also encouraged prospective customers to contact locating companies to verify that the purported locations were available. The operators of locating companies were directed to echo the false statements made to customers and affirm that high-traffic, and therefore profitable, locations had already been found and were waiting in the prospective customers’ respective geographic areas. In reality, the locating companies who worked with the Business Opportunity Companies did not have high-traffic locations or routes waiting in the prospective customer’s area. The locating companies had no special skills, tools, or expertise in finding locations and generally placed consumers’ machines wherever they could, often in businesses that had not consented to housing the machines or that soon demanded that the machines be removed. The vending machines generated little business and customers lost nearly all, if not all, of their investments.

KENNETH LEVIN, the founder and President of the Business Opportunity Companies, operated and controlled the Business Opportunity Companies’ day-to-day operations. To acquire customers, the Business Opportunity Companies placed advertisements in newspapers throughout the United States, claiming that the Business Opportunity Companies had high-profit locations available for the placement of vending machines. Prospective customers responding to the advertisements were sent misleading promotional materials and also spoke by telephone with representatives of the Business Opportunity Companies, including KENNETH LEVIN’s son, TAYLOR LEVIN, HOBBS, who used the aliases “Kelly Chase” and “Karen White,” to avoid association with customer complaints, CONLEY, HARRIS, FRIEDMAN, and CAMPBELL. Each of the defendants made various misrepresentations as described above to induce customers to buy the vending machine “business opportunity.” The defendants further concealed from prospective customers the fact that the Business Opportunity Companies received numerous complaints from customers about the lack of profitability of the vending machine “business opportunity” they were selling and the locators’ complete failure to place the vending machines in profitable locations. In an effort to conceal customer complaints from prospective customers, the Business Opportunity Companies changed their name regularly, both to avoid association with previous complaints, and to evade a federal law requiring them to provide prospective customers with a list of recent customers.

KENNETH LEVIN, 68, of Manhattan, New York; TAYLOR LEVIN, 33, of Manhattan, New York; HOBBS, 51, of Manhattan, New York; CONLEY, 58, of Brooklyn, New York; HARRIS, 51, of Brooklyn, New York; FRIEDMAN, 78 of Manhattan, New York; and CAMPBELL, 76, of Manhattan, New York, are each charged with one count of conspiracy to commit mail fraud and wire fraud, and one count each of mail fraud and wire fraud, each of which carries a maximum sentence of 20 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge.

Mr. Bharara praised USPIS for their outstanding work in the investigation. Mr. Bharara also thanked the Justice Department’s Civil Division for its assistance.

This matter is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Janis Echenberg and Jennifer Beidel, and Department of Justice Consumer Protection Branch Trial Attorney Jessica Gunder are in charge of the case.

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced that former New York City Council Member DANIEL HALLORAN was sentenced today in White Plains federal court to 10 years in prison in connection with his role in arranging the bribery of New York City Republican leaders to allow New York State Senator Malcolm Smith, a Democrat, to run as a Republican candidate for New York City Mayor in 2013, and accepting a $15,000 cash bribe in exchange for designating up to $80,000 in New York City funds to a non-profit entity that would allow the money to be embezzled through a no-show job. HALLORAN was sentenced by U.S. District Judge Kenneth M. Karas, who presided over the two-month trial that resulted in HALLORAN’S conviction in August 2014.

U.S. Attorney Preet Bharara said: “When elected officials, like Daniel Halloran, not only corrupt themselves but, unseen, corrupt the body politic from within they undermine the public’s confidence in a representative form of government. I would like to thank our law enforcement partners at the FBI and the Rockland County District Attorney’s Office for working with us to ensure that the defendant was pursued, prosecuted, and faced justice.”

According to the Complaint and the Indictment filed in federal court, the evidence admitted at trial, and statements made at various proceedings in this case, including today’s sentencing:

HALLORAN was elected to the New York City Council in 2009, representing a district in Queens, New York. While a member of the city council, HALLORAN participated in two overlapping criminal schemes that involved the payment of bribes to obtain official action. First, HALLORAN arranged for $110,000 in cash bribes to be paid to leaders of the Republican Party so that they would allow Smith to run for mayor on the Republican Party’s ballot line. Second, HALLORAN accepted an up-front kickback of $15,000 for designating up to $80,000 of New York City Council discretionary funding to a company he believed was controlled by those who paid him the bribes.

The Bribery of Republican Party Leaders

From November 2012 until his arrest in April 2013, HALLORAN agreed with Smith, an undercover FBI agent posing as a wealthy real estate developer (the “UC”), and a cooperating witness (“CW”) to bribe New York City Republican Party leaders in exchange for their authorization of Smith to appear as a Republican candidate for New York City Mayor in 2013, even though Smith is a registered Democrat.

In furtherance of the scheme, HALLORAN arranged for the UC and the CW to meet Vincent Tabone, the Vice Chairman of the Queens County Republican Party, Joseph Savino, the Chairman of the Bronx County Republican Party, and other party leaders. HALLORAN also negotiated the size of bribes that the party leaders required in order to authorize Smith to run on the Republican ballot line. During a meeting with the UC, Tabone accepted a $25,000 cash bribe and agreed to accept another $25,000 after his committee authorized Smith to compete in the Republican primary. Savino similarly accepted a $15,000 cash bribe and agreed to accept another $15,000 after he voted to authorize Smith to compete for the Republican ballot line. In return for his efforts, HALLORAN accepted $15,500 as a down payment on a “broker’s” fee of at least $75,000 and expected to be appointed First Deputy Mayor if Smith was elected mayor.

Bribery for City Council Discretionary Funding

From August 2012 until his arrest in April 2013, HALLORAN accepted an up-front kickback of $15,000 cash from the UC and the CW in exchange for agreeing to steer up to $80,000 in New York City Council discretionary funding to a consulting company he believed was controlled by the UC and the CW (the “Company”).

At a meeting on September 7, 2012, at which HALLORAN and the UC discussed HALLORAN’s need to raise money for his congressional campaign, HALLORAN agreed to hire someone of the CW’s choosing for a congressional staff or some equivalent position, and to help him raise money for his campaign. During the discussion, HALLORAN said: “That’s politics, that’s politics, it’s all about how much. Not whether or will, it’s about how much, and that’s our politicians in New York, they’re all like that…And they get like that because of the drive that the money does for everything else. You can’t do anything without the f***ing money.” During the meeting, the CW paid HALLORAN $7,500. And near the end of the meeting, HALLORAN remarked: “Money is what greases the wheels – good bad, or indifferent.”

In furtherance of this scheme, HALLORAN wrote two letters on New York City Council letterhead about this funding, one to civic organizations and the other to the Company. Despite suggesting in these letters that work would be done by the Company to support the allotment of taxpayer money, HALLORAN agreed with the UC and the CW that the Company would provide no services.

In addition to the prison term, HALLORAN, 42, of Queens, New York, was also sentenced to two years of supervised release, and ordered to forfeit $45,300. HALLORAN’s co-conspirators, Smith and Tabone, were convicted for their roles in the bribery conspiracy in January 2015 and are currently scheduled to be sentenced by Judge Karas on July 1, 2015.

In the sentencing of HALLORAN, Judge Karas remarked, “This was a very serious crime. When a public official gets into cars and takes wads of cash or promises public money in return for cash to the politician, it is so troubling. It causes us all to be cynical about our leaders. It causes us to doubt that our leaders are looking after us. And it's a very serious matter.”

Mr. Bharara praised the outstanding investigative work of the Federal Bureau of Investigation and Rockland County District Attorney’s Office.

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

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 Field Office of the Internal Revenue Service, Criminal Investigation Division (“IRS-CID”), announced today that TARIQ TAHIR, the owner and operator of DNS Construction Corporation, pled guilty today in Manhattan federal court to two counts of tax fraud for failing to pay over $800,000 in income taxes and payroll taxes from 2006 to 2008. TAHIR pled guilty before U.S. District Judge Andrew L. Carter, Jr.

Manhattan U.S. Attorney Preet Bharara said: “As a business owner, Tariq Tahir had a responsibility to pay his fair share in taxes. With his guilty plea today, he has acknowledged that he neglected that responsibility and must face the consequences.”

IRS-CI Special Agent in Charge Shantelle P. Kitchen said: “Conducting business in cash for the express purpose of evading taxes does not guarantee that you will avoid detection. Business owners who willfully underreport their business receipts and fail to pay over the correct amount of payroll taxes ultimately place additional burdens on law abiding taxpayers. IRS-Criminal Investigation is committed to ensuring that every taxpayer pays his or her fair share.”

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

TAHIR owned and operated a Yonkers-based construction company named DNS Construction Corporation (“DNS”). From 2006 through 2008, TAHIR engaged in two tax fraud schemes in order to avoid paying over $800,000 in income taxes and payroll taxes that were due and owing by DNS. To execute the first scheme, TAHIR cashed checks at multiple check-cashing businesses in Manhattan and Brooklyn, rather than depositing those checks into the bank accounts of DNS, so that he could conceal DNS’s true revenues from state and federal tax authorities. To carry out the second scheme, TAHIR paid DNS’s employees primarily in cash so that he would be able to omit these salary payments from DNS’s federal tax returns without detection by tax authorities. By failing to report these payments, TAHIR underpaid the federal payroll taxes due and owing by DNS during this period.

TAHIR, 66, of Yonkers, faces a maximum sentence of three years in prison for each of the tax fraud counts, for a total maximum sentence of six years in prison. As part of his plea agreement, TAHIR is also required to pay more than $771,000 in restitution to the IRS and more than $112,000 in restitution to New York State. He is scheduled to be sentenced by Judge Carter on Friday, June 5, 2015, at 10:00 a.m.

Mr. Bharara praised the work of the Internal Revenue Service, Criminal Investigation Division. Mr. Bharara also thanked the U.S. Department of Justice’s Tax Division for their assistance in the investigation.

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

U.S. v. Tariq Tahir Information

Preet Bharara, the United States Attorney for the Southern District of New York, and Andrew G. McCabe, the Assistant Director-in-Charge of the Washington, D.C., Office of the Federal Bureau of Investigation (“FBI”), announced today the extradition of MINH QUANG PHAM, a/k/a “Amin,” from the United Kingdom. Pham, a Vietnamese national, was indicted in 2012 on charges of providing material support to, and receiving military training from, al Qaeda in the Arabian Peninsula (“AQAP”), a designated foreign terrorist organization, as well as possessing and using a firearm in furtherance of crimes of violence, and other violations. Pham was presented yesterday before U.S. Magistrate Judge Andrew J. Peck, and will be arraigned tomorrow, March 4, 2015, before U.S. District Judge Alison J. Nathan.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Minh Quang Pham surreptitiously traveled from the UK to Yemen in late 2010 and received terrorist training by AQAP. During the half year he spent in Yemen, Pham allegedly vowed to wage jihad, swore bayat, and provided material support to high-level AQAP members, almost always brandishing a Kalashnikov rifle. Through the vigilance and investigative efforts of our British partners and the FBI, Pham is now in the U.S. to face American justice.”

FBI Assistant Director Andrew G. McCabe, said: “Today’s material support charges outline that Minh Quang Pham received military-style training and possessed weapons to commit crimes of violence on behalf of al Qaeda in the Arabian Peninsula. This investigation and subsequent extradition of Pham from the UK speak to the level of commitment of the FBI and our national and international law enforcement and intelligence community partners to bring this dangerous terrorist to face justice in the United States."

According to the Indictment and extradition-related filings:

In December 2010, after informing his wife that he planned to travel to Ireland, PHAM traveled from the United Kingdom, where he resided, to Yemen, the principal base of operations for AQAP. AQAP was designated by the United States Department of State as a foreign terrorist organization in January 2010 based, in part, on its claims of responsibility for attempted terrorist attacks against the United States. For example, AQAP claimed responsibility for the attempted Christmas Day bombing of a Detroit-bound passenger plane from Europe in 2009. Further, AQAP later claimed responsibility for an October 2010 plot to send explosive-laden packages on U.S.-bound cargo flights.

While in Yemen, PHAM met a person who later became a cooperating witness for the United States (“CW-1”). CW-1 knew PHAM as “Amin,” and met face-to-face with him at several AQAP safehouses in Yemen in March and April 2011. According to CW-1, CW-1 first learned about PHAM via email correspondence with a now deceased United States citizen, who was a prominent AQAP member (“American CC-1”). CW-1 first met PHAM at an AQAP safehouse in Yemen in or about March 2011, where CW-1 observed PHAM carrying a Kalashnikov assault rifle. CW-1 stated that he observed PHAM carrying the assault rifle throughout almost all of his interactions with PHAM in Yemen. In conversations with CW-1, PHAM told CW-1 that he had been trained in the use of the Kalashnikov assault rifle while in Yemen by AQAP. Further, PHAM told CW-1 that he (PHAM) had traveled to Yemen in order to join AQAP, and to wage jihad on behalf of AQAP. PHAM also told CW-1 that he (PHAM) had sworn bayat in the presence of an AQAP commander prior to leaving Yemen.

CW-1 also witnessed PHAM’s interactions with American CC-1 and a second United States citizen (“American CC-2”), also now deceased, who was also a prominent AQAP member. CW-1 observed PHAM working closely with American CC-1, who was responsible for editing and publishing Inspire magazine – an English-language publication used by AQAP to distribute propaganda and recruit individuals from Western cultures to join and/or support AQAP. In or about October 2010, AQAP released the second issue of Inspire magazine, which included a feature article entitled “I Am Proud to be a Traitor to America,” written by American CC-2. In addition, PHAM told CW-1 that PHAM was working with American CC-1 and that he (PHAM) had spent time at no fewer than three AQAP safehouses. During CW-1’s time at these AQAP safehouses, CW-1 also spoke with American CC-1 and American CC-2 about PHAM, and understood from them that PHAM was providing valuable assistance to American CC-1 in connection with the production and editing of Inspire magazine.

On July 27, 2011, PHAM returned to the United Kingdom. Upon his arrival at London’s Heathrow International Airport, United Kingdom authorities detained and searched PHAM. Materials recovered from PHAM at this time corroborate CW-1’s account of CW-1’s interactions with PHAM while in Yemen. For example, CW-1 stated that, while in Yemen, CW -1 personally exchanged various electronic documents with PHAM – and PHAM was found in possession of various electronic media that contained computer files forensically identical to those possessed by CW-1. In addition, CW-1 reported that PHAM almost always carried a Kalashnikov in Yemen – and upon his arrival in the United Kingdom from Yemen, PHAM was found to be in possession of a live round of .762 caliber armor-piercing ammunition, which is consistent with ammunition that is used in a Kalashnikov assault rifle.

The indictment charges PHAM with five separate counts:

• Count One: Conspiracy to provide material support to AQAP;
• Count Two: Providing material support to AQAP;
• Count Three: Conspiracy to receive military-type training from AQAP;
• Count Four: Receiving military-type training from AQAP; and
• Count Five: Use, carrying, and possession of a firearm (machine gun) in furtherance of crimes of violence (Counts One though Four);

If convicted on all counts, PHAM faces a maximum sentence of life in prison, with a mandatory minimum sentence of 40 years in prison. The maximum sentences for each of the charges are reflected in the attached chart. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.

PHAM, 32, was arrested in the United Kingdom on June 29, 2012, pursuant to a provisional arrest warrant issued by the United States Attorney’s Office for the Southern District of New York. Since that time, PHAM has challenged his extradition to the United States. On February 3, 2015, a court in the United Kingdom denied PHAM’s challenge, and ordered him extradited to the United States. PHAM arrived in the Southern District of New York on February 26, 2015.

Mr. Bharara praised the extraordinary investigative work of the FBI’s Washington Field Office. He also expressed his gratitude to the New York Joint Terrorism Task Force – which principally consists of agents from the FBI and detectives from the New York City Police Department – for the critical role it played in the investigation. In addition, Mr. Bharara thanked the Department of Defense and the Department of Justice’s National Security Division. He also thanked the Office of International Affairs for its work in pursuing Pham’s extradition from the United Kingdom. Lastly, Mr. Bharara also thanked the British authorities, including New Scotland Yard and the Crown Prosecution Service, for their cooperation in the investigation.

This case is being handled by the Terrorism and International Narcotics Unit of the U.S. Attorney’s Office for the Southern District of New York. Assistant U.S. Attorneys Anna M. Skotko, Sean S. Buckley, and Ian McGinley are in charge of the prosecution.

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

Click here to view chart(s)

U.S. v. Minh Quang Pham Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced the conviction on February 26 in Manhattan federal court of KHALED AL FAWWAZ, a citizen of Saudi Arabia, on multiple terrorism offenses relating to his participation in al Qaeda’s conspiracy to kill Americans. After a six-week jury trial before U.S. District Judge Lewis A. Kaplan that began on January 20, 2015, FAWWAZ was found guilty of all four counts in which he was charged, and faces a maximum sentence of life in prison.

Manhattan U.S. Attorney Preet Bharara said: “As a unanimous jury has found, for nearly a decade, Khaled al Fawwaz played a critical role for al Qaeda in its murderous conspiracy against America. Dedicating himself to al Qaeda in the early 1990s, Fawwaz was one of Osama bin Laden's original and most trusted lieutenants, serving first as the leader of an al Qaeda training camp in Afghanistan, then as a leader of al Qaeda's terrorist cell in Kenya, and finally as bin Laden's media adviser in London. From his position in London, Fawwaz served as bin Laden's bridge to the West in the pre-Internet era, facilitating interviews of bin Laden in Afghanistan by Western media and disseminating bin Laden's 1998 fatwah commanding followers to kill Americans anywhere in the world. That directive was followed by the 1998 bombings of our embassies in Kenya and Tanzania, which resulted in the murder of 224 innocent people, and the wounding of thousands more. From the time of the embassy attacks, all 10 defendants tied to those attacks have now been convicted by trial or guilty plea in a Manhattan courtroom. From his one-time place at the top of al Qaeda’s membership list, Fawwaz now joins the long membership list of convicted, jailed terrorists. That list includes two other major figures in the past year alone, Abu Ghayth and Abu Hamza, all of whom have received full justice in a Manhattan courtroom – the verdict of 12 ordinary Americans rendered after a fair and open trial. We hope this verdict gives some comfort to al Qaeda’s victims around the world.”

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 when 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, 52, was convicted of 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 carry a maximum term of life in prison, and Count Six carries a maximum term of 10 years in prison. Sentencing is scheduled for May 15, 2015, at 10 a.m. 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.

Mr. Bharara praised the outstanding efforts of the 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.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that PAUL DIBIASE, a/k/a “Carmine Stanzione,” and DANIEL DIBIASE, were sentenced in Manhattan federal court to 27 years in prison and 15 years in prison, respectively. The defendants, who are brothers, previously pled guilty to racketeering and firearm charges arising out of their participation in 27 home invasions, including five gun-point robberies, and approximately two dozen other burglaries in Connecticut and New York between July 2011 and October 2012. In total, the defendants stole more than $2.5 million in jewelry, silver, and other valuables. They were sentenced today by U.S. District Judge Edgardo Ramos.

Manhattan U.S. Attorney Preet Bharara said: “The DiBiase brothers committed crimes that involved not only theft but also threatened their victims with gun violence. Their cruel actions have earned them time in federal prison.”

According to the respective Superseding Information charging documents to which each defendant pled guilty, statements made at sentencing, and other court documents in the public record:

From July 2011 to October 2012, PAUL DIBIASE, DANIEL DIBIASE, and a third man (“CC-1”), were part of a criminal enterprise (the “DiBiase Home Invasion Crew”) engaged in a systematic scheme to locate vulnerable, upscale homes in New York and Connecticut; conduct coordinated, planned robberies and burglaries at those homes in order to steal jewelry, silverware, and other valuables; transport those stolen goods back to Dutchess County, New York; and launder the criminal proceeds through a fence in Manhattan’s Diamond District.

As part of the scheme, PAUL DIBIASE conducted extensive Internet research, reviewed newspapers and real estate listings, and did physical surveillance, for the purpose of identifying upscale homes of wealthy individuals in order to steal valuable goods from those homes. In July 2011, PAUL DIBIASE stole a firearm from the residence of a law enforcement officer, which he and CC-1 used along with other guns and replica guns during robberies and burglaries. PAUL DIBIASE typically decided which homes would be invaded, on the basis of his research. During the home invasions, PAUL DIBIASE and CC-1 entered the properties while DANIEL DIBIASE served as the getaway car driver.

In the majority of home invasions, the homes were unoccupied, and PAUL DIBIASE broke into the homes while CC-1 served as a lookout. On multiple occasions, the homes were occupied, including instances when the defendants knew occupants were inside and purposefully robbed them, and instances when the defendants came upon occupants after mistakenly thinking no one was home. During these home invasions, PAUL DIBIASE and CC-1 entered the homes together, and, at least five times, confronted and physically subdued occupants. On these occasions, PAUL DIBIASE was armed and, according to the victims, brandished firearms during the robberies. During one such incident, PAUL DIBIASE tied a female occupant’s hands and feet, demanded her diamond engagement ring, forced her to open a safe, hit her in the back, and threatened to “blow [her] head off.”

PAUL DIBIASE and CC-1 routinely returned to the waiting getaway car upon leaving the homes, and DANIEL DIBIASE drove the crew back to Dutchess County. There, the member of the DiBiase Home Invasion Crew sorted the stolen goods, compiling expensive jewelry and silver for later trips to a fence in Manhattan’s Diamond District, handpicking certain items for gifts to family members, and discarding costume jewelry and other less valuable items into a nearby lake.

PAUL DIBIASE, DANIEL DIBIASE, and CC-1 were arrested on October 18, 2012.

On February 24, 2014, DANIEL DIBIASE pled guilty before the Honorable Magistrate Judge Lisa Margaret Smith to one count of racketeering conspiracy, and one count of aiding and abetting the brandishing of a firearm during and in relation to a crime of violence. On June 20, 2014, PAUL DIBIASE pled guilty before Judge Ramos to one count of racketeering conspiracy, and one count of being a felon in possession of a firearm, after having previously been convicted of three separate violent felonies.

In addition to the prison terms, Judge Ramos sentenced PAUL DIBIASE, 59, who is a resident of Dutchess County, New York, to three years of supervised release. Judge Ramos sentenced DANIEL DIBIASE, 58, also a resident of Dutchess County, to three years of supervised release. The Court also imposed restitution in the amount of $2,517,997 on both defendants.

In imposing today’s sentences, Judge Ramos said that the conduct in this case “borders on sadism,” and that the DIBIASEs and their co-conspirators were responsible for a “reign of terror over those communities” they targeted.

Mr. Bharara praised the investigative work of the Westchester County Violent Crimes Task Force; the FBI; the Bedford, New York, Police Department; the Greenwich, Connecticut, Police Department; the Harrison, New York, Police Department; the New Canaan, Connecticut, Police Department; the New York State Police; the North Castle, New York, Police Department; the Westchester County, New York, Police Department; and the Ridgefield, Connecticut, Police Department. Mr. Bharara also thanked the Westchester County District Attorney’s Office for its assistance.

The case is being prosecuted by the White Plains Division. Assistant United States Attorneys Benjamin Allee and Ilan Graff are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that TATYANA GABINSKAYA was sentenced today in Manhattan federal court to one year and one day in prison in connection with her involvement in the largest single no-fault automobile insurance fraud scheme ever charged. She was sentenced by U.S. District Judge J. Paul Oetken, who presided over the two-week trial that resulted in GABINSKAYA’s conviction in October 2014.

Manhattan U.S. Attorney Preet Bharara said: “Tatyana Gabinskaya was one of the linchpins in a scheme that defrauded insurers on an unprecedented scale. At the heart of her deception was her repeated lie that she owned and operated a medical clinic she did not in fact own or operate that billed for numerous fraudulent claims. That has proven to be a prescription for prison.”

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

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

In order to mislead New York authorities and private insurers, the true owners of these medical clinics paid licensed doctors to use their licenses to incorporate the professional corporations through which the true owners billed private insurers millions of dollars for medical treatments and tests, many of which were not medically necessary. GABINSKAYA was the stated owner of one such clinic that provided MRIs and other radiology tests, although the clinic was, in reality, owned by her co-defendants Mikhail Zemlyansky and Michael Danilovich. In addition, GABINSKAYA was the stated owner of six other medical professional corporations, including five incorporated in the span of approximately one year. When interviewed under oath about her role at the clinic controlled by Zemlyansky and Danilovich, GABINSKAYA repeatedly lied to deceive the insurers and induce them into paying claims that were not eligible for reimbursement.

In addition to the prison term, GABINSKAYA, 60, of Brooklyn, New York, was also sentenced to three years of supervised release, and ordered to forfeit $69,384, and to pay restitution to the victims of her crimes to be determined. She is the 32nd defendant convicted in this case following arrests on February 29, 2012, as part of an indictment that charged 36 defendants with conspiracy to commit mail fraud and health care fraud and charging some defendants with racketeering and money laundering.

U.S. Attorney Bharara thanked the Federal Bureau of Investigation and the New York City Police Department for their continued outstanding work in this investigation. He also thanked the National Insurance Crime Bureau for its assistance.

The case is being prosecuted by the Office’s Violent and Organized Crime Unit. Assistant U.S. Attorneys Amanda Kramer, Janis Echenberg, Daniel S. Goldman, Edward Y. Kim, Daniel S. Noble, Rebecca Mermelstein, and Joshua Naftalis are in charge of the prosecution. Assistant U.S. Attorney Carolina Fornos is in charge of the forfeiture aspects of the case.

“As a unanimous jury has found, for nearly a decade, Khaled al Fawwaz played a critical role for al Qaeda in its murderous conspiracy against America. Dedicating himself to al Qaeda in the early 1990s, Fawwaz was one of Osama bin Laden's original and most trusted lieutenants, serving first as the leader of an al Qaeda training camp in Afghanistan, then as a leader of al Qaeda's terrorist cell in Kenya, and finally as bin Laden's media adviser in London. From his position in London, Fawwaz served as bin Laden's bridge to the West in the pre-Internet era, facilitating interviews of bin Laden in Afghanistan by Western media and disseminating bin Laden's 1998 fatwah commanding followers to kill Americans anywhere in the world. That directive was followed by the 1998 bombings of our embassies in Kenya and Tanzania, which resulted in the murder of 224 innocent people, and the wounding of thousands more. From the time of the embassy attacks, all 10 defendants tied to those attacks have now been convicted by trial or guilty plea in a Manhattan courtroom. From his one-time place at the top of al Qaeda’s membership list, Fawwaz now joins the long membership list of convicted, jailed terrorists. That list includes two other major figures in the past year alone, Abu Ghayth and Abu Hamza, all of whom have received full justice in a Manhattan courtroom – the verdict of 12 ordinary Americans rendered after a fair and open trial. We hope this verdict gives some comfort to al Qaeda’s victims around the world.”

Preet Bharara, the United States Attorney for the Southern District of New York, and Michele M. Leonhart, Administrator of the United States Drug Enforcement Administration (“DEA”), announced today the extradition of CRISTIAN VINTILA (“VINTILA”), MASSIMO ROMAGNOLI (“ROMAGNOLI”), and VIRGIL FLAVIU GEORGESCU (“GEORGESCU”), international arms traffickers charged with conspiring to sell large quantities of military-grade weaponry to the Fuerzas Armadas Revolucionarias de Colombia (the “FARC”) – a designated foreign terrorist organization – to be used to kill officers or employees of the United States in Colombia. VINTILA, GEORGESCU, and ROMAGNOLI, all of whom were arrested in December 2014, were extradited from Montenegro yesterday and arraigned in front of United States District Court Judge Ronnie Abrams today.

U.S. Attorney Preet Bharara stated: “As alleged, these three men were ready and willing merchants of death, poised to sell sophisticated weapons to a terrorist organization. It is further alleged that they conspired to sell the weaponry with the understanding that it would be used to shoot down American aircraft and kill American officers. We once again laud the efforts of the DEA to stem the flow of lethal weapons that could be aimed at U.S. officers and to deter weapons traffickers who mean harm to the United States.”

DEA Administrator Michele M. Leonhart stated: “Every day, DEA works to ensure the safety and security of Americans around the world. Cristian Vintila, Massimo Romagnoli, and Virgil Georgescu were involved in trafficking arms and weapons that were intended to kill Americans. Their extradition to the United States is an important accomplishment, and another example of DEA successfully working with international partners. We are pleased that they will now face justice in an American court.”

According to the Indictment, which was unsealed in December 2014:

Since at least May 2014, VINTILA has been a Romania-based weapons trafficker, ROMAGNOLI has been a Europe-based weapons trafficker, who is able to procure fraudulent end-user certificates (“EUCs”) for military-grade weaponry, and GEORGESCU has been a Romania-based weapons broker. Between May and October 2014, VINTILA, ROMAGNOLI, and GEORGESCU conspired to sell an arsenal of weapons, including machine guns and anti-aircraft cannons, with the understanding that the weapons would go to the FARC to be used by the FARC against the United States. During a series of recorded telephone calls and in-person meetings, VINTILA, ROMAGNOLI, and GEORGESCU agreed to sell the weapons to three confidential sources working with the DEA (the “CSs”), who represented that they were acquiring these weapons for the FARC. VINTILA, ROMAGNOLI, and GEORGESCU agreed to provide these weapons to the CSs with the specific understanding that the weapons would be used to kill officers or employees of the United States and, in particular, to shoot down American helicopters and airplanes. ROMAGNOLI further agreed to provide fraudulent EUCs, in order to make the illegal sale of weapons look legitimate.

During their recorded meetings, VINTILA and ROMAGNOLI provided the CSs with catalogues of military-grade weapons they were prepared to provide the FARC. VINTILA gave the CSs a catalogue of weapons that included pistols, machine guns, and other high-powered weaponry, and ROMAGNOLI showed the CSs a catalogue that included automatic weapons and shoulder-fired rocket launchers. ROMAGNOLI additionally showed one of the CSs a sample fraudulent EUC. VINTILA, ROMAGNOLI, and GEORGESCU also discussed the logistics of receiving payment for the weapons from the CSs and delivering the weapons to the FARC.

* * *

The Indictment charges VINTILA, 44, ROMAGNOLI, 43, and GEORGESCU, 42, with two separate terrorism offenses:

Count One charges all three defendants with conspiracy to kill officers or employees of the United States. If convicted of Count One, the defendants each face a maximum sentence of life in prison. Count Two charges all three defendants with conspiracy to provide material support or resources to a designated foreign terrorist organization. If convicted of Count Two, the defendants each face a maximum sentence of 15 years in prison. The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

Mr. Bharara praised the outstanding investigative efforts of the DEA’s Special Operations Division, the DEA’s Bucharest Country Office, the DEA’s Rome Country Office, the Montenegrin National Police, and the Romanian National Police. The defendants’ arrests and subsequent extradition are also the result of the close cooperative efforts of the U.S. Attorney’s Office for the Southern District of New York, the National Security Division of the U.S. Department of Justice, including Trial Attorney Brenda Sue Thornton, and the Justice Department’s Office of International Affairs.

The case is being prosecuted by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Andrea Surratt and Ilan Graff are in charge of the prosecution.

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

15-054

Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the arrest of STEVEN RAWLINS, a former outside consultant to two healthcare services companies. As alleged, from 2009 through 2013, RAWLINS misappropriated at least $8 million from two healthcare services companies. In his capacity as a consultant for both companies, RAWLINS abused his authority to withdraw company funds for payment of legitimate business expenses and tax obligations by, among other things, using such funds to pay personal expenses incurred by RAWLINS, his family, and his associates.

RAWLINS was arrested by the FBI this morning at his residence in Tennessee, and was presented in federal court in the Middle District of Tennessee earlier today.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, as a consultant for two companies, Steven Rawlins broke his clients’ trust by misusing more than $8 million. His alleged crimes carry a maximum penalty of up to 20 years in federal prison.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “As an outside consultant hired to handle internal financial matters, Rawlins allegedly took advantage of his authority and helped himself to millions of dollars of embezzled funds. His lifestyle flourished while his victims paid the ultimate price, incurring staggering financial losses resulting from the crime with which he is accused. Today, he faces the error of his ways and the due process of law.”

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

From 2004 to 2013, RAWLINS was retained as an outside consultant by a private healthcare services company, which is headquartered in Tennessee (“Company-1”) to assist with financing and accounting matters. RAWLINS’s responsibilities included securing financing for Company-1 and facilitating tax payments. During that time period, RAWLINS was retained by another private healthcare services company, which at the time had operations in Florida and New York (“Company-2”), to perform a similar role. As part of his responsibilities, RAWLINS was authorized to bill both Company-1 and Company-2 for legitimate business expenses incurred in connection with his services.

RAWLINS abused his authority to withdraw company funds and ultimately misappropriated more than $8 million, which he used to pay personal expenses incurred by himself, his family, and his associates. For instance, as part of his responsibilities as a consultant to Company-1, RAWLINS represented that he would handle necessary tax payments by Company-1 to the State of Tennessee. From 2011 to 2012, RAWLINS withdrew over $693,000, purportedly in order to pay Company-1’s outstanding tax liabilities to Tennessee. In reality, during that time period, Company-1 owed less than $16,000 in applicable Tennessee state taxes. Moreover, from 2012 to 2013, RAWLINS caused over $615,457 to be withdrawn from a Company-1 bank account in order to pay bills associated with an American Express credit card account. That American Express account was in turn used to pay for numerous personal expenses incurred by RAWLINS, or those associated with him, including a payment of $30,000 to a Ferrari dealership on Long Island and a payment of over $21,500 to a professional hockey franchise.

RAWLINS, 58, of Brentwood, Tennessee, is charged with one count of wire fraud. He faces a maximum sentence of 20 years in prison, a maximum term of three years of supervised release, and a fine of the greatest of $250,000, or twice the gross pecuniary gain derived from the offense or twice the gross pecuniary loss to the victim. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the investigative 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’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. Attorneys Edward Y. Kim and Andrew J. DeFilippis are in charge of the prosecution, and Margaret S. Graham is in charge of the forfeiture aspects of the case.

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

Richard Zabel, the Deputy United States Attorney for the Southern District of New York, and Diego Rodriguez, Assistant Director in Charge New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the return to the Italian Government of two pieces of Italian cultural heritage – “The Holy Trinity Appearing to Saint Clement,” attributed to the 18th Century painter Giambattista Tiepolo (the “Tiepolo”), and an ancient Etruscan bronze statuette of Herakles dating from the 6th or 5th Century B.C.E. (the “Statuette”). Each artwork was returned to Warrant Officer Angelo Ragusa of the Rome Office of the Archaeological Section of the Carabinieri Tutela Patrimonio Culturale, today at a repatriation ceremony at the United States Attorney’s Office in Manhattan.

Manhattan Deputy U.S. Attorney Richard Zabel stated: “These two works of art were stolen from their owners many decades ago and through shadowy channels arrived in the United States. Both the Tiepolo painting and the Etruscan sculpture represent Italy’s rich cultural history and today will be returned to their homeland. We will continue to work with the FBI to return stolen items to their rightful owners.”

FBI Assistant Director Diego Rodriguez stated: “For decades, two significant pieces of Italian heritage have been on the run. Elusive. And out of reach, until today. We are proud to be able to return these key pieces of work back to the Italians – and to the Oliveriano Archaeological Museum.”

The Tiepolo was previously reported stolen from a private home in Turin, Italy, in or about August 1982. Following the theft, the painting’s whereabouts were unknown until it appeared for auction in New York in January 2014. After being provided with evidence that the painting was the same piece previously reported stolen in 1982, the Tiepolo’s consignor agreed to its seizure by the FBI and its return to Italy. The United States Attorney’s Office submitted a proposed stipulation and order providing for the Tiepolo’s seizure and return, and the U.S. District Court for the Southern District of New York entered that order on January 23, 2015. Italian authorities continue to investigate the circumstances surrounding the theft of the painting, including the circumstances of its importation into the United States.

The Statuette was reported stolen from the Oliveriano Archeological Museum in Pesaro, Italy, in January 1964 along with several other items, including ivory tablets of the 9th and 13th centuries, early Christian glass artifacts from the Catacombs of Rome, and Italic and Roman statuettes. After its theft from the museum, the Statuette passed through several hands, and was eventually discovered by Italian and U.S. authorities when it was offered for sale by an auction house in Manhattan. After being provided with evidence that the Statuette was the same piece stolen from the museum, the consignor agreed to the FBI’s seizure of the Statuette for repatriation to Italy. The United States Attorney’s Office submitted a proposed stipulation and order providing for the Statuette’s seizure and return, and the U.S. District Court for the Southern District of New York entered that order on October 2, 2014.

Mr. Zabel thanked the Washington Bureau of INTERPOL, which originally brought the painting to the attention of the FBI and the U.S. Attorney’s Office following the painting’s importation into the United States. Mr. Zabel further praised the investigative work of the FBI in this matter, and its ongoing efforts to find and repatriate stolen and looted art and cultural property.

Each case is being handled by the Office’s Money Laundering and Asset Forfeiture Unit. Assistant United States Attorney Andrew C. Adams is in charge of the case involving the Tiepolo painting, and Assistant United States Attorney Christine I. Magdo is in charge of the case involving the Etruscan statuette.

In re Ancient Etruscan Bronze Herakles Stipulation and Order

In re Giambattista Tiepolo Painting Stipulation and Order

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ANTHONY SANTIAGO, a former New York City Department of Sanitation Codes Officer, was sentenced today to 18 months in prison for engaging in a scheme involving the illegal interstate transport of firearms and stolen goods and the illegal sale of a firearm interstate. SANTIAGO was sentenced today in Manhattan federal court by U.S. District Judge Deborah A. Batts.

Manhattan U.S. Attorney PREET BHARARA said: "Anthony Santiago was a member of a conspiracy of corrupt law enforcement officers who not only betrayed their oaths to uphold the law, but exploited their positions as peace officers to carry out their gun-running and smuggling crimes. Participating in and actively recruiting others to a conspiracy that put illegal firearms on the street was the ultimate betrayal of honest police officers and citizens. Now Santiago will go to prison for it."

According to the Complaint, the plea agreement, the Information, and statements made in court:

From September 2010 to October 2011, SANTIAGO, who had been employed by the New York City Department of Sanitation as a Codes Officer at the time he committed the offenses, was recruited to participate and did participate in the transportation of firearms interstate and what he believed were stolen goods, including slot machines, cigarettes, and other merchandise, across state lines. SANTIAGO was an active participant in the conspiracy and an integral member of the team who recruited others to join the conspiracy and helped transport across state lines firearms, including three M-16 rifles, one shotgun, and 16 handguns, the majority of which had been defaced to remove or alter the serial numbers; numerous slot machines; and thousands of cartons of cigarettes, as well as various counterfeit merchandise. SANTIAGO also participated in the conspiracy to sell his shotgun interstate. In total, the goods that SANTIAGO and his co-conspirators illegally transported carried a street value of approximately $1 million.

SANTIAGO was recruited to join the conspiracies in December 2010 by the leader and organizer of the conspiracies, William Masso, who at the time of the conspiracies was an active duty Police Officer with the New York City Police Department (“NYPD”). SANTIAGO specifically discussed with Masso and their co-conspirators using their law enforcement credentials and knowledge of law enforcement in preparing for and carrying out the illegal transports. For example, in a meeting in March 2011 attended by SANTIAGO, Masso explained that the men should carry their law enforcement badges during the operation and, if stopped, say they were police officers working off-duty to deliver items that had been purchased at an auction. The group also discussed using their specialized knowledge as law enforcement officers in determining the ideal vehicle to rent to transport the goods. In addition, SANTIAGO recruited others to join the conspiracy, specifically recruiting at least one other law enforcement officer, and had frequent calls with Masso to help plan the illegal transports. In total, SANTIAGO was paid $26,000 for his role in the transport of the firearms and purportedly stolen goods.

SANTIAGO was an active participant in the conspiracies, participating in and helping to organize multiple trips. The trips in which SANTIAGO participated included two trips to transport purportedly stolen slot machines from Atlantic City to New York, trips to transport hundreds of cases of purportedly stolen cigarettes from New Jersey to New York, and the final trip during which 20 firearms were transported interstate. During one such transport, SANTIAGO was the co-conspirator who suggested buying a bolt cutter to break locks on trucks parked outside a warehouse in Virginia so that the team could steal the cigarettes stored in those trucks and then transport those stolen cigarettes back to New York. SANTIAGO also conspired to sell his shotgun to an undercover law enforcement officer for $2,000, and discussed with Masso and another co-conspirator the possibility of obtaining handguns and transporting them interstate. During his guilty plea, SANTIAGO admitted that he had knowingly transported what he believed were stolen cigarettes, slot machines, and other merchandise across state lines, had willfully transported firearms across state lines, and intentionally sold a shotgun to an individual who he believed resided in another state.

In addition to the prison term, Judge Batts sentenced SANTIAGO, 48, of Little Egg Harbor, New Jersey, to two years of supervised release and ordered him to pay a $300 special assessment fee. SANTIAGO also has agreed to a money judgment of $26,000 representing his share of the crime proceeds, and has relinquished his interests in guns seized from him at the time of his arrest.

SANTIAGO originally was charged in a four-count Complaint along with 11 co-conspirators, many of whom were NYPD Police Officers at the time of the offense. All of the defendants have now pled guilty and been sentenced. A chart containing the status of each defendant is attached.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and the Internal Affairs Bureau of the NYPD.

This case is being handled by the Office's Public Corruption and Complex Frauds & Cybercrime Units. Assistant United States Attorney Carrie H. Cohen is in charge of the prosecutions.

Click here to view chart(s)

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ALLEN REICHMAN, a former Executive Director of Investments at a New York investment firm, pled guilty today in Manhattan federal court to participating in a massive scheme to defraud his employer and insurance regulators in connection with the fraudulent purchase of an Oklahoma insurance company. REICHMAN pled guilty today before U.S. Magistrate Judge Henry B. Pitman.

Manhattan U.S. Attorney Preet Bharara said: “As Allen Reichman has now admitted, he deceived his employer to enable the illegal purchase of an insurance company. His associates looted the assets of the company, leaving it unable to pay policyholders, and Reichman pocketed over $200,000 in commissions on the fraudulent $30 million loan. He now awaits sentencing for his deceit and self-dealing.”

According to the information, plea agreement, and statements made during court proceedings:

During the relevant time period, REICHMAN was an executive at an investment bank and financial services company headquartered in New York, New York (the “Investment Firm”). From July 2008 to November 2009, REICHMAN conspired with Charles J. Antonucci, Sr. and Matthew L. Morris, the President and Senior Vice President, respectively, of Park Avenue Bank, a New York bank, and Wilbur Anthony Huff, a Kentucky businessman who controlled numerous entities located throughout the United States, to defraud the Investment Firm and Oklahoma insurance regulators regarding Antonucci’s purchase of Providence Property and Casualty Insurance Company (“Providence P&C”), an Oklahoma insurance company that was owed $5 million by a company Huff controlled. Providence P&C was licensed to operate by the Oklahoma Insurance Department (“OID”), which regulated various practices of Oklahoma insurance companies. Under the OID’s regulations and applicable Oklahoma law, Providence P&C was required to maintain a certain amount of assets to ensure that adequate funds were on hand to pay policyholders’ claims and anticipated claims.

REICHMAN and his co-conspirators schemed to defraud the Investment Firm into providing a $30 million loan to finance Antonucci’s purchase of Providence P&C and to defraud Oklahoma insurance regulators into approving the purchase. The $30 million loan from the Investment Firm to purchase Providence P&C was secured by Providence P&C’s own assets, including the reserve assets. Because Oklahoma insurance regulators had to approve any sale of Providence P&C, and because Oklahoma law forbade the use of Providence P&C’s assets as collateral for such a loan, REICHMAN, Huff, Morris, and Antonucci, made, and conspired to make, a number of material misstatements and material omissions to the Investment Firm and Oklahoma insurance regulators concerning the true nature of the financing for the purchase. Specifically, Investment Firm executives and others warned REICHMAN on several occasions that using Providence P&C’s assets as collateral for the loan was illegal and that he should not cause the loan to be issued. REICHMAN ignored these warnings and instead provided misleading information to various individuals at the Investment Firm and elsewhere regarding the loan, including directing Antonucci to sign a letter that provided false information regarding the collateral that would be used for the loan. Despite the warnings from Investment Firm executives and others, and REICHMAN’s knowledge that the loan was in fact illegal, on or about January 30, 2009, REICHMAN caused the Investment Firm to issue the illegal $30 million loan, which was secured by the very assets that were supposed to be unencumbered and maintained in reserve to pay Providence P&C’s policyholder claims.

After deceiving the Investment Firm into issuing the $30 million loan, REICHMAN received at least $200,000 in commissions from the Investment Firm as a result of the illegal loan. Ultimately, in November 2009, Providence P&C became insolvent and was placed in receivership because its surplus was encumbered by the $30 million loan, and therefore unavailable to pay policyholder claims, and because Huff, Morris, and Antonucci had pilfered Providence P&C’s remaining assets.

REICHMAN, 54, of of Irvington, New York, pled guilty to one count of conspiracy to commit wire fraud, which carries a maximum penalty of five years in prison. He will be sentenced by U.S. District Court Judge Naomi Reice Buchwald on a date to be determined. 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. As part of his plea, REICHMAN also agreed to forfeit $200,000 to the United States and to provide restitution of $10 million to the Investment Firm.

Charles Antonucci, who was charged separately, pled guilty for his role in the scheme on October 8, 2010. Matthew L. Morris and Wilbur Anthony Huff pled guilty in connection with the case on October 17, 2014, and December 24, 2014, respectively.

Mr. Bharara praised the investigative work of the Special Inspector General for the Troubled Asset Relief Program, the Federal Bureau of Investigation, the IRS, the New York State Department of Financial Services, Immigration and Customs Enforcement’s Homeland Security Investigations, and the Office of Inspector General of the FDIC. Mr. Bharara also thanked the Department of Justice’s Tax Division and the United States Attorney’s Office for the Southern District of Florida for their assistance.

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.

The case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Janis Echenberg and Daniel B. Tehrani are in charge of the prosecution.

US v. Sheldon Silver Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ZACHARY ZWERKO pled guilty today in Manhattan federal court to one count of conspiracy to commit securities fraud and three counts of securities fraud in connection with an insider trading scheme in which ZWERKO, who worked for a pharmaceutical company (the “Pharma Company”), passed material, nonpublic information to a co-conspirator (“CC-1”) who then made profitable securities trades based on the information and reaped over $700,000 in profits. The information concerned potential and actual corporate transactions, including acquisitions. ZWERKO pled guilty today before U.S. District Judge Alvin K. Hellerstein.

Manhattan U.S. Attorney Preet Bharara said: “Zachary Zwerko exchanged and traded in nonpublic information about a pharmaceutical company’s activities that generated over $700,000 in profits for a co-conspirator and $57,000 for him. With his guilty plea today, Zwerko’s attempts at hiding his illicit conduct by using a disposable phone for his communications have proven futile, and he will now be punished for his crimes.”

According to the Information filed in Manhattan federal court and statements made at public court proceedings:

From at least 2010 through August 2014, ZWERKO engaged in an insider trading scheme involving trading around information related to the acquisitions of certain pharmaceutical companies. ZWERKO, who was a Senior Finance Analyst in the Financial Evaluation and Analysis Group of the Pharma Company, passed material, nonpublic information related to potential acquisitions to CC-1. As part of his employment, ZWERKO performed work in connection with numerous potential and actual corporate transactions, including acquisitions. ZWERKO also had access to a computer directory maintained by the Pharma Company which contained material, nonpublic information related to potential acquisitions by the company.

On multiple occasions, ZWERKO passed to CC-1 material, nonpublic information related to future acquisitions by the Pharma Company, including the identities of companies which were in negotiations with the Pharma Company for potential acquisitions (the “Target Companies”). ZWERKO and CC-1 at times communicated with each other via disposable cellphone to disguise their communications. CC-1 then traded in the securities of the Target Companies. The Target Companies were subsequently acquired, in one instance by the Pharma Company, and the prices of the shares of the Target Companies increased after the acquisitions were announced publicly. CC-1 then liquidated CC-1’s positions in the shares of the Target Companies, thereby profiting from the movement in stock price. From this illegal trading, CC-1 reaped trading profits of at least approximately $737,000. CC-1 gave ZWERKO approximately $57,000 in cash, of CC-1’s illegal proceeds, as part of ZWERKO’s share of the scheme’s profits.

ZWERKO, 32, of Cambridge, Massachusetts, pled guilty to one count of conspiracy to commit securities fraud and three counts of securities fraud. The conspiracy count carries a maximum sentence of five years in prison. The three counts of securities fraud each carry a maximum of 20 years in prison. ZWERKO also faces a maximum fine of $5,000,000, or twice the gross gain or loss from the offense on the conspiracy count. He agreed as part of his plea agreement to forfeit the proceeds he obtained as a result of the offenses. 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.

ZWERKO is scheduled to be sentenced by Judge Hellerstein on May 15, 2015, at 11:00 a.m.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation. He also thanked the U.S. Securities and Exchange Commission.

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 Jessica Masella and Edward Kim are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that RICHARD DINIZO was sentenced in White Plains federal court to 50 years in prison for engaging in sexual activity with seven different minors, all under the age of 11 at the time of the sexual activity, for videotaping the sexual abuse, and for transporting videos depicting DINIZO engaging in sexual activity with minors to recipients outside of New York. DINIZO pled guilty in May 2014 before United States District Judge Vincent Briccetti, who also imposed today’s sentence.

U.S. Attorney Preet Bharara said: “This case underscores the urgent need for law enforcement to continue its efforts to protect children from those who prey on them. Today’s 50-year sentence is a measure of how reprehensible is the conduct of those who will sexually exploit children. We will use every tool available to law enforcement to investigate, prosecute and punish those who sexually abuse children.”

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

In March of 2013, a witness provided a camera memory card, discarded by DINIZO in or about August 2012, to law enforcement. The memory card contained a series of videos made in 2009 and 2010 depicting DINIZO and a girl under the age of 11 (“Victim 1”) engaging in sexually explicit activity. DINIZO used trickery and deceit in order to manipulate Victim 1 into engaging in the sexual activity captured on the videos.

Thereafter, during the course of the investigation, additional evidence was recovered from DINIZO revealing additional videos – made by DINIZO between 2007 and 2010 – and additional victims. Ultimately, law enforcement identified seven different victims, all under the age of 11at the time of the abuse. With all seven victims, DINIZO used trickery and deceit. In many instances, DINIZO recorded the sexual abuse using multiple cameras simultaneously. The different cameras captured the abuse from different vantage points.

DINIZO transported his homemade videos to recipients outside New York. His video files have been recovered in numerous law enforcement investigations throughout the country and internationally. Until DINIZO’s arrest, the National Center for Missing and Exploited Children (“NCMEC”), which receives child pornography files recovered by law enforcement, had not been able to identify the girls depicted in the videos and had not been able to identify the place at which the abuse occurred.

In addition to the 50-year prison term, DINIZO, 60, of Cortlandt Manor, New York, was

sentenced to a life term of supervised release.

On December 12, 2013, DINIZO pleaded guilty to three counts of Predatory Sexual Assault Against a Child in Westchester County Supreme Court. On February 18, 2014, DINIZO was sentenced to 25 years to life in prison.

Mr. Bharara praised the efforts of Immigration and Customs Enforcement’s Homeland Security Investigations, the Putnam County District Attorney’s Office, the Putnam County Sherriff’s Office, the Westchester County District Attorney’s Office, the New York State Police, and NCMEC in connection with this investigation.

The case 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, 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 COMPASSIONATE CARE HOSPICE OF NEW YORK, LLC (“CCH-NEW YORK”) and COMPASSIONATE CARE HOSPICE GROUP LTD. (“CCH GROUP” and collectively, “CCH”) related to CCH’s submission of fraudulent claims for reimbursement by Medicare and Medicaid, for hospice nursing services not adequately provided by CCH-NEW YORK.

In the settlement, approved today in Manhattan federal court by U.S. District Judge J. Paul Oetken, CCH-New York accepted responsibility for failing, at its Bronx location, to treat patients according to an individualized plan of care, failing to meet the needs of certain patients, failing to make nursing services available 24 hours a day and seven days a week as required, and failing to maintain adequate clinical records, while CCH Group accepted responsibility for failing to provide sufficient oversight of CCH-New York through its compliance audits. CCH-New York agreed to pay $4,992,000 to the United States and $1,680,000 to the State of New York to resolve its liability for this conduct. In addition, CCH entered into a corporate integrity agreement with HHS-OIG, through which it agrees to implement certain institutional compliance measures and submit to monitoring by HHS-OIG for five years.

Manhattan U.S. Attorney Preet Bharara said: “In addition to protecting public monies, this settlement agreement protects patients who require hospice care, by holding Compassionate Care Hospice accountable for providing inadequate services and sending a message to all similarly situated providers.”

HHS-OIG Special Agent in Charge Scott Lampert said: “CCH’s conduct compromised both the care provided to its patients as well as the integrity of the Medicare and Medicaid programs. This settlement affirms HHS-OIG’s commitment to holding providers accountable so that they provide high quality of care to their patients and bill health care programs appropriately.”

According to the complaint filed in Manhattan federal court:

Between May 2010 and September 2011, CCH-New York, at its Bronx location, failed to provide hospice nursing services in the manner required by the applicable regulations, including following patients’ plans of care, which typically required a hospice nurse to visit the patient one to three times per week. The complaint alleges that nurses employed by CCH-New York routinely missed these visits, then, at the direction of management in the Bronx office and with the knowledge of CCH Group, falsified nursing notes in patients’ files in order to make it appear as though the visits had been performed. CCH, nonetheless, billed Medicare and Medicaid for services not actually performed or not performed in compliance with the applicable regulations, and received millions of dollars as a result of the fraudulent claims.

Mr. Bharara thanked the Medicaid Fraud Control Unit of the New York State Attorney General’s Office for its assistance in the investigation.

The case is being handled by the Office’s Civil Frauds Unit. Assistant United States Attorney Cristy Irvin Phillips is in charge of the case.

Preet Bharara, United States Attorney for the Southern District of New York, announced today that JOHN L. MONTANEZ, a former police officer with the New York City Police Department (“NYPD”), was sentenced today in Manhattan federal court to 28 months in prison for credit card fraud and identity theft. Sentence was imposed by U.S. District Judge Katherine Polk Failla.

Manhattan U.S. Attorney Preet Bharara said: “While a Police Officer, John Montanez engaged in credit card fraud and identity theft. As Montanez said on tape, ‘I am not the cop you think I am.’ For certain, he was not the cop the public deserved and not one who deserved to carry an NYPD badge. By breaking the law, John Montanez not only threatened the safety of others, but also undermined the position of law enforcement as a pursuer of justice. We will continue to actively prosecute cases of police corruption.”

According to the Complaint, Information, prior filings, and today’s proceeding:

In 2011, an individual, who subsequently agreed to cooperate with law enforcement (the “CW”), informed MONTANEZ, who was at the time a police officer with the NYPD, that the CW had a suspended and/or revoked driver’s license. In response, MONTANEZ offered to provide the CW with the name and driver’s license number of a real person – so that if the CW were stopped by law enforcement, the CW could pretend to be someone else – in return for items that the CW would purchase for MONTANEZ with fraudulently obtained or stolen credit cards. After that, in return for the CW purchasing merchandise for MONTANEZ, and providing to MONTANEZ credit card/debit card numbers that MONTANEZ understood were stolen or fraudulently obtained, MONTANEZ provided to the CW multiple names, dates of birth, and driver’s license identification numbers of other people. One such person, referred to in the Complaint as “Victim-1,” was a fellow police officer with the NYPD, serving in the same precinct as MONTANEZ.

The CW was arrested in June 2013 and later began recording meetings with MONTANEZ as part of the CW’s cooperation with law enforcement. During these meetings, MONTANEZ offered to provide additional identities to the CW in return for merchandise purchased with credit cards that MONTANEZ believed the CW had stolen or fraudulently obtained. In one recorded meeting, MONTANEZ said to the CW: “I am not the cop you think I am. I am a piece of s***.”

In connection with MONTANEZ’s arrest, law enforcement executed a search of his apartment and of his locker at his precinct. The search of the apartment yielded, among other things, identification documents in other names and a device allowing for the swiping of a credit/debit card. The search of the locker yielded 16 identification documents in other names, including driver’s licenses, benefits cards, and Social Security cards. The identification documents obtained from the search of the locker appeared to come from arrests that MONTANEZ effected or participated in throughout the course of his career as a police officer.

MONTANEZ, 28, of the Bronx, New York, pleaded guilty in August 2014 to one count of access device fraud and one count of aggravated identity theft. In addition to his prison term, he was sentenced to two years of supervised release, and was ordered to forfeit $2,500, and pay a $200 special assessment.

Mr. Bharara thanked the Bronx County District Attorney’s Office, which worked to develop evidence implicating MONTANEZ and assisted in the investigation and prosecution. Mr. Bharara also praised the investigative work of the Federal Bureau of Investigation and the NYPD Internal Affairs Bureau.

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ALEX YÜCEL, the co-creator of malicious software known as the Blackshades Remote Access Tool, or “RAT,” which has been sold and distributed through YÜCEL’s Blackshades organization to thousands of people in more than 100 countries, pled guilty today in Manhattan federal court to one count of distribution of malicious software. U.S. District Judge P. Kevin Castel presided over the plea proceedings.

Manhattan U.S. Attorney Preet Bharara said: “Through his creation and sale of the Blackshades RAT, Alex Yücel enabled anyone, for just $40, to violate the property and privacy of his victims. With his guilty plea today, Yücel will now have to pay for his conduct. This Office will continue to work with our law enforcement partners at the Federal Bureau of Investigation and around the world to find and prosecute those who create, market, and employ malicious software.”

According to the allegations in documents filed in Manhattan federal court, and statements made at today’s plea and other court proceedings:

Beginning in at least 2010, the “Blackshades” organization, which Yücel owned and controlled, sold and distributed malware to thousands of cybercriminals throughout the world. Blackshades’ flagship product was the RAT – a sophisticated piece of malware that enabled cybercriminals secretly and remotely to gain control over a victim’s computer. After installing the RAT on a victim’s computer, a user of the RAT had free rein to, among other things, access and view documents, photographs, and other files on the victim’s computer, record all of the keystrokes entered on the victim’s keyboard, steal the passwords to the victim’s online accounts, and even activate the victim’s web camera to spy on the victim – all of which could be done without the victim’s knowledge. A Blackshades user could also exploit victims’ computers for Distributed Denial of Service (“DDoS”) attacks by commanding Blackshades-infected computers to overwhelm websites or computer servers with traffic, and thereby disable them.

The RAT was typically advertised on forums for computer hackers and marketed as a product that conveniently combined the features of several different types of hacking tools. Copies of the Blackshades RAT were available for sale, typically for $40 each, on a website maintained by Blackshades. After purchasing a copy of the RAT, a user had to install the RAT on a victim’s computer – i.e., “infect” a victim’s computer. The infection of a victim’s computer could be accomplished in several ways, including by tricking victims into clicking on malicious links or by hiring others to install the RAT on victims’ computers.

Once a computer was infected with the RAT, the user of the RAT had complete control over the computer. The user could, among other things, remotely activate the victim’s web camera. In this way, the user could spy on anyone within view of the victim’s webcam inside the victim’s home or in any other private spaces where the victim’s computer was used. The RAT also contained a “keylogger” feature that allowed users to record each key that victims typed on their computer keyboards. To help users steal a victim’s passwords and other log-in credentials, the RAT also had a “form grabber” feature. The “form grabber” automatically captured log-in information that victims entered into “forms” on their infected computers (e.g., log-in screens or order purchase screens for online accounts).

YÜCEL co-created the Blackshades RAT with Michael Hogue and operated the Blackshades organization with the help of several employees. The RAT was purchased by at least several thousand users in more than 100 countries and used to infect more than half a million computers worldwide.

YÜCEL, 24, a Swedish national, was arrested in Moldova in November 2013. He was the first defendant ever to be extradited from Moldova to the United States. His guilty plea to distribution of malicious software carries a maximum sentence of 10 years in prison. He is scheduled to be sentenced by Judge Castel on May 22, 2015, at 11:00 a.m. 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.

Michael Hogue, the co-creator of the RAT, pled guilty before Judge Castel in January 2013 and is awaiting sentencing.

Brendan Johnston, an administrator for the Blackshades organization, pled guilty on November 21, 2014, before U.S. District Judge Jesse M. Furman to conspiracy to commit computer hacking, which carries a maximum sentence of 10 years in prison. He is scheduled to be sentenced by Judge Furman on May 27, 2015, at 3:30 p.m.

Marlen Rappa, a customer of Blackshades who purchased the RAT and used it to infect victims’ computers, spy on those victims using their web cameras, and steal personal files from their computers, pled guilty on October 31, 2014, before U.S. District Judge Valerie E. Caproni. He is scheduled to be sentenced by Judge Caproni on March 13, 2015, at 3:00 p.m.

Kyle Fedorek, a customer of Blackshades who purchased the RAT and used it to steal financial and other account information from more than 400 victims, pled guilty on August 19, 2014, before U.S. Magistrate Judge Gabriel W. Gorenstein and is scheduled to be sentenced by U.S. District Judge Vernon S. Broderick on February 19, 2015, at 10:00 a.m.

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

The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Sarah Lai and Daniel Noble are in charge of the prosecution. Assistant U.S. Attorney Paul Monteleoni is in charge of the forfeiture aspects of the case.

U.S. v. Alex Yucel S1 Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced that STEVEN HART was charged last Friday with obstruction of justice and perjury relating to an investigation by the U.S. Securities and Exchange Commission (the “SEC”) into potential violations of the federal securities laws. HART, who was employed at an investment management firm headquartered in Englewood Cliffs, New Jersey (the “Investment Firm”), lied in sworn testimony to the SEC that he had obtained consent from the president of the Investment Firm (the “Investment Firm President”) to conduct match trades between a fund managed by the Investment Firm and a fund controlled and owned in part by HART. Moreover, when representatives of the SEC called the Investment Firm in an attempt to speak with the Investment Firm President, HART, on three occasions, answered the phone and pretended to be either the Investment Firm President or another employee. The case is assigned to United States District Judge Katherine P. Failla.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Steven Hart obstructed the SEC’s investigation into his conduct by lying to the SEC in sworn testimony. Even more audaciously, in phone calls from SEC attorneys seeking to speak to the investment firm’s president about Hart, Hart allegedly pretended to be the president. This alleged conduct merely delayed the inevitable: discovery of Steven Hart’s deception and the filing of criminal charges.”

According to the Information filed on February 13, 2015, in Manhattan federal court:

At all times relevant to this Information, HART worked at the Investment Firm, which managed several funds. HART, who reported directly to the Investment Firm President, served as a portfolio manager at the firm and, in that capacity, exercised trading authority over the brokerage accounts for one of the funds managed by the Investment Firm (the “Fund”). At the same time, HART also controlled and directed Octagon Capital Partners, LP (“Octagon”), a private investment fund with its principal place of business in New York, New York. Through Octagon, HART invested his own money and the money of several of his associates.

In or about 2009, the SEC was investigating HART’s trading activities at the Investment Firm (the “SEC Investigation”). First, the SEC was investigating whether HART, in his capacity as a portfolio manager at the Investment Firm, had conducted improper “match trades” or “cross trades” between his personal fund, Octagon, and the Fund. The SEC was also investigating whether HART had traded in securities based on material nonpublic information (“MNPI”) relating to confidentiallymarketed securities offerings – information that HART had obtained while being solicited to invest in these offerings.

As part of this investigation, SEC officials, among other things, issued a subpoena to the Investment Firm, directed to the Investment Firm President, seeking the production of several different categories of documents. HART received the subpoena at the Investment Firm before it was seen by any other employee and produced documents to the SEC in New York, New York, without (1) informing anyone else at the Investment Firm about the subpoena, or (2) informing the SEC that it was HART alone who responded to the subpoena.

Moreover, in the course of providing sworn testimony to the SEC, HART made several materially false statements. He falsely testified that the Investment Firm President had agreed that HART should conduct match trades involving the Fund as part of an investment strategy for the Fund. HART also falsely testified that he and the Investment Firm President had discussed the SEC Investigation, and that the Investment Firm President was aware that HART had been subpoenaed to testify before the SEC.

On multiple occasions, HART impersonated other employees of the Investment Firm during telephone conversations with the SEC. Specifically, on or about December 8, 2009, an SEC attorney called the Investment Firm to speak with the firm’s President about the SEC Investigation. HART received the phone call and pretended to be another employee of the Investment Firm. The SEC attorney asked HART, who was pretending to be another employee, to ask the Investment Firm President to return the call, which HART failed to do. The following day, the same SEC attorney again called the Investment Firm to speak with the firm’s President. HART again received the phone call and, on this occasion, pretended to be the Investment Firm President. During that call, HART, speaking as the Investment Firm President, falsely stated that: (1) the Investment Firm President was aware that HART had engaged in improper trading activity, but nevertheless wanted HART to remain an employee of the Investment Firm; and (2) the Investment Firm President was aware of, and had approved, Hart’s match trading activity as a means for the Fund to dispense of restricted shares of stock.

Finally, on December 11, 2009, the same SEC attorney, along with a second SEC attorney, called the Investment Firm to speak with the firm’s President. HART again received the phone call and again pretended to be the Investment Firm President. During that call, HART, speaking as the Investment Firm President, falsely stated to the SEC attorneys that: (1) HART’s match trading activity was an intentional strategy of the Investment Firm to take a loss on the trading in exchange for the ability to sell otherwise restricted shares of stock; (2) HART was still a valued employee of the Investment Firm who had earned the Investment Firm far more than whatever amount HART had gained through match trading; and (3) HART had fully disclosed to the Investment Firm President that HART had traded based on MNPI and that this was a one-time mistake that would not happen again. Each of these statements was false.

HART, 42, of New York, New York, faces a maximum sentence of 10 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.

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

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Jason H. Cowley is in charge of the prosecution.

U.S. v. Steven Hart Information

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that JAMES TAGLIAFERRI, formerly the president of TAG Virgin Islands (“TAG”), was sentenced in Manhattan federal court to six years in prison in connection with a multi-year multimillion-dollar fraudulent scheme to defraud his own investment advisory clients. Through TAG, TAGLIAFERRI, a SEC-registered investment adviser: (a) accepted undisclosed compensation in exchange for causing his clients to invest in certain securities; (b) used client funds for illegitimate purposes, including paying other clients; and (c) caused false and fictitious securities instruments to be placed in client accounts. In total, TAGLIAFERRI’s scheme caused clients to lose at least $16 million. In July 2014, TAGLIAFERRI was convicted, following a nearly five-week jury trial, of investment adviser fraud, securities fraud, multiple counts of wire fraud, and multiple counts of violating the Travel Act. He was sentenced today by U.S. District Judge Ronnie Abrams.

Manhattan U.S. Attorney Preet Bharara said: “Today’s sentence ensures that James Tagliaferri will be punished for taking millions in undisclosed fees in exchange for steering his clients’ money to certain companies, and defrauding investors to the tune of millions of dollars. Those who would commit similar crimes should understand that this Office has zero tolerance for individuals who jettison their investors’ interests in favor of their own through fraud and deceit.”

According to the Superseding Indictment filed in Manhattan federal court, other court documents in the public record, and the evidence presented at trial:

In 2007, TAGLIAFERRI opened TAG in the Virgin Islands and began offering investment advisory services to clients through that company. Previously, TAGLIAFERRI had offered such services through another company, Taurus Advisory Group.

Beginning in 2007, TAGLIAFERRI began executing a scheme to defraud TAG clients in various ways. First, TAGLIAFERRI began taking undisclosed fees in exchange for investing client funds in certain companies. He received at least $1.6 million in undisclosed fees in exchange for causing clients to invest in the securities of a horse-racing company located in Garden City, New York (“Company 1”). TAGLIAFERRI placed at least $40 million of client funds in investments relating to Company 1. He also received at least approximately $1.75 million in undisclosed compensation in exchange for placing client funds in several companies affiliated with an associate of his (“Associate 1”). Ultimately, TAGLIAFERRI placed at least $80 million in client funds in investments relating to these companies.

TAGLIAFERRI often used his clients’ money to finance these undisclosed payments to TAG. He did this by transferring client funds from custodial accounts to a trust account maintained by an attorney. He then diverted a portion of those funds – the undisclosed payment – from the trust account to a TAG account in the Virgin Islands that he controlled. By routing fees to TAG through this trust account and other third-party accounts, TAGLIAFERRI was able to receive these fees with no record of such fees appearing on the monthly statements custodial financial institutions sent to TAG clients.

Second, TAGLIAFERRI used client funds for improper purposes, including making payments to other clients who were demanding their money, and to make payments on behalf of companies he was affiliated with, including Company 1. He orchestrated a complex series of transactions between and among TAG client accounts to access funds for these purposes. For example, when an immediate need for funds arose, he caused clients to purchase shares of a publicly traded company affiliated with Associate 1 from a client account affiliated with Associate 1 that TAGLIAGERRI controlled. Once those sales took place and TAG client funds were transferred to that account, he used those funds for his own purposes, including for payments to other clients demanding their money.

Third, TAGLIAFERRI caused false and fictitious securities to be placed in client accounts. He signed a series of investment instruments relating to a company located in Pennsylvania (the “Pennsylvania Company”). According to these instruments, the Pennsylvania Company was obligated to make payments to certain TAG clients based on a note agreement between the Pennsylvania Company and TAG. In reality, however, the Pennsylvania Company never executed any agreement with TAG that obligated it to make payments to TAG or TAG clients. As TAGLIAFERRI well knew, these investment instruments, and the obligation they referenced, were false and fictitious.

In addition to the prison term, Judge Abrams sentenced TAGLIAFERRI, 75, who currently resides in Stamford, Connecticut, and formerly resided in the United States Virgin Islands, to three years of supervised release. TAGLIAFERRI was also ordered to forfeit $2.5 million, including any ownership interest in a residential property in the U.S. Virgin Islands. The Court deferred imposing an order of restitution until a later date.

Mr. Bharara praised the work of United States Postal Inspection Service. He also thanked the United States Securities and Exchange Commission and the United States Attorney’s Office for the Eastern District of North Carolina for their assistance in this matter.

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 Jason H. Cowley and Parvin Moyne, and Special Assistant United States Attorney Saima S. Ahmed of the United States Securities and Exchange Commission are in charge of the prosecution.