Late yesterday, in federal court in Central Islip, an 18-count indictment was returned charging Dr. Roya Jafari-Hassad with illegal distribution of oxycodone and witness tampering. Hassad was arrested this morning and is scheduled to be arraigned this afternoon before United States Magistrate Judge Steven L. Tiscione.
Breon Peace, United States Attorney for the Eastern District of New York, Frank A. Tarentino, Special Agent-in-Charge, Drug Enforcement Administration (DEA), New York Division and Elysia M. Doherty, Assistant Special Agent-in-Charge, U.S. Department of Health and Human Services, Office of Inspector General’s Office of Investigations, New York Region (HHS-OIG) announced the charges.
“As alleged, the defendant abandoned her medical oath to operate a pill mill in Nassau County, illegally dispensing oxycodone to patients for a cash fee,” stated United States Attorney Breon Peace. “This Office will continue to protect our community from bad actors who flood our streets with dangerous drugs, even if they hide behind their prescription pad.”
“A prescription pad in the wrong hands can be a deadly weapon,” said DEA Special Agent in Charge Frank Tarentino. “The diversion of prescription medication is inexcusable for medical professionals and I applaud the hard work by DEA and our law enforcement partners who brought these charges against Dr. Jafari-Hassad.”
“Health care professionals have a duty to prescribe medication responsibly to ensure the well-being of their patients. Failing to do so puts the health and safety of patients at risk and undermines critical measures to address the opioid epidemic,” said Susan A. Frisco, Acting Special Agent in Charge with the U.S. Department of Health and Human Services, Office of the Inspector General. "HHS-OIG will continue to work with our law enforcement partners to hold accountable bad actors who exploit opioid addiction for personal financial gain.”
Specifically, the investigation has disclosed that Hassad operated a medical office in Great Neck, New York, in which she charged her patients hundreds of dollars in cash in exchange for an illegal monthly oxycodone prescription. These oxycodone prescriptions had no legitimate medical purpose. The cash charge was often in addition to Hassad billing the patient’s insurance for a variety of charges, many relating to procedures that never occurred. It is estimated that Hassad made hundreds of thousands of dollars a year cash solely from the cash payments made by patients to obtain their oxycodone prescriptions.
For example, Hassad prescribed oxycodone to an undercover agent at every visit including the first visit. These visits took place over a year long period and none of the oxycodone prescriptions had a legitimate medical purpose. In addition, after a search warrant was executed at her medical offices, Hassad reached out to patients and attempted to convince them to alter their testimony about their oxycodone prescriptions.
Oxycodone is a scheduled controlled substance that may be dispensed by medical professionals only for a legitimate medical purpose in the usual course of a doctor’s professional practice. It is a powerful and highly addictive drug and is frequently abused because of its potency when crushed into a powder and ingested, leading to a heroin-like euphoria.
The government’s case is being prosecuted by Assistant United States Attorneys Charles P. Kelly and Madeline O’Connor.
CENTRAL ISLIP, NY – Earlier today, at the federal courthouse in Central Islip, New York, Scott Gammon pleaded guilty to conspiracy to commit mail fraud. The over $4 million fraud involved a mass mailing scheme that tricked consumers into paying fees for falsely promised cash prizes. The plea took place before Magistrate Judge Steven I. Locke.
Breon Peace, United States Attorney for the Eastern District of New York, Brian M. Boynton, Principal Deputy Attorney General of the Justice Department’s Civil Division, and Daniel B. Brubaker, Inspector-in-Charge, United States Postal Inspection Service (USPIS) announced the guilty plea.
“The defendant admitted he deceived elderly and vulnerable victims into believing they had won cash prizes by inducing them to pay bogus ‘fees’ to him and his co-conspirators,” stated United States Attorney Peace. “This Office will continue to protect our seniors and other consumers from harm caused by predatory solicitation schemes.”
“Fraudulent prize notices often trick elderly victims into sending away their money based on false promises of large cash prizes,” said Principal Deputy Assistant Attorney General Boynton. “This guilty plea is the latest example of the Department of Justice continuing to pursue and prosecute the perpetrators of these schemes.”
“Postal Inspectors remind consumers, if you have to pay to win a prize, you’ll lose your money. These are all scams designed to lure consumers into sending their hard-earned money—not for a prize, but to fatten the pockets of a fraudster. Mr. Gammon may have thought he got away with this scheme, but he was sadly mistaken when he was confronted by the full investigative power of law enforcement,” said USPIS Inspector-in-Charge Brubaker.
According to court documents, from August 2014 through August 2019, Gammon engaged in a direct-mail scheme that sent fraudulent prize notification mailings to thousands of consumers. The mailings induced consumers to pay a fee, purportedly in return for a large cash prize. None of the consumers who paid the fee ever received such a prize. Gammon is the third defendant to plead guilty to conspiracy to commit mail fraud in connection with this scheme.
Two other defendants previously pleaded guilty to conspiracy to commit mail fraud for participating in the scheme. Christopher King pleaded guilty on September 15, 2021 and Natasha Khan, pleaded guilty on December 15, 2021.
Each of the three defendants faces a maximum penalty of 20 years in prison.
Assistant United States Attorneys Charles P. Kelly and Madeline O’Connor of the Eastern District of New York, Long Island Criminal Division are prosecuting the case with Trial Attorneys Daniel Zytnick and Timothy Finley of the Civil Division’s Consumer Protection Branch.
CENTRAL ISLIP, NY – Earlier today, in federal court in Central Islip, Carmine Maietta pleaded guilty to conspiracy to commit mail fraud in connection with a fraudulent mass-mailing scheme that tricked consumers into paying fees for falsely promised cash prizes.
Breon Peace, United States Attorney for the Eastern District of New York, Brian M. Boynton, Acting Assistant Attorney of the Justice Department’s Civil Division, and Daniel B. Brubaker, Inspector-in-Charge, United States Postal Inspection Service (USPIS), announced the guilty pleas.
“With today’s guilty plea, Maietta admits to deceiving elderly and other vulnerable victims into believing they had won cash prizes when, in reality, he was simply pocketing their hard-earned funds,” stated United States Attorney Peace. “This Office is committed to protecting the vulnerable from the financial harm caused by fraudulent mail solicitation schemes.”
“Mass mailing fraud schemes often trick elderly victims into sending money based on false promises of large cash prizes,” stated Acting Assistant Attorney General Boynton. “The Department of Justice is committed to pursuing and prosecuting the perpetrators of these schemes.”
“Sweepstakes and other frauds are extremely damaging to those who fall victim to a scammers’ pitch of trickery and lies. These fraudulent schemes by design are nothing more than lies written on paper. Postal Inspectors will always vigorously pursue individuals who prey on the public, bringing them to justice for their criminal activity,” stated USPIS Inspector-in-Charge Brubaker.
According to court documents, from November 2013 through November 2018, Maietta engaged in a direct-mail scheme that sent fraudulent prize notification mailings to thousands of consumers. The mailings induced consumers to pay a fee, purportedly in return for a large cash prize. None of the consumers who sent a fee ever received such a prize.
Four other defendants previously pleaded guilty to conspiracy to commit mail fraud for participating in the scheme. Charles Kafeiti pleaded guilty on December 23, 2020; Steven Diaz pleaded guilty on February 8, 2021; Anthony Kafeiti pleaded guilty on July 28, 2021; and Drew Wilson pleaded guilty on August 24, 2021.
When sentenced, the five defendants each face a maximum penalty of 20 years in prison.
Assistant United States Attorney Charles P. Kelly of the Eastern District of New York prosecuted the case with Trial Attorneys Timothy Finley and Daniel Zytnick of the Civil Division’s Consumer Protection Branch. The case was investigated by the United States Postal Inspection Service.
The Department of Justice has engaged in extensive efforts to combat elder fraud to halt the widespread financial losses senior citizens suffer from fraud schemes. If you or someone you know is age 60 or older and has been a victim of financial fraud, help is available at the National Elder Fraud Hotline: 1-833-FRAUD-11 (1-833-372-8311). This hotline, which is managed by the Office for Victims of Crime at the Department of Justice, is staffed by experienced professionals who provide personalized support to victims. Case managers will identify appropriate reporting agencies, provide information to callers to assist them in reporting, connect callers directly with appropriate agencies, and provide resources and referrals, on a case-by-case basis. Reporting is the first step. Reporting can help authorities identify those who commit fraud and reporting certain financial losses due to fraud as soon as possible can increase the likelihood of recovering losses. The hotline is staffed seven days a week from 6:00 a.m. to 11:00 p.m. Eastern time. English, Spanish and other languages are available.
Additional information about the Consumer Protection Branch and its enforcement efforts may be found at www.justice.gov/civil/consumer-protection-branch. Information about the Department of Justice’s Elder Fraud Initiative is available at www.justice.gov/elderjustice.
Earlier today, at the federal courthouse in Brooklyn, Gregory Altieri pleaded guilty to wire fraud for running a two-year $200 million Ponzi scheme based on false statements to investors about inflated returns for nonexistent wholesale jewelry deals. As part of the plea, Altieri also admitted to committing securities fraud in connection with the scheme. When sentenced, Altieri faces up to 20 years in prison. Today’s proceeding took place before United States District Judge Brian M. Cogan.
Seth D. DuCharme, Acting United States Attorney for the Eastern District of New York, announced the guilty plea.
“With today’s guilty plea, Altieri is held accountable for duping dozens of investors, including retirees living off their pensions,” stated Acting United States Attorney DuCharme. “The defendant’s lies have caught up to him and he will now face the consequences of his fraudulent scheme.” Mr. DuCharme expressed his grateful appreciation to the Federal Bureau of Investigation, New York Field Office, for its exemplary work on the case, and to the Securities and Exchange Commission, New York Regional Office, for their assistance.
Beginning in August 2017, Altieri solicited between $75 million to $85 million in investments in his entity, LNA Associates, from over 80 investors located in Queens, Staten Island, Long Island and elsewhere. Altieri told investors that their money would be used to purchase jewelry at “closeout” prices, which would then be resold at a high profit yielding returns on those investments of between 30 and 70 percent in a matter of months. While Altieri initially purchased some jewelry with investors’ money, since approximately May 2018, he used money from new investors to pay earlier investors, representing to the latter group that they were receiving returns on their investments. These purported “returns” were used by Altieri to convince the earlier investors to keep their money with LNA Associates by “rolling over” their funds into new investments based on false promises to use this money to purchase additional jewelry. By January 2020, when Altieri stopped making payments to investors, he owed them approximately $200 million based on the falsely inflated promised returns.
The government’s case is being handled by the Office’s Business & Securities Fraud Section. Assistant United States Attorneys Andrey Spektor and Lindsay K. Gerdes are in charge of the prosecution, assisted by Assistant United States Attorney Brian D. Morris of the Office’s Asset Forfeiture Unit and by a Special Agent of the Office’s Business & Securities Fraud Section.
A criminal complaint was unsealed today in federal court in Brooklyn charging Shimon Rosenfeld, an attorney admitted to practice law in the State of New York since 1987, with defrauding multiple investors of at least $4 million by falsely claiming he was investing their funds in real estate opportunities. Rosenfeld was arrested this morning and made his initial appearance this afternoon via videoconference before United States Chief Magistrate Judge Cheryl. L. Pollak. The defendant was released on a $200,000 bond.
Seth D. DuCharme, Acting United States Attorney for the Eastern District of New York, William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI), and Patrick J. Freaney, Deputy Special Agent-in-Charge, United States Secret Service, New York Field Office (USSS), announced the charge.
“Through this alleged scheme, Rosenfeld abused his position as an attorney and betrayed his victims’ trust for his own selfish gain,” stated Acting United States Attorney DuCharme. “Those who commit fraud, including lawyers, must be brought to justice, and this Office will continue to work tenaciously to ensure integrity in the practice of law.”
“As alleged, Rosenfeld solicited investments based on his stated intent to purchase various real estate and 'flip' it for substantial profit. In reality, he didn't buy any properties, so there were none to sell. Rather, Rosenfeld used the money he received to make his own financial trades and investments. Today, we’ve flipped the script on him and held him accountable for his fraudulent actions,” stated FBI Assistant Director-in-Charge Sweeney.
“The U.S. Secret Service remains dedicated to investigating those who commit financial fraud and would like to recognize the efforts of our law enforcement partners in helping bring them to justice,” stated USSS Deputy Special Agent-in-Charge Freaney. “This investigation exemplifies the success that law enforcement can achieve when working in a collaborative manner. In this instance, the defendant allegedly perpetrated a scheme to defraud and misappropriated funds from numerous victims for his own personal gain.”
According to the complaint, between May 2014 and March 2018, Rosenfeld allegedly perpetrated a fraudulent scheme by soliciting and receiving approximately at least $4 million from various individuals (collectively, the “Victims”) based on fraudulent misrepresentations. Specifically, Rosenfeld induced the Victims to invest their money with the defendant based, in part, on representations that he would purchase real estate and sell it to a prospective buyer at a higher price, also referred to as “flipping” the property. Rosenfeld further told the Victims that he would split the profits from the real estate transactions with the Victims. In reality, Rosenfeld misappropriated the investors’ money by directing the funds into bank accounts he controlled and using the money to trade securities out of his brokerage account. Rosenfeld falsely told the Victims that there were problems with the real estate transactions, such as title or appraisal issues, to explain why no properties had been purchased.
If convicted of wire fraud, Rosenfeld faces up to 20 years’ imprisonment. The charge in the complaint are allegations, and the defendant is presumed innocent unless and until proven guilty.
The government’s case is being handled by the Office’s Business & Securities Fraud Section. Assistant United States Attorney Hiral D. Mehta is in charge of the prosecution.
Long Island-based pediatrics practice Freed, Kleinberg, Nussbaum, Festa & Kronberg M.D., LLP, doing business as Pediatrics and Adolescent Medicine (the “Practice”), as well as current and former partner physicians of the Practice, including Arnold W. Scherz, M.D., Mitchell Kleinberg, M.D., Michael Nussbaum, M.D., Robert Festa, M.D., and Jason Kronberg, D.O. (“Partners”), have agreed to pay $750,000 to resolve allegations that they billed the Medicaid Program for services provided by physicians who were not enrolled in the program. The settlement, which resolved government claims under the federal False Claims Act and the New York State False Claims Act, was approved by United States District Judge Joanna Seybert.
Richard P. Donoghue, United States Attorney for the Eastern District of New York, announced the settlement.
“Providers serving Medicaid beneficiaries must be properly credentialed and thoroughly vetted to ensure that proper care is provided and to preserve the integrity of the Medicaid Program, which serves our neediest citizens,” stated United States Attorney Donoghue. “Today’s settlement reflects this Office’s commitment to safeguarding taxpayer programs like Medicaid by vigorously investigating allegations of fraud in False Claims Act cases.”
Mr. Donoghue thanked the Medicaid Fraud Control Unit of the Office of the New York State Attorney General for its assistance in the investigation.
The government’s investigation revealed that, from July 1, 2004 through December 31, 2010, the Practice and Partners employed a number of physicians who were not enrolled in the Medicaid Program who provided care to Medicaid patients. Because the physicians were not enrolled in the program, the Practice and Partners could not seek reimbursement from Medicaid for the services provided by these physicians. The defendants nonetheless did so by submitting requests for payment under the Partners’ Medicaid provider identification numbers, thereby misrepresenting the identities of the individuals who were actually providing treatment to the Practice’s pediatric Medicaid beneficiaries. This improper billing practice occurred at many of the Practice’s Long Island locations, including facilities in Holbrook, Port Jefferson, Shirley and Wading River.
The allegations were brought to the government’s attention through the filing of a complaint pursuant to the qui tam provisions of the False Claims Act. Under the Act, private citizens can bring suit on behalf of the United States and share in any recovery.
The government’s case was handled by Assistant United States Attorney Jolie Apicella of the Office’s Civil Division.
BROOKLYN, NY – An indictment was unsealed today charging seven nationals of the People’s Republic of China (PRC) with conspiracy to commit computer intrusions and conspiracy to commit wire fraud for their involvement in a PRC-based hacking group that spent approximately 14 years targeting U.S. and foreign critics, businesses and political officials in furtherance of the PRC’s economic espionage and foreign intelligence objectives.
The defendants are Ni Gaobin (倪高彬), Weng Ming (翁明), Cheng Feng (程锋), Peng Yaowen (彭耀文), Sun Xiaohui (孙小辉), Xiong Wang (熊旺), and Zhao Guangzong (赵光宗).
Merrick B. Garland, United States Attorney General; Breon Peace, United States Attorney for the Eastern District of New York; Lisa O. Monaco, United States Deputy Attorney General; Matthew G. Olsen, Assistant Attorney General of the Justice Department’s National Security Division; James Smith, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI), and Robert W. “Wes” Wheeler, Jr., Special Agent-in-Charge, FBI, Chicago Field Office (FBI), announced the indictment.
“The Justice Department will not tolerate efforts by the Chinese government to intimidate Americans who serve the public, silence the dissidents who are protected by American laws, or steal from American businesses,” said Attorney General Merrick B. Garland. “This case serves as a reminder of the ends to which the Chinese government is willing to go to target and intimidate its critics, including launching malicious cyber operations aimed at threatening the national security of the United States and our allies.”
“These allegations pull back the curtain on China’s vast illegal hacking operation that targeted sensitive data from U.S. elected and government officials, journalists and academics; valuable information from American companies; and political dissidents in America and abroad. Their sinister scheme victimized thousands of people and entities across the world, and lasted for well over a decade,” stated U.S. Attorney Peace. “America’s sovereignty extends to its cyberspace. Today’s charges demonstrate my Office’s commitment to upholding and protecting that jurisdiction, and to putting an end to malicious nation state cyber activity.”
“Over 10,000 malicious emails, impacting thousands of victims, across multiple continents. As alleged in today’s indictment, this prolific global hacking operation – backed by the PRC government – targeted journalists, political officials, and companies to repress critics of the Chinese regime, compromise government institutions, and steal trade secrets,” said Deputy Attorney General Lisa Monaco. “The Department of Justice will relentlessly pursue, expose, and hold accountable cyber criminals who would undermine democracies and threaten our national security.”
“The indictment unsealed today, together with statements from our foreign partners regarding related activity, shed further light on the PRC Ministry of State Security’s aggressive cyber espionage and transnational repression activities worldwide,” said Assistant Attorney General Matthew G. Olsen of the Justice Department’s National Security Division. “Today’s announcements underscore the need to remain vigilant to cybersecurity threats and the potential for cyber-enabled foreign malign influence efforts, especially as we approach the 2024 election cycle. The Department of Justice will continue to leverage all tools to disrupt malicious cyber actors who threaten our national security and aim to repress fundamental freedoms worldwide.”
“These defendants were part of a Chinese government sponsored hacking group, targeting U.S. businesses and U.S. political officials for intrusion for over a decade as part of a larger, malicious global campaign. These charges are yet another example of hostile actions taken by the PRC to attack not only American businesses and infrastructure, but the security of our nation. FBI New York is united with our partners - internationally, federally, and the private sector – to protect our common goals and ideals from antagonistic nation state actors,” stated FBI Assistant Director-in-Charge Smith.
“APT31 Group’s practices further demonstrate the size and scope of the PRC’s state-sponsored hacking apparatus,” said Robert W. “Wes” Wheeler, Jr., Special Agent-in-Charge of the Chicago Field Office of the FBI. “FBI Chicago worked tirelessly to uncover this complex web of alleged foreign intelligence and economic espionage crimes. Thanks to these efforts, as well as our partnerships with the U.S. Attorney’s Offices and fellow Field Offices, the FBI continues to be successful in holding groups accountable and protecting national security.”
Overview
As alleged in the indictment and court filings, the defendants, along with dozens of identified PRC Ministry of State Security (MSS) intelligence officers, contractor hackers, and support personnel, were members of a hacking group operating in the PRC and known within the cyber security community as Advanced Persistent Threat 31 (the APT31 Group). The APT31 Group was part of a cyberespionage program run by the MSS’s Hubei State Security Department, located in the city of Wuhan. Through their involvement with the APT31 Group, since at least 2010, the defendants conducted global campaigns of computer hacking targeting political dissidents and perceived supporters located inside and outside of China, government and political officials, candidates and campaign personnel in the United States and elsewhere and American companies.
The defendants and others in the APT31 Group targeted thousands of U.S. and foreign individuals and companies. Some of this activity resulted in successful compromises of the targets’ networks, email accounts, cloud storage accounts, and telephone call records, with some surveillance of compromised email accounts lasting many years.
Hacking Scheme
The more than 10,000 malicious emails that the defendants and others in the APT31 Group sent to these targets often appeared to be from prominent news outlets or journalists and appeared to contain legitimate news articles. The malicious emails contained hidden tracking links, such that if the recipient simply opened the email, information about the recipient, including the recipient’s location, internet protocol (IP) addresses, network schematics and specific devices used to access the pertinent email accounts, was transmitted to a server controlled by the defendants and those working with them. The defendants and others in the APT31 Group then used this information to enable more direct and sophisticated targeted hacking, such as compromising the recipients’ home routers and other electronic devices.
The defendants and others in the APT31 Group also sent malicious tracking-link emails to government officials across the world who expressed criticism of the PRC government. For example, in or about 2021, the Conspirators targeted the email accounts of various foreign government individuals world who were part of the Inter-Parliamentary Alliance on China (IPAC), a group founded in 2020 on the anniversary of the 1989 Tiananmen Square protests whose stated purpose was to counter the threats posed by the Chinese Communist Party to the international order and democratic principles. The targets included every European Union member of IPAC, and 43 United Kingdom parliamentary accounts, most of whom were members of IPAC or had been outspoken on topics relating to the PRC government.
To gain and maintain access to the victim computer networks, the defendants and others in the APT31 Group employed sophisticated hacking techniques including zero-day exploits, which are exploits that the hackers became aware of before the manufacturer or the victim were able to patch or fix the vulnerability. These activities resulted in the confirmed and potential compromise of economic plans, intellectual property, and trade secrets belonging to American businesses, and contributed to the estimated billions of dollars lost every year as a result of the PRC’s state-sponsored apparatus to transfer U.S. technology to the PRC.
Targeting of U.S. Government Officials and U.S. and Foreign Politicians and Campaigns
The targeted U.S. government officials included individuals working in the White House, at the Departments of Justice, Commerce, Treasury and State, and U.S. Senators and Representatives of both political parties. The defendants and others in the APT31 Group targeted these individuals at both professional and personal email addresses. Additionally in some cases, the defendants also targeted victims’ spouses, including the spouses of a high-ranking Department of Justice official, high-ranking White House officials and multiple United States Senators. Targets also included election campaign staff from both major U.S. political parties in advance of the 2020 election.
The allegations in the indictment regarding the malicious cyber activity targeting political officials, candidates, and campaign personnel are consistent with the March 2021 Joint Report of the Department of Justice and the Department of Homeland Security on Foreign Interference Targeting Election Infrastructure or Political Organization, Campaign, or Candidate Infrastructure Related to the 2020 US Federal Elections. That report cited incidents when Chinese government-affiliated actors “materially impacted the security of networks associated with or pertaining to US political organizations, candidates, and campaigns during the 2020 federal elections.” That report also concluded that “such actors gathered at least some information they could have released in influence operations,” but which the Chinese actors did not ultimately deploy in such a manner. Consistent with that conclusion, the indictment does not allege that the hacking furthered any Chinese government influence operations against the U.S. The indictment’s allegations nonetheless serve to underscore the need for U.S. and allied political organizations, candidates, and campaigns to remain vigilant in their cybersecurity posture and in otherwise protecting their sensitive information from foreign intelligence services, particularly in light of the U.S. Intelligence Community’s recent assessment that “[t]he PRC may attempt to influence the U.S. elections in 2024 at some level because of its desire to sideline critics of China and magnify U.S. societal divisions.”
Targeting of U.S. Companies
The defendants and others in the APT31 Group also targeted individuals and dozens of companies operating in areas of national economic importance, including the defense, information technology, telecommunications, manufacturing and trade, finance, consulting, legal and research industries. The defendants and others in the APT31 Group hacked and attempted to hack dozens of companies or entities operating in these industries, including multiple cleared defense contractors who provide products and services to the U.S. military, multiple managed service providers who managed the computer networks and security for other companies, a leading provider of 5G network equipment, and a leading global provider of wireless technology, among many others.
Targeting for Transnational Repression of Dissidents
The defendants and the APT31 Group also targeted individual dissidents around the world and other individuals who were perceived as supporting such dissidents. For example, in 2018, after several activists who spearheaded Hong Kong’s Umbrella Movement were nominated for the Nobel Peace Prize, the defendants and the APT31 Group targeted Norwegian government officials and a Norwegian managed service provider. The conspirators also successfully compromised Hong Kong pro-democracy activists and their associates located in Hong Kong, the United States, and other foreign locations with identical malware.
The charged defendants’ roles in the conspiracy consisted of testing and exploiting the malware used to conduct these intrusions, managing infrastructure associated with these intrusions, and conducting surveillance and intrusions against specific U.S. entities. For example, defendants Cheng Feng, Sun Xiaohui, Weng Ming, Xiong Wang and Zhao Guangzong were involved in testing and exploiting malware, including malware used in some of these intrusions. Cheng and Ni Gaobin managed infrastructure associated with some of these intrusions, including the domain name for a command-and-control server that accessed at least 59 unique victim computers, including a telecommunications company that was a leading provider of 5G network equipment in the United States, an Alabama-based research corporation in the aerospace and defense industries and a Maryland-based professional support services company. Sun and Weng operated the infrastructure used in an intrusion into a U.S. company known for its public opinion polls. Sun and Peng Yaowen conducted research and reconnaissance on several additional U.S. entities that were later the victims of the APT31 Group’s intrusion campaigns. Ni and Zhao sent emails with links to files containing malware to PRC dissidents, specifically Hong Kong legislators and democracy advocates, as well as targeting U.S. entities focusing on PRC-related issues.
The government’s case is being prosecuted by the Office’s National Security and Cybercrime Section. Assistant United States Attorneys Douglas M. Pravda, Saritha Komatireddy and Jessica Weigel are in charge of the prosecution, with assistance from Matthew Anzaldi and Matthew Chang of the National Security Division’s National Security Cyber Section and from the Office’s Litigation Analyst Mary Clare McMahon.
A criminal complaint was unsealed today in federal court in Brooklyn charging Aurelien Michel, a French national residing in the United Arab Emirates (UAE), with defrauding purchasers of “Mutant Ape Planet” NFTs, a type of digital asset, of more than $2.9 million in cryptocurrency. The defendant was arrested last night at John F. Kennedy International Airport. His initial appearance is scheduled for this afternoon before United States Magistrate Judge James R. Cho.
As part of the scheme, NFTs were marketed to purchasers, who were falsely promised numerous rewards and benefits designed to increase demand for, and the value of, their newly acquired NFTs. After selling out of the NFTs, the purchasers were “rug pulled” – a cryptocurrency scam in which a developer attracts investors, but pulls out before the project is complete, leaving buyers with a worthless asset – as none of the promised benefits were provided. Instead, millions worth of the NFT purchasers’ cryptocurrency was diverted for Michel’s personal benefit.
Breon Peace, United States Attorney for the Eastern District of New York, Ivan J. Arvelo, Special Agent-in-Charge, Homeland Security Investigations (HSI), New York and Thomas Fattorusso, Acting Special Agent-in-Charge, Internal Revenue Service-Criminal Investigation, New York (IRS-CI), announced the charges.
“As alleged, the defendant used a traditional criminal scheme to defraud consumers eager to participate in a new digital asset market,” stated United States Attorney Peace. “Protection from fraud and manipulation extends to all consumers and investors, including those participating in the fast-evolving market for NFTs and other crypto assets. Our Office is committed to bringing to justice any criminal actor abusing any markets for their own gain.”
“As alleged, Aurelien Michel perpetrated a ‘rug pull’ scheme - stealing nearly $3 million from investors for his own personal use. Purchasers of Mutant Ape Planet NFTs thought they were investing in a trendy new collectible, but they were deceived and received none of the promised benefits,” said Ivan J. Arvelo, Special Agent in Charge of Homeland Security Investigations (HSI) in New York. “HSI uses our extensive experience investigating financial crime in conjunction with our cutting edge cyber capabilities to uncover fraud and bring the perpetrators to justice.”
“It’s alleged that Michel defrauded investors by making false representations of, amongst other things, giveaways, tokens with staking features, and merchandise collections. Once the NFTs were sold-out, Michel allegedly ceased communications and withdrew purchasers’ funds from the company’s cryptocurrency wallets, lining his pockets with nearly $3 Million of investors’ money,” stated IRS-CI Fattorusso. “Michel can no longer blame the NFT community for his criminal behavior. His arrest means he will now face the consequences of his own actions.”
As alleged in the criminal complaint, Mutant Ape Planet NFTs were a digital asset stored on the Ethereum blockchain. As an NFT, each Mutant Ape Planet NFT was unique, freely transferrable, and gave purchasers exclusive ownership over each NFT. The NFTs were marketed with promises of exclusive benefits potential purchasers would receive. Those benefits included exclusive opportunities for additional investments, giveaways, merchandise, and other rewards. However, after sending their cryptocurrency and obtaining the NFT, purchasers received nothing while their cryptocurrency was diverted from the Mutant Ape Planet NFT project to cryptocurrency wallets controlled by the defendant Aurelien Michel. In total, more than $2.9 million in purchasers’ cryptocurrency was diverted as part of the Michel’s scheme.
As alleged, in a social media chat with current and prospective purchasers, Michel admitted to the fraudulent “rug pull,” but blamed the community of NFT purchasers for his actions, stating, “We never intended to rug but the community went way too toxic.”
The charges in the complaint are merely allegations, and the defendant is presumed innocent unless and until proven guilty.
The government’s case is being prosecuted by Assistant United States Attorneys Drew Rolle and Dylan Stern of the Office’s Business and Securities Fraud Section with assistance from Paralegal Specialist William Daniels.
If you believe that you have been a victim of this crime, please call the HSI Tip Line at 1-866-347-2423.
A criminal complaint was unsealed today in Brooklyn federal court charging Sherry Xue Li and Lianbo Wang with wire fraud conspiracy, money laundering conspiracy and conspiracy to defraud the United States by obstructing the Federal Election Commission’s (FEC) administration of campaign finance laws. Li and Wang, both naturalized U.S. citizens, were arrested earlier today in Oyster Bay, New York, and their initial appearance is scheduled for this afternoon before United States Magistrate Judge Ramon E. Reyes, Jr. at the United States Courthouse in Brooklyn, New York.
Breon Peace, United States Attorney for the Eastern District of New York; Michael J. Driscoll, Assistant Director-in-Charge, Federal Bureau of Investigation (FBI), New York Field Office; Ricky J. Patel, Acting Special Agent-in-Charge, Department of Homeland Security, Homeland Security Investigations (HSI), New York; and Thomas Fattorusso, Special Agent-in-Charge, Internal Revenue Service-Criminal Investigation, New York (IRS-CI) announced the arrests and charges.
“As alleged, the defendants enticed their victims to invest in a fraudulent scheme aided by misleadingly claiming that their fictitious project had the support of prominent politicians,” stated United States Attorney Peace. “The defendants were able to perpetrate this fraud by then selling access to U.S. politicians by unlawfully contributing foreign money to political campaigns in their own names and bringing foreign nationals as their guests to fundraising events. This Office is committed to protecting our democratic process from those who would expose it to unlawful foreign influence, and investors from the predatory fraudsters who would steal their money.”
United States Attorney Peace thanked the U.S. Citizenship and Immigration Services for its assistance in the investigation.
"We allege Li and Wang promised investors green cards, access to political figures, and dividends on their money. Tens of millions of dollars came in from investors and straw donors, who expected their money would bear fruit. However, only one promise came to fruition, the access to political power. Foreign money pollutes our immigration and democratic processes, and we must do all we can to protect them," stated FBI Assistant Director-in-Charge Driscoll.
Li and Wang are alleged to have perpetrated a massive, multi-layered fraud scheme targeting foreign nationals ranging from a sham real estate investment, promised benefits for payment, the solicitation for access to U.S. politicians, to making illegal donations for campaigns. The staggering scope of this alleged fraud was facilitated by an abuse in the investor visa process,” said HSI New York Acting Special Agent in Charge Patel. “In tandem with our partners, HSI continues to steadfastly monitor U.S. visa and travel systems for indicators of malign foreign actor abuse and will continue to aggressively investigate attacks on the integrity of the framework that allows access to the United States.”
“It’s alleged that Li and Wang defrauded their victim-investors out of millions, then used their ill-gotten gains to live luxuriously and ‘rub elbows’ with prominent politicians. It is through law enforcement partnerships and collaboration that we were able to break-down this multi-layered fraud scheme and ensure that the alleged culprits now face justice for their criminal behavior,” said Thomas M. Fattorusso, Special Agent in Charge of IRS:CI New York.
The Scheme to Defraud Investors
As alleged in the complaint, Li and Wang orchestrated a nearly decade-long scheme to defraud investors in a fictitious project to develop, build and operate a private educational institution in Sullivan County, New York, called the “Thompson Education Center” (the TEC Project). The defendants solicited victim-investors, many of them foreign nationals located outside of the United States, by falsely representing the progress they were making on the TEC Project and its support from government officials, including by sending investors and prospective investors promotional materials that included photographs of Li, the TEC Project’s President, with prominent U.S. politicians. Many foreign national victims were persuaded to invest in the TEC Project by, among other things, the defendants’ false assurances that their $500,000 investments would guarantee them lawful permanent residence in the United States through the EB-5 investment visa program administered by the Department of Homeland Security, U.S. Citizenship and Immigration Services (USCIS).
As alleged, instead Li, Wang and other members of the conspiracy siphoned off the money they fraudulently obtained from investors by transferring the funds through bank accounts held in the names of various companies that Li had created. Once the funds were in those accounts, Li and Wang used the funds to pay for numerous personal expenses including clothing and accessories, jewelry, housing, vacation travel, upscale dining, and political contributions to prominent politicians. The portion of the invested capital Li and Wang actually spent on the TEC Project was used merely to create and perpetuate the fiction that the TEC Project was a viable development project that was actually under construction. For example, Li and Wang hired contractors, engineers and other professionals to create architectural drawings and plans and perform minor work on or around the development site, which Li and Wang showed to potential investors to mislead them into believing the TEC Project had a realistic probability of completion and of delivering the returns on investment that the conspirators promised their investors.
As of July 2022, more than 150 investors have invested at least $27 million in the TEC Project, including approximately $16.5 million from EB-5 investors who were promised a green card in return for their investment, and approximately $11 million from stock investors who were promised that an IPO would take place. As of March 2022, Li, Wang, and their co-conspirators have misappropriated and laundered at least $2 million in TEC Project investor funds. During this same period, Li, Wang and their co-conspirators spent at least an additional $2.5 million dollars in investor funds on various personal expenses with no clear business purpose, none of which was reported as income to the Internal Revenue Service by Li or Wang. To date, no EB-5 investor in the TEC Project has received a temporary or permanent green card and the TEC Project has not made an IPO or been listed on any stock exchange.
Selling Access to U.S. Politicians
In furtherance of their scheme, Li and Wang also acted as “straw donors” for foreign nationals to unlawfully contribute to campaigns supporting U.S. politicians and political committees. Among other things, Li and Wang promised foreign nationals access to U.S. political events and politicians in exchange for a fee. Li and Wang used the money they received from foreign nationals to fund political contributions, and falsely identified themselves and other U.S. citizens as the contributors of the funds, in violation of the Federal Election Campaign Act (FECA) and FEC regulations. In some cases, Li and Wang used TEC investors’ investment funds to make the political contributions which they used to gain access to the political events, where Li and Wang took photographs with elected officials. Li and Wang would then use the photographs as a marketing tool in soliciting investments from foreign nationals in the TEC Project.
For example, as alleged in the complaint, Li and Wang charged twelve foreign nationals $93,000 per person for admission to a June 28, 2017 fundraising event (the June 28, 2017 Fundraiser) with the then-President of the United States. Li and Wang used the funds that they collected from the foreign nationals to unlawfully make $600,000 in political contributions in their own names—$270,500 from Li and $329,500 from Wang—to the joint fundraising committee hosting the June 28, 2017 Fundraiser. Li, Wang and their foreign national guests attended the June 28, 2017 Fundraiser and took photographs with the then-President of the United States. Li and Wang later used a photograph of Li and the President taken at the fundraiser to solicit investment in the TEC Project.
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'The FBI has established a hotline for potential victims. If you have information regarding the allegations in the complaint or believe you may have been a victim, please call 1-800-CALL-FBI or submit a tip online at tips.fbi.gov.
The charges in the complaint are merely allegations, and the defendants are presumed innocent unless and until proven guilty.
The government’s case is being handled by the Office’s National Security and Cybercrime Section and the Office’s Public Integrity Section. Assistant United States Attorneys Robert T. Polemeni, Ian C. Richardson, and Joshua Hafetz are in charge of the prosecution with assistance from Paralegal Specialist Magdalena St. Surin. Assistant United States Attorney Claire S. Kedeshian of the Office’s Asset Recovery Section is responsible for the forfeiture of assets.
Former Suffolk County District Attorney Thomas J. Spota and Christopher McPartland, the former Chief of Investigations and Chief of the Government Corruption Bureau of the Suffolk County District Attorney’s Office (SCDAO), were convicted today by a federal jury in Central Islip, New York, of all four counts of the indictment charging them with conspiracy to tamper with witnesses and obstruct an official proceeding, witness tampering, obstruction of justice, and being accessories after-the-fact to former Suffolk County Police Department (SCPD) Chief of Department James Burke’s deprivation of a prisoner’s civil rights. The verdict followed a six-week trial before United States District Judge Joan M. Azrack. When sentenced, Spota and McPartland each face up to 20 years’ imprisonment.
Richard P. Donoghue, United States Attorney for the Eastern District of New York, and William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI), announced the verdicts.
“When a sitting District Attorney and the Chief of the Government Corruption Bureau attempt to obstruct a federal grand jury investigation, it is nothing short of an attack on the justice system itself, and it will not be tolerated by the Justice Department. As prosecutors, the defendants were obligated to support the law they enforce, but the criminal actions taken by these men made a mockery of that obligation. Thankfully, the rule of law has prevailed, and the defendants now must face the consequences of their actions, just like any other defendant who has broken the law,” stated United States Attorney Donoghue.
“Spota and McPartland violated the law by obstructing a federal investigation into the assault on an individual’s civil rights,” stated FBI Assistant Director-in-Charge Sweeney. “Today they are reminded that positions of power come with a great responsibility to respect both the law and public trust. Any abuse of this privilege will be prosecuted to the fullest extent.”
As proven at trial, Spota and McPartland, the top prosecutors in Suffolk County, abused their leadership positions and authority within the SCDAO to obstruct and attempt to obstruct the FBI and federal grand juries investigating the assault of a SCPD prisoner, Christopher Loeb, in order to protect then-Chief Burke. On December 14, 2012, Loeb was arrested on larceny charges, among other offenses, in connection with his burglarizing Burke’s department-issued vehicle and stealing Burke’s gun belt and ammunition, as well as a duffel bag containing cigars, sex toys, a pornographic video and a bottle of Viagra. Loeb was transported to the Fourth Precinct in Hauppauge, New York, where he was assaulted by Burke and other members of the SCPD, while handcuffed and shackled to the floor.
The evidence at trial consisted of SCPD and SCDAO documents and records, voluminous telephone records, cell site records and testimony from 30 witnesses, including multiple cooperating witnesses. One such witness was James Hickey, a retired SCPD Lieutenant who was part of the “Inner Circle” that included Spota, McPartland and Burke. Hickey and several other cooperating and immunized witnesses detailed the defendants’ use of intimidation and threats to pressure witnesses to withhold information, refuse to cooperate with law enforcement, and lie under oath in order to thwart the federal investigation of the Loeb assault. Hickey supervised the SCPD’s elite Criminal Intelligence Unit, which Burke referred to as his “Palace Guards.” Three detectives from this unit participated with Burke in the assault of Loeb. Hickey testified that Burke told him the Intel guys “did themselves proud,” they “beat the hell” out of Loeb, and it was “just like the good old days.”
Loeb’s case was handled by the SCDAO’s Government Corruption Bureau, supervised by McPartland, although the charges would not typically be handled by that bureau, in an attempt to control the flow of information and cover-up the assault. In February 2013, after Loeb’s attorney disclosed that her client had been assaulted at the Fourth Precinct, Hickey testified that McPartland advised him to “keep the guys quiet and tight … it’s imperative we keep Jimmy [Burke] out of jail, so we needed to keep the guys quiet and in line.” Hickey testified that Spota regularly pressured him to keep the Intel detectives quiet by repeatedly inquiring – “Are they holding up?” “Are they towing the line?” – conveying the message that they should refuse to cooperate with the federal investigation and, if necessary, lie to protect Burke.
In April 2013, the United States Attorney’s Office for the Eastern District of New York and the FBI initiated a federal grand jury investigation into the assault of Loeb.
On June 25, 2013, FBI Special Agents served members of the SCPD with federal grand jury subpoenas. That same day, defendants Spota and McPartland learned of the existence of the federal investigation. McPartland instructed Hickey to debrief his Intel detectives and learn what was said by the FBI agents serving the subpoenas, and find out who might be cooperating with them. However, because of the threats and intimidation, none of the Intel detectives cooperated with the investigation, and it was closed eight months later, in December 2013. Through the efforts of the defendants and Burke, the initial grand jury investigation of Burke’s civil rights violation was successfully derailed.
In or about mid-2015, Spota and McPartland learned that the federal investigation had been reopened, and that its scope had expanded to include an investigation of the obstruction of justice and witness tampering offenses. The defendants reacted swiftly to obstruct it. Hickey testified that at a meeting with the defendants in Spota’s office on June 4, 2015, Spota asked him, “Who do you think has flipped?” In discussing which of the detectives might be a “rat,” cooperating with federal investigators, Spota said about one of the likely cooperators, “If he talks, he’s dead. He will never work in Suffolk County again.” In that same meeting, McPartland told Hickey to pass along a message to the Intel detectives, threatening them with prosecution if they cooperated with the investigation.
The defendants’ efforts to thwart the grand jury investigations ultimately failed. In early December 2015, a federal grand jury in the Eastern District of New York indicted Burke. Burke pleaded guilty approximately two months later, admitting to his involvement in both the deprivation of Loeb’s civil rights and the conspiracy to obstruct justice. In November 2016, he was sentenced to 46 months’ in prison.
The government’s case is being handled by the Office’s Long Island Criminal Division. Assistant United States Attorneys Nicole Boeckmann, Lara Treinis Gatz, Justina L. Geraci and Michael R. Maffei are in charge of the prosecution, and were assisted by Assistant United States Attorney John Durham and Investigator William Hessle.
CENTRAL ISLIP, NY – Earlier today, in federal court in Central Islip, Scott Gammon was sentenced by United States District Judge Joan M. Azrack to 36 months in prison for participating in a mass mailing scheme that tricked consumers into paying fees for falsely promised cash prizes. As part of the sentence, Gammon was also ordered to forfeit $139,611.97.
Breon Peace, United States Attorney for the Eastern District of New York, Brian M. Boynton, Principal Deputy Assistant Attorney General of the Justice Department’s Civil Division, and Daniel B. Brubaker, Inspector-in-Charge, United States Postal Inspection Service (USPIS), announced the sentence.
“Financially exploiting the elderly and other victims through fraudulent prize schemes is a form of abuse and deserving of punishment as today’s sentence demonstrates,” stated United States Attorney Peace. “A term in prison should deter others from preying on the vulnerable.”
“Participants in fraud schemes face the prospect of federal prison,” stated Principal Deputy Assistant Attorney General Boynton. “The Department of Justice is committed to protecting elderly and vulnerable Americans and to prosecuting individuals who engage in such schemes.”
“Today’s sentencing brings to a close the investigation of Mr. Gammon, who devised a fake prize promotion scheme designed to defraud older Americans and steal from those who believed they had won a prize. Unfortunately, for those who participated, they realized too late that they had been swindled. When a prize did not materialize, and their money was not returned, they became victims. Postal Inspectors remind consumers to be ever vigilant and play an active role in protecting their money. If you’re asked to pay for a prize you didn’t enter to win, it’s a scam,” stated USPIS Inspector-in-Charge Brubaker.
From August 2014 through August 2019, Gammon engaged in a direct-mail scheme that sent fraudulent prize notification mailings to thousands of consumers. The mailings induced consumers to pay a fee, purportedly in return for a large cash prize. None of the consumers who sent a fee ever received such a prize. Co-defendants Christopher King and Natasha Khan also pleaded guilty to conspiracy to commit mail fraud and are awaiting sentencing.
The U.S. Postal Inspection Service investigated the case.
Assistant United States Attorney Charles P. Kelly of the Eastern District of New York’s Long Island Criminal Division is prosecuting the case with Trial Attorneys Daniel Zytnick and Timothy Finley of the Civil Division’s Consumer Protection Branch. Assistant United States Attorney Tanisha Payne of the Eastern District’s Asset Recovery Section is handing forfeiture matters.
The department seeks to prevent the widespread losses seniors and other consumers suffer from fraud schemes. The best method to prevent fraud is to share information about the various types of elder fraud schemes with relatives, friends, neighbors and other seniors who can use that information to protect themselves.
If you or someone you know is age 60 or older and has been a victim of financial fraud, help is available at the National Elder Fraud Hotline: 1-833-FRAUD-11 (1-833-372-8311). This Department of Justice hotline, managed by the Office for Victims of Crime, is staffed by experienced professionals who provide personalized support to callers by assessing the needs of the victim and identifying relevant next steps. Case managers will identify appropriate reporting agencies, provide information to callers to assist them in reporting, connect callers directly with appropriate agencies, and provide resources and referrals, on a case-by-case basis. Reporting is the first step. Reporting can help authorities identify those who commit fraud, and reporting certain financial losses due to fraud as soon as possible can increase the likelihood of recovering losses. The hotline is staffed seven days a week from 6:00 a.m. to 11:00 p.m. ET. English, Spanish and other languages are available.
Additional information about the Consumer Protection Branch and its enforcement efforts may be found at www.justice.gov/civil/consumer-protection-branch. Information about the Department of Justice’s Elder Fraud Initiative is available at www.justice.gov/elderjustice.
WASHINGTON --The Justice Department, along with federal partners, announced today a $7.2 billion settlement with Deutsche Bank resolving federal civil claims that Deutsche Bank misled investors in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) between 2006 and 2007. This $7.2 billion agreement represents the single largest RMBS resolution for the conduct of a single entity. The settlement requires Deutsche Bank to pay a $3.1 billion civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). Under the settlement, Deutsche Bank will also provide $4.1 billion in relief to underwater homeowners, distressed borrowers and affected communities.
“This resolution holds Deutsche Bank accountable for its illegal conduct and irresponsible lending practices, which caused serious and lasting damage to investors and the American public,” said Attorney General Loretta E. Lynch. “Deutsche Bank did not merely mislead investors: it contributed directly to an international financial crisis. The cost of this misconduct is significant: Deutsche Bank will pay a $3.1 billion civil penalty, and provide an additional $4.1 billion in relief to homeowners, borrowers, and communities harmed by its practices. Our settlement today makes clear that institutions like Deutsche Bank cannot evade responsibility for the great cost exacted by their conduct.”
“This $7.2 billion resolution – the largest of its kind – recognizes the immense breadth of Deutsche Bank’s unlawful scheme by demanding a painful penalty from the bank, along with billions of dollars of relief to the communities and homeowners that continue to struggle because of Wall Street’s greed,” said Principal Deputy Associate Attorney General Bill Baer. “The Department will remain relentless in holding financial institutions accountable for the harm their misconduct inflicted on investors, our economy and American consumers.”
“In the Statement of Facts accompanying this settlement, Deutsche Bank admits making false representations and omitting material information from disclosures to investors about the loans included in RMBS securities sold by the Bank. This misconduct, combined with that of the other banks we have already settled with, hurt our economy and threatened the banking system,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “To make matters worse, the Bank’s conduct encouraged shoddy mortgage underwriting and improvident lending that caused borrowers to lose their homes because they couldn’t pay their loans. Today’s settlement shows once again that the Department will aggressively pursue misconduct that hurts the American public.”
“Investors who bought RMBS from Deutsche Bank, and who suffered catastrophic losses as a result, included individuals and institutions that form the backbone of our community,” said U.S. Attorney Robert L. Capers for the Eastern District of New York. “Deutsche Bank repeatedly assured investors that its RMBS were safe investments. Instead of ensuring that its representations to investors were accurate and transparent, so that investors could make properly informed investment decisions, Deutsche Bank repeatedly misled investors and withheld critical information about the loans it securitized. Time and again, the bank put investors at risk in pursuit of profit. Deutsche Bank has now been held accountable.”
“Deutsche Bank knowingly securitized billions of dollars of defective mortgages and subsequently made false representations to investors about the quality of the underlying loans,” said Special Agent In Charge Steven Perez of the Federal Housing Finance Agency, Office of the Inspector General. “Its actions resulted in enormous losses to investors to whom Deutsche Bank sold these defective Residential Mortgage-Backed Securities. Today’s announcement reaffirms our commitment to working with our law enforcement partners to hold accountable those who deceived investors in pursuit of profits, and contributed to our nation’s financial crisis. We are proud to have worked with the U.S. Department of Justice and the U.S Attorney’s Office for the Eastern District of New York.”
As part of the settlement, Deutsche Bank agreed to a detailed Statement of Facts. That statement describes how Deutsche Bank knowingly made false and misleading representations to investors about the characteristics of the mortgage loans it securitized in RMBS worth billions of dollars issued by the bank between 2006 and 2007. For example:
Deutsche Bank represented to investors that loans securitized in its RMBS were originated generally in accordance with mortgage loan originators’ underwriting guidelines. But as Deutsche Bank now acknowledges, the bank’s own reviews confirmed that “aggressive” revisions to the loan originators’ underwriting guidelines allowed for loans to be underwritten to anyone with “half a pulse.” More generally, Deutsche Bank knew, based on the results of due diligence, that for some securitized loan pools, more than 50 percent of the loans subjected to due diligence did not meet loan originators’ guidelines.
Deutsche Bank also knowingly misrepresented that loans had been reviewed to ensure the ability of borrowers to repay their loans. As Deutsche Bank acknowledges, the bank’s own employees recognized that Deutsche Bank would “tolerate misrepresentation” with “misdirected lending practices” as to borrower ability to pay, accepting even blocked-out borrower pay stubs that concealed borrowers’ actual incomes. As a Deutsche Bank employee stated, “What goes around will eventually come around; when performance (default) begins affecting profits and/or the investors who purchase the securities, only then will Wall St. take notice. For now, the buying continues.”
Deutsche Bank concealed from investors that significant numbers of borrowers had second liens on their properties. In one instance, a supervisory Deutsche Bank trader specifically instructed his team that if investors asked about second liens, “‘[t]ell them verbally . . . [b]ut don’t put in the prospectus.’” Deutsche Bank knew that these second liens increased the likelihood that a borrower would default on his or her loan.
Deutsche Bank purchased and securitized loans with substantial defects to provide “flexibility” to the mortgage originators on whom Deutsche Bank’s RMBS program depended for a continued supply of loans. Indeed, after the president of a large mortgage originator told Deutsche Bank he was “very upset with the rejection percentage,” Deutsche Bank’s diligence team was instructed, on three separate occasions, to clear loans it previously determined should be rejected.
While Deutsche Bank conducted due diligence on samples of loans it securitized in RMBS, Deutsche Bank knew that the size and composition of these loan samples frequently failed to capture loans that did not meet its representations to investors. In fact, Deutsche Bank knew “the more you sample, the more you reject.”
Deutsche Bank knowingly and intentionally securitized loans originated based on unsupported and fraudulent appraisals. Deutsche Bank knew that mortgage originators were “‘giving’ appraisers the value they want[ed]” and expecting the resulting appraisals to meet the originators’ desired value, regardless of the actual value of the property. Deutsche Bank concealed its knowledge of pervasive and consistent appraisal fraud, instead representing to investors home valuation metrics based on appraisals it knew to be fraudulent. Deutsche Bank misrepresented to investors the value of the properties securing the loans securitized in its RMBS and concealed from investors that it knew that the value of the properties securing the loans was far below the value reflected by the originator’s appraisal.
By May 2007, Deutsche Bank knew that there was an increasing trend of overvalued properties being sold to Deutsche Bank for securitization. As one employee noted, “We are finding ourselves going back quite often and clearing large numbers of loans [with inflated appraisals] to bring down the deletion percentages.” Deutsche Bank nonetheless purchased and securitized such loans because it received favorable prices on the fraudulent loans. Ultimately, Deutsche Bank enriched itself by paying reduced prices for risky loans while representing to investors valuation metrics based on appraisals the Bank knew to be inflated.
Deutsche Bank represented to investors that disclosed borrower FICO scores were accurate as of the “cut-off date” of the RMBS issuance. However, Deutsche Bank knowingly represented borrowers’ FICO scores as of the time of the origination of their loans despite the bank’s knowledge that these scores had often declined materially by the cut-off date.
Assistant U.S. Attorneys Edward K. Newman, Matthew R. Belz, Jeremy Turk, and Ryan M. Wilson of the U.S. Attorney’s Office for the Eastern District of New York investigated Deutsche Bank’s conduct in connection with the issuance and sale of RMBS between 2006 and 2007. The investigation was conducted with the Office of the Inspector General for the Federal Housing Finance Agency.
The $3.1 billion civil monetary penalty resolves claims under FIRREA, which authorizes the federal government to impose civil penalties against financial institutions that violate various predicate offenses, including wire and mail fraud. It is one of the largest FIRREA penalties ever paid. The settlement does not release any individuals from potential criminal or civil liability. As part of the settlement, Deutsche Bank has agreed to fully cooperate with investigations related to the conduct covered by the agreement.
Deutsche Bank will also provide $4.1 billion in the form of relief to aid consumers harmed by its unlawful conduct. Specifically, Deutsche Bank will provide loan modifications, including loan forgiveness and forbearance, to distressed and underwater homeowners throughout the country. It will also provide financing for affordable rental and for-sale housing throughout the country. Deutsche Bank’s provision of consumer relief will be overseen by an independent monitor who will have authority to approve the selection of any third party used by Deutsche Bank to provide consumer relief. To report RMBS fraud, go to: http://www.stopfraud.gov/rmbs.html
About the RMBS Working Group:
The RMBS Working Group, part of the Financial Fraud Enforcement Task Force, was established by the Attorney General in late January 2012. The Working Group has been dedicated to initiating, organizing, and advancing new and existing investigations by federal and state authorities into fraud and abuse in the RMBS market that helped precipitate the 2008 Financial Crisis. The Working Group’s efforts to date have resulted in settlements providing for tens of billions of dollars in civil penalties and consumer relief from banks and other entities that are alleged to have committed fraud in connection with the issuance of RMBS.
Download Settlement Agreement
Download Annex 1 -- Statement of Facts
Download Annex 1A -- Statement of Facts Appendices A through D
Download Annex 2 -- Consumer Relief
Download Annex 3 -- RMBS Covered by the Settlement
A federal jury in Brooklyn today, following two weeks of trial, convicted Dr. Martin Tesher of 10 counts of unlawful distribution of oxycodone without legitimate medical purpose to five patients, one of whom died as a result two days after his last visit with the defendant. When sentenced by United States District Judge Raymond J. Dearie, Dr. Tesher faces a mandatory minimum sentence of 20 years’ imprisonment and a maximum of life in prison.
Attorney General Jeff Sessions, Richard P. Donoghue, United States Attorney for the Eastern District of New York, and James J. Hunt, Special Agent-in-Charge, Drug Enforcement Administration (DEA), New York Division, announced the verdict.
“It is incredible but true that some medical professionals have chosen to violate their oaths and exploit our nation's drug epidemic for profit, even at the cost of human lives,” stated Attorney General Sessions. “This doctor knowingly took advantage of drug addicts and even contributed to the death of a young man. The Department of Justice is relentlessly pursuing criminals like him: we have charged more than 200 doctors with opioid-related crimes since the beginning of last year. We are going to keep pursuing these cases because they help cut off the supply of drugs and stop fraudsters from exploiting vulnerable people. I want to thank the DEA, our partners at IRS, four local police departments and especially our fabulous prosecutors Jennifer Sasso and Penelope Brady for their hard work in this case. I believe that they have helped prevent many more New Yorkers from falling into addiction and death.”
“Dr. Tesher dispensed opioids to patients whom he knew were abusing illegal drugs and the tragic result was an overdose death,” stated United States Attorney Donoghue. “Today, the jury held Dr. Tesher responsible for the part he played in fueling the opioid epidemic by abandoning his responsibilities as a medical professional and for acting as a drug dealer with a prescription pad. This Office and our law enforcement partners will continue to work tirelessly to combat the opioid epidemic on all fronts, including prosecuting corrupt doctors who disregard the well-being of their patients by prescribing highly addictive drugs without legitimate medical purpose.”
“DEA doesn’t tell doctors how to practice medicine, DEA is a watchdog to ensure doctors’ prescriptions are written for the right reason and betterment of their patient’s health,” stated DEA Special Agent-in-Charge Hunt. “This trial brings to light how opioid traffickers can hide in plain sight, like Dr. Tesher; and how heartbreaking drug addiction is to families and friends of substance abusers. I commend the U.S. Attorney’s Office for the Eastern District of New York and the DEA’s Long Island District Office Tactical Diversion Squad on their diligent work throughout this investigation. DEA will continue to work with our federal, state and local law enforcement partners to battle opioid traffickers and suppliers at all levels.”
The evidence at trial established that between June 2013 and January 2017, Dr. Tesher, a medical doctor specializing in general family care, prescribed oxycodone and fentanyl on a continuing basis without a legitimate medical purpose to patients after he learned, or had reason to believe, that these patients were addicted to drugs. The five patients either told Dr. Tesher that they had a drug addiction, had previously been treated for drug addiction, or tested positive for illegal drugs such as cocaine or heroin during the course of their treatment by the defendant. While under Dr. Tesher’s care, Nicholas Benedetto, 27, tested positive for cocaine, heroin and methadone in addition to oxycodone and fentanyl. Dr. Tesher continued to prescribe oxycodone and fentanyl to Benedetto despite indicators that he was abusing those drugs. Benedetto was found dead of a fatal combination of oxycodone and fentanyl on March 5, 2016, two days after he had been prescribed oxycodone and fentanyl patches by Dr. Tesher. According to a government expert witness, none of the patients for whom Tesher is charged in the superseding indictment had verified medical conditions that would require the prescription of Schedule II opioids.
The government’s investigation was led by the DEA’s Long Island Tactical Diversion Squad, which is comprised of agents and officers of the DEA, Internal Revenue Service, Nassau County Police Department (NCPD), Suffolk County Police Department, Port Washington Police Department and Rockville Centre Police Department. The DEA Tactical Diversion Squad also worked in conjunction with officers and agents of the New York City Police Department, Criminal Enterprise Investigations, the Department of Health & Human Services, Office of Inspector General, the New York City Department of Investigation and NCPD’s Asset Forfeiture and Intelligence Bureau.
This case is the latest in a series of federal prosecutions by the United States Attorney’s Office for the Eastern District of New York as part of the Prescription Drug Initiative. In January 2012, this Office and the DEA, in conjunction with the five District Attorneys in this district, the Nassau and Suffolk County Police Departments, the New York City Police Department and the New York State Police, along with other key federal, state and local government partners, launched the Initiative to mount a comprehensive response to what the United States Department of Health and Human Services Centers for Disease Control and Prevention called an epidemic increase in the abuse of so-called opioid analgesics. To date, the Initiative has brought over 160 federal and local criminal prosecutions, including the prosecution of 19 health care professionals; taken civil enforcement actions against a hospital, a pharmacy and pharmacy chain; removed prescription authority from numerous rogue doctors, and expanded information-sharing among enforcement agencies to better target and pursue drug traffickers. The Initiative also is involved in an extensive community outreach program to address the abuse of pharmaceuticals.
The government’s case is being handled by the Office’s International Narcotics and Money Laundering Section. Assistant United States Attorneys Jennifer M. Sasso and Penelope Brady are in charge of the prosecution.
Today, a complaint was unsealed in federal court in Brooklyn charging two defendants in connection with opening and operating an undeclared overseas police station, located in lower Manhattan, for the Ministry of Public Security (“MPS”) of the People’s Republic of China (“PRC”). Lu Jianwang and Chen Jinping were arrested earlier this morning at their homes in New York City. Their initial appearances are scheduled this afternoon before United States Magistrate Judge James R. Cho.
Breon Peace, United States Attorney for the Eastern District of New York; Matthew G. Olsen, Assistant Attorney General of the Justice Department’s National Security Division; and Michael J. Driscoll, Assistant Director-in-Charge, FBI, New York Field Office, announced the arrests and charges.
“This prosecution reveals the Chinese government’s flagrant violation of our nation’s sovereignty by establishing a secret police station in the middle of New York City,” stated United States Attorney Peace. “As alleged, the defendants were directed to do the PRC’s bidding, including helping locate a Chinese dissident living in the United States, and obstructed our investigation by deleting their communications with a Chinese Ministry of Public Security official. Such a police station has no place here in New York City—or any American community.”
“The PRC, through its repressive security apparatus, established a secret physical presence in New York City to monitor and intimidate dissidents and those critical of its government,” stated Assistant Attorney General Olsen. “The PRC’s actions go far beyond the bounds of acceptable nation-state conduct. We will resolutely defend the freedoms of all those living in our country from the threat of authoritarian repression.”
“The defendants, operating on behalf of the government of the People’s Republic of China, are alleged to have operated an undeclared police station in downtown New York City,” stated FBI Assistant Director-in-Charge Driscoll. “Upon learning of the FBI’s investigation into the police station, the defendants erased their communications to conceal their activities. Clandestine police stations operating within our communities are not only illegal but infringe on the United States' freedom - they will not be tolerated. The FBI is unwavering in our mission to protect the American people and uphold our Constitution; anyone working on behalf of a hostile foreign nation to violate our national security and freedoms will be held accountable.”
As alleged in the complaint, Lu Jianwang and Chen Jinping are charged with conspiring to act as agents of the PRC government as well as obstructing justice by destroying evidence of their communications with an MPS official (the “MPS Official”). While acting under the direction and control of the MPS Official, the defendants worked together to establish the first known overseas police station in the United States on behalf of the Fuzhou branch of the MPS. The police station—which closed in the fall of 2022—occupied an entire floor in an office building in Manhattan’s Chinatown. Lu and Chen helped open and operate the clandestine police station. None of the participants in the scheme informed the U.S. government that they were helping the PRC government surreptitiously open and operate an undeclared MPS police station on U.S. soil.
Before helping open the police station in early 2022, Lu had a longstanding relationship of trust with PRC law enforcement, including the MPS. Since 2015, and through the operation of the secret police station, Lu was directed to assist the PRC government’s repressive activities on U.S. soil:
In 2015, during PRC President Xi Jinping’s visit to the United States, Lu participated in counterprotests in Washington, D.C. against members of a religion that is forbidden under PRC law. A deputy director of the MPS awarded Lu a plaque for the work he performed on behalf of the PRC government.
In 2018, Lu was enlisted in efforts to cause a purported PRC fugitive to return to the PRC. The victim reported being repeatedly harassed to return to the PRC, including through threats of violence made to the victim and the victim’s family in the United States and in the PRC.
In 2022, the MPS Official sought Lu’s assistance in locating an individual living in California who is a pro-democracy activist. In turn, Lu enlisted the help of another co-conspirator. Later, when confronted by the FBI about these conversations, Lu denied that they occurred.
In October 2022, the FBI conducted a judicially authorized search of the illegal police station. In connection with the search, FBI agents interviewed both Lu and Chen and seized their phones. In reviewing the contents of these phones, FBI agents observed that communications between Lu and Chen, on the one hand, and the MPS Official, on the other, appeared to have been deleted. In subsequent consensual interviews, Lu and Chen admitted to the FBI that they had deleted their communications with the MPS Official after learning about the ongoing FBI investigation, thus preventing the FBI from learning the full extent of the MPS’s directions for the overseas police station.
If convicted of conspiring to act as agents of the PRC, the defendants face a maximum sentence of five years in prison. The obstruction of justice charge carries a maximum sentence of 20 years in prison.
The charges in the complaints are allegations, and the defendants are presumed innocent unless and until proven guilty.
The government’s case is being handled by the Office’s National Security and Cybercrime Section. Assistant United States Attorneys Alexander A. Solomon, and Antoinette N. Rangel are in charge of the prosecution, with assistance from Trial Attorney Scott A. Claffee of the National Security Division’s Counterintelligence and Export Control Section.
The FBI has created a website for victims to report efforts by foreign governments to stalk, intimidate, or assault people in the United States. If you believe that you are or have been a victim of transnational repression, please visit https://www.fbi.gov/investigate/counterintelligence/transnational-repression.
BROOKLYN, NY – A criminal complaint was unsealed today in federal court in Brooklyn charging Kaveh Lotfolah Afrasiabi, also known as “Lotfolah Kaveh Afrasiabi,” with acting and conspiring to act as an unregistered agent of the Government of the Islamic Republic of Iran, in violation of the Foreign Agents Registration Act (FARA). Afrasiabi was arrested yesterday at his home in Watertown, Massachusetts, and will make his initial appearance this morning in federal court in Boston, Massachusetts, before United States Magistrate Judge Jennifer C. Boal.
Seth D. DuCharme, Acting U.S. Attorney for the Eastern District of New York; John C. Demers, Assistant Attorney General for National Security; William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI); and Joseph Bonavolonta, Special Agent-in-Charge, FBI, Boston Field Office announced the arrest and charges.
“Afrasiabi allegedly sought to influence the American public and American policymakers for the benefit of his employer, the Iranian government, by disguising propaganda as objective policy analysis and expertise,” stated Acting U.S. Attorney DuCharme. “This Office is committed to the robust enforcement of the Foreign Agents Registration Act, which provides the American people the tools they need to evaluate opinions and arguments in the marketplace of ideas by requiring foreign agents to declare their paymasters. Those, like the defendant, who conceal the full extent of their work for a foreign government when the law requires disclosure will face consequences for their actions.”
“For over a decade, Kaveh Afrasiabi pitched himself to Congress, journalists, and the American public as a neutral and objective expert on Iran," stated Assistant Attorney General Demers. “However, all the while, Afrasiabi was actually a secret employee of the Government of Iran and the Permanent Mission of the Islamic Republic of Iran to the United Nations (IMUN) who was being paid to spread their propaganda. In doing so, he intentionally avoided registering with Department of Justice as the Foreign Agents Registration Act required. He likewise evaded his obligation to disclose who was sponsoring his views. We now begin to hold him responsible for those deeds.”
“Anyone working to advance the agenda of a foreign government within the United States is required by law to register as an agent of that country,” stated FBI Assistant Director-in-Charge Sweeney. “Mr. Afrasiabi never disclosed to a Congressman, journalists or others who hold roles of influence in our country that he was being paid by the Iranian government to paint an untruthfully positive picture of the nation. Our laws are designed to create transparency in foreign relations, and they are not arbitrary or malleable. As today's action demonstrates, we will fully enforce them to protect our national security.”
“Our arrest of Kaveh Afrasiabi makes it clear that the United States is not going to allow undeclared agents of Iran to operate in our country unchecked. For more than a decade, Mr. Afrasiabi was allegedly paid, directed, and controlled by the Government of Iran to lobby U.S. government officials, including a Congressman; and to create and disseminate information favorable to the Iranian government,” stated FBI Special Agent-in-Charge Bonavolonta. “The FBI will continue to do everything it can to uncover these hidden efforts and hold accountable those who work for our adversaries to the detriment of our national security.”
According to the complaint, Afrasiabi is a citizen of the Islamic Republic of Iran and a lawful permanent resident of the United States. Afrasiabi holds a PhD, and frequently publishes books and articles, and appears on English-language television programs discussing foreign relations matters, particularly Iran’s relations with the United States. Afrasiabi has identified or portrayed himself as a political scientist, a former political science professor or as an expert on foreign affairs.
Since at least 2007 to the present, Afrasiabi has also been secretly employed by the Iranian government and paid by Iranian diplomats assigned to the Permanent Mission of the Islamic Republic of Iran to the United Nations in New York City (IMUN). Afrasiabi has been paid approximately $265,000 in checks drawn on the IMUN’s official bank accounts since 2007 and has received health insurance through the IMUN’s employee health benefit plans since at least 2011.
In the course of his employment by the Iranian government, Afrasiabi has lobbied a U.S. Congressman and the U.S. Department of State to advocate for policies favorable to Iran, counseled Iranian diplomats concerning U.S. foreign policy, made television appearances to advocate for the Iranian government’s views on world events, and authored articles and opinion pieces espousing the Iranian government’s position on various matters of foreign policy. Afrasiabi has long known that FARA requires agents of foreign principals to register with the U.S. Department of Justice and has discussed information obtained from FARA disclosures with others. Nevertheless, Afrasiabi did not register as an agent of the Government of Iran.
For example, in January 2020, Afrasiabi emailed Iran’s Foreign Minister and Permanent Representative to the United Nations with advice for “retaliation” for the U.S. military airstrike that killed Major General Qasem Soleimani, the head of the Quds Force, the external operations arm of the Iranian government’s Islamic Revolutionary Guard Corps, proposing that the Iranian government “end all inspections and end all information on Iran’s nuclear activities pending a [United Nations Security Council] condemnation of [the United States’] illegal crime.” Afrasiabi claimed that such a move would, among other things, “strike fear in the heart of [the] enemy.”
Afrasiabi has admitted in his own communications that his extensive body of published works and television appearances, in which he has consistently advocated perspectives and policy positions favored by the Iranian government, has been attributable to the funding he receives from the Iranian government. For example, in a July 28, 2020 email to Iran’s Foreign Minister, Afrasiabi included “links for many of [his] works, including books, hundreds of articles in international newspapers and academic journals,” telling Iran’s Foreign Minister “Without support none of this would have been possible! This has been a very productive relationship spanning decades that ought not to be interrupted.”
The charges in the complaint are allegations, and the defendant is presumed innocent unless and until proven guilty. If convicted of both charged offenses, Afrasiabi faces a maximum sentence of 10 years in prison.
The government’s case is being handled by the Office’s National Security and Cybercrime Section. Assistant United States Attorneys Ian C. Richardson and Michael T. Keilty are in charge of the prosecution, with assistance from Trial Attorney David C. Recker of the National Security Division’s Counterintelligence and Export Control Section.
The Defendant:
KAVEH LOTFOLAH AFRASIABI (also known as “Lotfolah Kaveh Afrasiabi”)
Earlier today, at the federal courthouse in Brooklyn, New York, Johnnie Monroe, also known as “Nut,” was sentenced by United States District Judge Brian M. Cogan to 97 months’ imprisonment for conspiring to distribute fentanyl, to be followed by a term of four years’ supervised release. The fentanyl the defendant distributed was linked to the overdose death of a young mother in West Virginia in April 2015. Judge Cogan also ordered forfeiture in the amount of $150,000.
Bridget M. Rohde, Acting United States Attorney for the Eastern District of New York, James J. Hunt, Special Agent-in-Charge, Drug Enforcement Administration, New York Division (DEA), and James P. O’Neill, Commissioner, New York City Police Department (NYPD), announced the sentence.
“The death of a woman in West Virginia after ingesting fentanyl pills distributed by defendant Johnnie Monroe did not deter him from shortly thereafter shipping another package of pills containing fentanyl to West Virginia,” stated Acting United States Attorney Rohde. “Today’s sentence holds Monroe accountable for contributing to the deadly opioid epidemic facing this country. This Office, together with our law enforcement partners, will continue to identify and prosecute those who contribute to and would seek to profit from this epidemic. Through these efforts, lives will be saved by reducing the availability of opioids and preventing new addictions.”
“There are no words to express our sorrow for lives lost as a result of drug overdose; but DEA strives to bring justice to the victims’ families by identifying those responsible for distributing the poison,” stated DEA Special Agent in Charge Hunt. “Heroin and fentanyl are poison and have been the cause of record breaking numbers of overdoses throughout the U.S. This sentencing is a reminder that DEA and our law enforcement partners will continue to investigate opioid trafficking organizations and put them in jail.”
According to the Centers for Disease Control and Prevention and the Department of Justice, drug overdoses have become the leading cause of death for Americans under the age of 50. Between 2012 and 2015, fentanyl overdose deaths in West Virginia increased by more than 20 percent, according to the DEA. The recent rise in overdose deaths has been driven in large part by fentanyl—a drug that has been described as 50 to 100 times more potent than morphine. Opioids have been a particular problem in West Virginia, where the defendant and his co-conspirators trafficked substantial amounts of fentanyl. One of the victims of these trends was a young mother, who Monroe and his co-conspirators believed they killed with their fentanyl pills. Upon learning of the young mother’s death, Monroe was intercepted over a judicially authorized wiretap stating, “The girl went out.” When a co-conspirator asked Monroe what he meant by “went out,” Monroe left no ambiguity that a young woman had overdosed: “Went out! OD, OD!” Nonetheless, two weeks later, Monroe mailed another package containing hundreds of pills containing fentanyl to a co-conspirator in West Virginia.
According to the government’s sentencing memorandum, the defendant traveled to West Virginia to sell fentanyl, and, in addition, supplied a significant amount of the crack cocaine that was sold by street-level dealers in the Queensbridge community. The defendant himself sold crack on 20 separate occasions in deals monitored by the NYPD. The defendant also agreed to commit an armed robbery of an individual believed to be traveling with $110,000, and went to a bus station in Manhattan to look for the individual. The failed robbery plot was not for a lack of effort—the targeted victim never arrived. The next day, Monroe was intercepted over a wiretap bragging to a co-conspirator that they were in position, armed and ready to commit the robbery: “We had biscuits [i.e., firearms], stun guns . . . we would a taken him down.”
On December 5, 2017, co-defendant Edward Carrillo was sentenced to 126 months’ imprisonment for the same charge of conspiring to distribute fentanyl. For conspiring to distribute crack-cocaine in Queensbridge, co-defendant Terrell Carmichael was sentenced on November 16, 2017 to 51 months’ imprisonment and co-defendant Kyle Williams was sentenced on December 12, 2017 to 42 months’ imprisonment. Three additional co-defendants are awaiting sentencing.
The government’s case is being handled by the Office’s Organized Crime and Gangs Section. Assistant United States Attorneys Andrey Spektor and Lindsay K. Gerdes are in charge of the prosecution.
Defendant Sentenced Today:
JOHNNIE MONROE, also known as “Nut”Age: 46Brooklyn, New York
Defendants Previously Sentenced:
TERRELL CARMICHAEL, also known as “Rell”Age: 31Long Island City, New York
EDWARD CARRILLO, also known as “Super Ed”Age: 43Manhattan, New York
KYLE WILLIAMS, also known as “Sleepy”Age: 31Long Island City, New York
Defendants Awaiting Sentencing:
LASHAWN BALANCE, also known as “Flip”Age: 41Princeton, West Virginia
DARRYL KNOWLESAge: 29Bronx, New York
MICHAEL YOUNG, also known as “Littles”Age: 32Long Island City, New York
Earlier today, in federal court in Central Islip, Morris Barnard, a medical doctor practicing in Great Neck, New York, pleaded guilty to health care fraud in connection with billing Medicare for millions of dollars for medical procedures that were never actually performed. The proceeding was held before United States Magistrate Judge Anne Y. Shields.
Breon Peace, United States Attorney for the Eastern District of New York, Scott Lampert, Special Agent-in-Charge, Health & Human Services and Michael Driscoll, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI) announced the guilty plea.
“With today’s guilty plea, Dr. Barnard admits to committing a multi-million dollar fraud on the Medicare program by billing for procedures he did not perform,” stated United States Attorney Peace. “By claiming to render services to disabled and other vulnerable patients, Dr. Barnard not only pocketed taxpayer funds that were intended to help beneficiaries in need, he also betrayed his oath for profit. We will continue to work closely with our law enforcement partners to protect the integrity of taxpayer-funded health care programs.”
“Money that’s allocated for Medicare-approved services, and fraudulently paid out to providers who don’t actually perform these services, is a crime that’s ultimately paid for by taxpayers themselves. Our office is committed to rooting out this type of fraudulent activity and maintaining the integrity of our government-sponsored health care programs,” stated FBI Assistant Director-in Charge Driscoll.
“The defendant’s actions diverted scarce taxpayer funds from the Medicare program for personal enrichment, while taking advantage of vulnerable individuals,” stated HHS-OIG Special Agent-in-Charge Lampert. “Working with our law enforcement partners, HHS-OIG will continue to ensure that providers that bill federally funded health care programs do so in an honest manner, and criminals will be held accountable.”
From October 2015 through February 2020, Dr. Barnard submitted over $3 million in billings to Medicare for colonoscopy and gastroenterological procedures that were not done. Most of these billings indicated that the services were rendered to disabled beneficiaries, who were living in residential group homes. Medicare reimbursed approximately $1.4 million of these false claims, none of which Dr. Barnard was entitled to receive.
The government’s case is being prosecuted by Assistant United States Attorneys Erin Argo, Charles P. Kelly and Madeline O’Connor of the Long Island Criminal Division.
Earlier today, a federal jury in Brooklyn convicted Ppassim Elder, also known as “Bsam,” “Big Sam” and “Sam,” and Wilbert Bryant, also known as “Will” and “La,” of extortion, bank fraud, firearms and murder offenses. The verdict followed a three-week trial before by United States District Judge William F. Kuntz, II. When sentenced, the defendants face up to life in prison.
Jacquelyn M. Kasulis, Acting United States Attorney for the Eastern District of New York; Michael J. Driscoll, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI); and Dermot F. Shea, Commissioner, New York City Police Department, announced the verdict.
“With today’s verdict, a jury has held the defendants accountable for their heinous crimes, including the murder of a Queens business owner while attempting to collect a debt they claimed was owed by the victim’s son,” stated Acting United States Attorney Kasulis. “This Office and our law enforcement partners are working tirelessly to protect the communities in our district from violent criminals like the defendants who will now face very serious consequences for their actions.” Ms. Kasulis also expressed her appreciation to the Queens County District Attorney’s Office for their assistance during the investigation and prosecution.
As proven at trial, on the morning of October 23, 2017, Bryant and two other perpetrators walked into Garden Valley Distributors, a family-owned wholesale distribution business located in Ozone Park, Queens. The perpetrators said that “Big Sam” had sent them to collect his money. Earlier that year, Elder, who was known as “Big Sam,” had given the murder victim’s son money, which the son used to support the business. When Elder demanded full repayment, the son was unable to repay the debt because much of the money had been used to purchase merchandise for Garden Valley. Elder then began a campaign of intimidation against the son and his family. On one occasion, Elder paid co-conspirators to throw a rock through a window of the victim’s home. On another, Elder barged into the family home, intimidating members of the victim’s family. Finally, Elder dispatched Bryant and two co-conspirators into Garden Valley business where, on October 23, 2017, the perpetrators brandished a firearm, pistol-whipped the son and fatally shot the father in the face.
In addition to the murder, Elder extorted another person whose brother had stolen the proceeds of a fraud scheme committed by Elder. Although the victim was not involved in the theft, Elder nonetheless punched him in his face in front of his daughters, breaking and bloodying his nose in order to “send a message” to the victim’s brother. Elder and Bryant were also convicted of bank fraud conspiracy for lying to banks about the true owner of certain bank accounts, which permitted Elder to defraud innocent victims across the country, including an elderly man who lost over $30,000 when he was tricked into believing he was purchasing a car and another individual who lost over $150,000 when he was defrauded into believing he was purchasing two real estate properties. Elder was also convicted of crimes committed after his arrest in this case, including stealing his attorney’s identity and lying to federal officials.
This case was brought as part of Project Safe Neighborhoods (PSN), a program bringing together all levels of law enforcement and the communities they serve to reduce violent crime and make our neighborhoods safer for everyone. As part of the program, U.S. Attorneys’ Offices work in partnership with federal, state, local and tribal law enforcement and their local communities to develop effective, locally based strategies to reduce violent crime.
The government’s case is being handled by the Office’s Organized Crime and Gangs Section. Assistant United States Attorneys Keith D. Edelman, Genny Ngai and Anna L. Karamigios are in charge of the prosecution.
The Defendants:
PPASSIM ELDER (also known as “Bsam,” “Sam” and “Big Sam”)
Junior Zelaya-Canales, a regional leader of the 18th Street gang, will be arraigned this afternoon before United States Magistrate Judge Robert M. Levy in federal court in Brooklyn on a fourth superseding indictment charging him with murder in aid of racketeering in connection with the September 2016 fatal shooting of 15-year-old Josue Guzman in Hempstead, New York; conspiracy to murder rival gang members; and attempted murder of rival gang members. The superseding indictment also charged 18th Street gang members Jonathan Zelaya-Diaz with conspiracy to commit murder and attempted murder in aid of racketeering, and Eric Chavez with attempted murder and assault in aid of racketeering. Chavez was arrested on Tuesday and ordered detained pending trial. Zelaya-Diaz remains at large.
Richard P. Donoghue, United States Attorney for the Eastern District of New York, and William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI), announced the charges.
As alleged in the superseding indictment and other court filings, the 18th Street gang is a violent street gang with members and associates in Jamaica, Queens, and in various locations across the United States.
“The superseding indictment and arrests announced today are a significant step in dismantling a violent street gang in our district,” stated United States Attorney Donoghue. “This Office, with the assistance of local and federal law enforcement partners, will not relent until violent street gangs that endanger communities have been eradicated.” Mr. Donoghue expressed his grateful appreciation to the Nassau County District Attorney’s Office, Nassau County Police Department, Queens District Attorney’s Office and the New York City Police Department (NYPD) for their assistance with the investigations.
"It defies comprehension these gang members are allegedly murdering and attempting to murder human beings for respect in their gang or in retaliation for some perceived slight,” stated FBI Assistant Director-in-Charge Sweeney. “Josue Guzman was just 15-years-old when he was shot and killed because someone deemed him to be disrespectful. We may never be able to change the mindlessness of a teenager being killed for no reason, but we can certainly make sure anyone who commits such a grotesque act will suffer the consequences.”
The Guzman Murder
In September 2016, Zelaya-Canales allegedly directed two lower-level gang members to kill Josue Guzman to demonstrate their allegiance to 18th Street gang. The murder was ordered, in part, because Guzman was believed to have offended 18th Street gang members. On September 12, 2016, at approximately 1:00 a.m., the Hempstead Police Department responded to a report of shots fired near the intersection of Linden Avenue and Laurel Avenue in Hempstead. There, the police officers found Guzman’s body lying near the curb, shot once in the back of the head. Guzman was pronounced dead at the scene.
Attempted Murder of Rival Gang Members
On July 9, 2017, Zelaya-Canales, Zelaya-Diaz and another 18th Street gang member allegedly directed the shooting of rival gang members over a turf dispute in Woodhaven, Queens. At approximately 10:30 p.m., NYPD officers responded to a 911 call about shots fired in the vicinity of 86th Road in Woodhaven. There, the police officers recovered nine 9-millimeter shell casings.
On August 9, 2017, NYPD detectives investigating the shooting executed a search warrant at Zelaya-Canales’s apartment and recovered a 9-millimeter Ruger handgun with a defaced serial number, four rounds of 9-millimeter ammunition, 56 rounds of .357 magnum ammunition, 34 rounds of .380 caliber ammunition and 23 rounds of .38 ammunition. Ballistic tests subsequently revealed that the Ruger handgun was the weapon that fired the 9-millimeter shell casings found at the scene of the shooting in Woodhaven.
Attempted Murder of “John Doe”
On September 20, 2017, in Jamaica, Queens, Eric Chavez allegedly shot “John Doe” for the purpose of maintaining and increasing his own position in the 18th Street gang, incorrectly suspecting that “Doe” was a member of the rival MS-13 gang. Chavez and another gang member approached “Doe” with guns drawn and searched him for MS-13 gang tattoos, but discovered none. Nevertheless, they shot and wounded “Doe” as he fled.
The charges in the superseding indictment are allegations, and the defendants are presumed innocent unless and until proven guilty.
The government’s case is being prosecuted by Assistant United States Attorneys Soumya Dayananda and Jonathan P. Lax.
Martin Tesher, a former family medical doctor, was sentenced today by United States District Judge Raymond J. Dearie to 20 years’ imprisonment for nine counts of unlawful distribution of oxycodone without a legitimate medical purpose and one count of unlawful distribution of oxycodone and fentanyl that resulted in the death of a patient. The Court also ordered Tesher to pay $3,700 in restitution and forfeit $2,725 in criminal proceeds. Tesher was convicted by a federal jury in July 2018 following a nearly two-week trial.
Richard P. Donoghue, United States Attorney for the Eastern District of New York, and Ray Donovan, Special Agent-in-Charge, Drug Enforcement Administration, New York Division (DEA), announced the sentence.
Between June 2013 and January 2017, Tesher prescribed oxycodone tablets and fentanyl patches without a legitimate medical purpose to five patients after learning, or had reason to believe, that these patients were addicted to drugs. None of these patients had verified medical conditions that would require the prescription of Schedule II opioids. While under Tesher’s care, Nicholas Benedetto, 27, tested positive for cocaine, heroin, methadone, oxycodone and fentanyl. Nonetheless, Tesher prescribed oxycodone and fentanyl patches for Benedetto. On March 5, 2016, Benedetto was found dead of a fatal combination of oxycodone and fentanyl, two days after he had been prescribed those drugs by Tesher.
“In the midst of an unprecedented opioid epidemic, Dr. Tesher used his medical skills to harm, not heal and in doing so he cost a young man his life,” stated United States Attorney Donoghue. “Such criminal conduct is an utter betrayal of the trust our society places in doctors and it warrants the severe sentence imposed today.”
“Today’s sentence demonstrates how DEA, EDNY and their many law enforcement partners have come full circle to eliminate the threat of rogue doctors, like Tesher who posed a threat to the public health of the citizens of New York City, Staten Island, and beyond,” stated DEA Special Agent-in-Charge Donovan. “DEA and its law enforcement partners will continue to seek justice for patients like Nicholas Benedetto, as well as the countless other families and friends who have suffered greatly at the hands of this opioid epidemic.”
The government’s investigation was led by the DEA’s Long Island Tactical Diversion Squad, comprising agents and officers of the DEA, Internal Revenue Service, Nassau County Police Department (NCPD), Suffolk County Police Department (SCPD), Port Washington Police Department and Rockville Centre Police Department. The DEA Tactical Diversion Squad also worked in conjunction with officers and agents of the New York City Police Department (NYPD), Criminal Enterprise Investigations, the Department of Health & Human Services, Office of Inspector General and NCPD’s Asset Forfeiture and Intelligence Bureau.
This case is the latest in a series of federal prosecutions by the United States Attorney’s Office for the Eastern District of New York as part of the Prescription Drug Initiative. In January 2012, this Office and the DEA, in conjunction with the five District Attorneys in this district, the NCPD and SCPD, the NYPD and the New York State Police, along with other key federal, state and local government partners, launched the Initiative to mount a comprehensive response to what the United States Department of Health and Human Services Centers for Disease Control and Prevention called an epidemic increase in the abuse of so-called opioid analgesics. To date, the Initiative has brought over 160 federal and local criminal prosecutions, including the prosecution of 20 health care professionals; taken civil enforcement actions against a hospital, a pharmacy and pharmacy chain; removed prescription authority from numerous rogue doctors, and expanded information-sharing among enforcement agencies to better target and pursue drug traffickers. The Initiative also is involved in an extensive community outreach program to address the abuse of pharmaceuticals.
The government’s case is being handled by the Office’s International Narcotics and Money Laundering Section. Assistant United States Attorneys Jennifer M. Sasso and Penelope Brady are in charge of the prosecution.
Earlier today, in federal court in Central Islip, Lorraine Chalavoutis pleaded guilty before United States District Judge Joanna Seybert to conspiracy to commit mail fraud by participating in a scheme to mail fraudulent prize notices that induced recipients, many of whom were elderly and vulnerable, to believe that they could claim large cash prizes in exchange for a modest fee. None of the victims who submitted fees, which in total exceeded $30 million, received a substantial cash prize. When sentenced, Chalavoutis faces up to 20 years in prison, as well as forfeiture and a fine.
Jacquelyn M. Kasulis, Acting United States Attorney for the Eastern District of New York, Brian M. Boynton, Acting Assistant Attorney General for the Justice Department’s Civil Division, and Philip R. Bartlett, Inspector-in-Charge, United States Postal Inspection Service, New York Division (USPIS), announced the guilty plea.
“With today’s plea, Chalavoutis has admitted her role in a nefarious and fraudulent scheme to enrich herself by tricking elderly and vulnerable victims into believing they had won a cash prize that they could collect after paying her modest fees,” stated Acting United States Attorney Kasulis. “Protecting the community from those who commit fraud to deliberately prey on the false hopes of the vulnerable remains a priority of this Office and the Department of Justice.”
“Chalavoutis set up and ran the administrative and financial operations that allowed this fraud scheme to work,” stated Acting Assistant Attorney General Boynton. “The Department of Justice is committed to protecting elderly and vulnerable Americans and to prosecuting those who defraud them.”
“Today’s plea is an example of the coordinated efforts of law enforcement to bring those to justice who prey on vulnerable adults through the distribution of bogus solicitations, luring the unsuspecting ‘prize winner’ to send money in an effort to steal not only their money, but in many cases their independence,” stated USPIS Inspector-in-Charge Bartlett.
Between December 2010 and July 2016, Chalavoutis conspired to mail fraudulent prize notices to thousands of victims throughout the United States. The mailings appeared to be personally addressed to thousands of individuals whose names were on consumer lists obtained by Chalavoutis and her primary co-conspirators, Shaun Sullivan and Tully Lovisa. Chalavoutis created various shell companies for the purported senders of the mailings and hid her co-conspirators’ involvement in the business by using straw owners. Lovisa and Sullivan previously pleaded guilty to conspiracy to commit mail fraud and are awaiting sentencing. In separate cases, several other defendants have also pleaded guilty to conspiracy to commit mail fraud in connection with the scheme.
The government’s case is being prosecuted by Assistant United States Attorney Charles P. Kelly and Trial Attorneys Daniel Zytnick and Timothy Finley of the Justice Department’s Consumer Protection Branch. Assistant United States Attorney Tanisha R. Payne of the Office’s Civil Division is in charge of forfeiture matters.
A 12-count indictment was unsealed today in federal court in Central Islip charging Tully Lovisa, Shaun Sullivan and Lorraine Chalavoutis with mail fraud and money laundering for their participation in a fraudulent mass-mailing scheme that tricked hundreds of thousands of consumers, many of them elderly, into paying at least $30 million in fees for falsely promised cash prizes. The defendants were arrested today and are scheduled to be arraigned this afternoon before United States Magistrate Judge A. Kathleen Tomlinson.
Attorney General Jeff Sessions, Richard P. Donoghue, United States Attorney for the Eastern District of New York, and Peter R. Rendina, Inspector-in-Charge, United States Postal Inspection Service, New York Division (USPIS), announced the indictment.
“Earlier this year, when we announced the largest elder fraud sweep in history, we sent a clear message: we will hold perpetrators of elder fraud schemes accountable wherever they are,” said Attorney General Jeff Sessions. “When criminals steal the hard-earned life savings of older Americans, we will respond with all the tools at the Department’s disposal – criminal prosecutions to punish offenders, civil injunctions to shut the schemes down, and asset forfeiture to take back ill-gotten gains. Today’s indictment shows we are following through on this promise, and fraudsters everywhere should take note of it.”
“As alleged in the indictment, the defendants perpetrated a cruel hoax on their victims, many of them elderly and vulnerable, by sending promotional mailings that falsely claimed they would receive tens of thousands of dollars in prize money if they paid a fee,” stated United States Attorney Donoghue. “In so doing, Lovisa violated prior court orders directing him to stop engaging in mass mailing operations and his co-conspirators were well aware of prior enforcement action to stop this conduct. Protecting the elderly from brazen predators like the defendants is a priority of this Office and the Department of Justice.”
“These defendants showed a willingness to stop at nothing to bilk unwitting victims of their hard earned cash; many who were deliberately targeted because of their vulnerability,” stated USPIS Inspector-in-Charge Rendina. “Postal Inspectors remind you, if you have to pay to play, it’s a scam.”
According to the indictment, the defendants’ prize-promotion mailings claimed that recipients could receive a large cash prize in exchange for paying a modest fee and, in fact, none of them did. The scheme began after the Federal Trade Commission (“FTC”) sued Lovisa in 2010 for sending deceptive prize-promotion mailings. In response to that suit, a federal court in the Northern District of California enjoined Lovisa in December 2010 and April 2012 from any involvement with prize-promotion mailings. Despite these orders, Lovisa conspired with Sullivan and Chalavoutis to set up numerous prize-promotion companies using straw owners and aliases to continue defrauding consumers. Chalavoutis, who provided operational services, including opening companies and bank accounts in the name of straw owners, helped conceal the involvement of Lovisa and Sullivan in controlling the operation.
The indictment also charges Lovisa with perjury for submitting a false compliance report to the FTC in which he claimed not to be involved in prize-promotion mailings. The additional wire fraud and money laundering charges involve Lovisa’s further deception of the FTC related to the court-ordered sale of a house he owned in Las Vegas. According to the indictment, Lovisa arranged a sham sale of the house for $155,500 in September 2012 that allowed him to maintain control of it and only give the FTC proceeds of that sale. Lovisa sold the house in April 2015 for $540,000.
If convicted, the defendants face up to 20 years’ imprisonment for mail fraud, wire fraud and conspiracy. Each charge also carries a statutory maximum fine of $250,000 or twice the gross gain or gross loss from the offense.
The charges in the indictment are merely allegations, and the defendants are presumed innocent unless and until proven guilty.
The case is being prosecuted by Assistant United States Attorney Charles P. Kelly of the Office’s Long Island Criminal Division, with Trial Attorneys Daniel Zytnick and Timothy Finley of the Justice Department’s Consumer Protection Branch.
For more information about the Consumer Protection Branch, visit its website at http://www.justice.gov/civil/consumer-protection-branch. For more information about the U.S. Attorney’s Office for the Eastern District of New York, visit its website at https://www.justice.gov/usao-edny.
Earlier today, in federal court in Central Islip, Tully Lovisa pleaded guilty before United States Magistrate Judge Gary R. Brown to conspiracy to commit mail fraud by sending prize-promotion mailings that led recipients, many of whom were elderly and vulnerable, to believe that they could claim large cash prizes in exchange for a modest fee. Lovisa also pleaded guilty to wire fraud in connection with a related scheme to defraud the Federal Trade Commission (FTC).
Richard P. Donoghue, United States Attorney for the Eastern District of New York, Joseph H. Hunt, Assistant Attorney General for the Justice Department’s Civil Division, and Philip R. Bartlett, Inspector-in-Charge, United States Postal Inspection Service, New York Division (USPIS), announced the guilty pleas.
As he admitted at his guilty plea, Lovisa’s prize promotion mailings were fraudulent. None of the victims who submitted fees, which in total exceeded $30 million, received a substantial cash prize. Lovisa’s involvement in the scheme was also in violation of prior court orders that resulted from a lawsuit against him by the FTC. As part of his resolution the FTC lawsuit, Lovisa was ordered by a federal court to sell a home he owned in Las Vegas, Nevada, and turn over the proceeds to the FTC. Lovisa arranged for a sham sale of the house in September 2012 for $155,500, and then sold the house in April 2015 for $540,000 and kept the proceeds.
When sentenced, Lovisa faces up to 20 years in prison on each count, as well as forfeiture of at least $1 million and a fine of up to $250,000 or twice the gross gain or gross loss from each offense.
The government’s case is being handled by the Office’s Long Island Criminal Division. Assistant United States Attorney Charles P. Kelly, with Trial Attorneys Daniel Zytnick and Timothy Finley of the Justice Department’s Consumer Protection Branch, are in charge of the prosecution. Assistant United States Attorney Tanisha R. Payne is in charge of the forfeiture.
Earlier today, in federal court in Central Islip, Morris Barnard, a gastroenterologist practicing in Great Neck, New York, was sentenced by United States District Judge Gary R. Brown to 30 months in prison for health care fraud. Barnard pleaded guilty to the charge in March 2022. The Court also ordered over $1.4 million in restitution to Medicare.
Breon Peace, United States Attorney for the Eastern District of New York and Michael J. Driscoll, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI) and Susan A. Frisco , Acting Special Agent-in-Charge, U.S. Department of Health and Human Services, Office of Inspector General (HHS-OIG), announced the sentence.
“Today, Dr. Barnard learned the consequences for his greed-driven scheme in which he took advantage of patients who are disabled and living in residential group homes by falsely billing Medicare for medical procedures on them that he never actually performed,” stated United States Attorney Peace. “The defendant was not entitled to one penny of the $1.4 million in precious public health care funds that he pocketed and will now have to pay back as part of his sentence.”
“As the defendant learned today, defrauding Medicare does not pay - it has consequences. The FBI is committed to eradicating all fraud and schemes that abuse government-sponsored health care programs,” stated FBI Assistant Director-in-Charge Driscoll.
“Health care professionals who fraudulently bill Medicare for services never actually provided divert taxpayer funding meant to pay for medically necessary services for people enrolled in Medicare,” stated Acting Special Agent in Charge Susan A. Frisco of HHS-OIG. “OIG will continue to work with our law enforcement partners to protect the integrity of federal health care programs.”
From October 2015 through February 2020, the defendant submitted over $3 million in billings to Medicare for colonoscopy and gastroenterological procedures that were not performed. Most of these billings indicated that the services were rendered to disabled beneficiaries, who were living in residential group homes. Medicare reimbursed approximately $1.4 million of these false claims, none of which the defendant was entitled to receive.
The government’s case is being prosecuted by Assistant United States Attorneys Charles P. Kelly and Madeline O’Connor.
Daniel Small, a former portfolio manager for Platinum Partners L.P. (Platinum), was convicted today by a federal jury in Brooklyn on charges of securities fraud and securities fraud conspiracy for his role in defrauding the bondholders of Black Elk Energy (Black Elk), an oil company that was one of Platinum’s largest assets, by rigging a consent solicitation vote. The verdict followed a two-week trial before United States District Court Judge Brian M. Cogan.
Breon Peace, United States Attorney for the Eastern District of New York, Michael J. Driscoll, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI) and Daniel Brubaker, Inspector-in-Charge, United States Postal Inspection Service, New York Division (USPIS), announced the verdict.
"Small and his co-conspirators engaged in a scheme to deceive the bondholders of Black Elk by rigging the vote to enrich themselves,” stated United States Attorney Breon Peace. “Today’s verdict demonstrates this Office’s dedication to prosecuting those who refuse to play by the rules and defraud others. This Office will pursue justice without fear or favor no matter the obstacles.”
Mr. Peace thanked the Securities and Exchange Commission, New York Regional Office for their significant cooperation and assistance during the investigation.
"Mr. Small and his co-conspirators, fueled by their own self-interest and avarice, purposely cheated their investors. Today the jury held Mr. Small accountable for his actions, another step in the process of getting justice for his victims. The FBI and our partners remain committed to holding actors who defraud and manipulate investors responsible for their crimes so the public maintains its confidence in the integrity of our financial markets,” stated FBI Assistant Director-in-Charge Driscoll.
USPIS Inspector in Charge Daniel B. Brubaker said: “Daniel Small, former Managing Director of Platinum Partners, conspired in an elaborate scheme to fraudulently divert millions in proceeds from bond investors to Platinum Partners. This scheme was artfully concealed through what appeared to be a series of legitimate events. Nonetheless, it was an outright multi-million dollar theft from innocent victims. The United States Postal Inspection Service has a long and proven history of investigating egregious Wall Street Security Frauds such as these. Small’s conviction represents our dedication to help maintain an honest and fair trading environment across all publicly traded companies."
Platinum was a New York City-based hedge fund founded in 2003. The evidence at trial established that between approximately November 2011 and December 2016, Small, along with co-conspirators including Mark Nordlicht, the founder and Chief Investment Officer of Platinum, and David Levy, the co-Chief Investment Officer of Platinum, orchestrated a fraudulent scheme to defraud third-party holders of Black Elk’s publicly traded bonds (the bondholders) by diverting to Platinum the proceeds from the sale of the vast majority of Black Elk’s most lucrative oil fields even though the bondholders had priority over Platinum’s equity interests.
To execute this scheme, in early 2014, Small, Nordlicht, Levy and others caused Platinum to secretly purchase Black Elk bonds on the open market and gain control of $98 million of the $150 million of outstanding bonds. The bonds were then transferred through a number of related entities to conceal their ownership and control by Platinum. Small, Nordlicht, Levy and their co-conspirators then rigged a consent solicitation vote to amend the Black Elk indenture so that the proceeds from the sale of Black Elk’s best assets would be paid to the preferred equity – which was held by Platinum and Platinum insiders – ahead of the other bondholders. Notably, non-Platinum related bondholders overwhelmingly voted against changing the indenture; one testified that bondholders would never knowingly give up being “as senior as possible in the capital structure” for “nothing” in return, which he characterized as an “irrational choice.”
After the rigged vote was complete, Small, Nordlicht, Levy and their co-conspirators took millions of dollars from the asset sale for themselves, family members and friends, including approximately $7 million to Nordlicht’s father, approximately $250,000 to Levy, approximately $100,000 to Small and approximately $2 million to the brother of another co-conspirator.
In July 2019, Nordlicht and Levy were convicted on the same charges by a federal jury following a two-month trial. Both defendants are awaiting sentencing.
In July 2022, Mr. Peace was selected as the Chairperson of the White Collar Fraud subcommittee for the Attorney General’s Advisory Committee (AGAC). As the leader of the subcommittee, Mr. Peace will play a key role in making recommendations to the AGAC to facilitate the prevention, investigation and prosecution of various financially motivated, non-violent crimes including mail and wire fraud, bank fraud, health care fraud, tax fraud, securities and commodities fraud, and identity theft.
The government’s case is being handled by the Office’s Business and Securities Fraud Section. Assistant United States Attorneys David Pitluck, Lauren Elbert and Nicholas Axelrod are in charge of the prosecution.
A medical doctor and entrepreneur was sentenced to 119 months and 29 days in prison today for defrauding his former company’s shareholders and for failing to account for and failing to pay employment taxes, announced Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division, U.S. Attorney Dana J. Boente for the Eastern District of Virginia, Chief Don Fort of the Internal Revenue Service Criminal Investigation (IRS-CI) and Assistant Director in Charge Andrew W. Vale of the FBI’s Washington Field Office.
According to documents filed with the court, in or about September 2000, Sreedhar Potarazu, 51, of Potomac, Maryland, an ophthalmic surgeon licensed in Maryland and Virginia, founded VitalSpring Technologies Inc. (VitalSpring), a Delaware corporation. VitalSpring operated in McLean, Virginia and provided data analysis and services relating to health care expenditures. In or around the end of 2015, VitalSpring started doing business as Enziime LLC, a Delaware corporation. From its inception, Potarazu was VitalSpring’s Chief Executive Officer and President, and served on its Board of Directors.
From at least 2008, Potarazu provided materially false and misleading information to VitalSpring’s shareholders to induce more than $49 million in capital investments in the company. Potarazu represented on numerous occasions that VitalSpring was a financially successful company and that the sale of VitalSpring was imminent, which would have resulted in profits for shareholders. Potarazu also admitted that he concealed from shareholders that VitalSpring failed to account for and pay over more than $7.5 million in employment taxes to the IRS. For example, in 2014, Potarazu provided shareholders with a written summary of operating results that reflected VitalSpring’s 2013 revenues to be approximately $12.9 million when, in fact, the 2013 revenue was less than $1 million.
“Like a director employing actors and props on a stage, Sreedhar Potarazu arranged for an imposter to pose as a buyer, provided a link to a bogus website and supplied fraudulent balance sheets, phony bank statements and false tax returns to convince VitalSpring investors and potential buyers that the company was financially healthy and up-to-date on its taxes,” said Acting Deputy Assistant Attorney General Goldberg. “As a result of his actions, shareholders are out more than $49.5 million and over $7.5 million in employment taxes due to the U.S. Treasury were diverted and never paid. With Potarazu’s conviction and the sentencing hearings in this case, his fraud has been revealed, and today’s imposition of a 119 month sentence holds him fully accountable for his actions.”
“For years Potarazu enriched himself by abusing the trust of his company’s many investors and stealing millions of dollars from them through a complex scheme of fraud and deceit,” said U.S. Attorney Dana J. Boente for the Eastern District of Virginia. “This case is a prime example of this office’s ongoing commitment to bringing white-collar criminals to justice.”
“For almost a decade, Potarazu put greed ahead of his shareholders and employees by building a complex web of deceit and fraud while at the same time evading paying his employment tax liability,” said Chief Don Fort, IRS Criminal Investigation. “Today’s sentencing serves as a reminder that these types of criminal actions will be punished and IRS-CI is committed to bringing culpable individuals to justice.”
“Potarazu ran a multi-million dollar scheme that caused significant financial losses to VitalSpring shareholders for almost a decade,” said Assistant Director in Charge Andrew W. Vale of the FBI’s Washington Field Office. “The FBI is committed to bringing white-collar criminals to justice and we will continue to work closely with our law enforcement partners, to investigate, charge and prosecute those who engage in criminally deceitful business practices.”
Scheme to Defraud
From VitalSpring’s inception, but specifically from 2008 until his arrest in October 2016, Potarazu solicited investments through in-person meetings, emails, telephone conference calls, webinars, and phone calls. From in or about 2008 through in or about 2016, Potarazu raised approximately $49 million from more than 174 victim investors.
Potarazu induced investments from shareholders by making false representations, concealing material facts, and telling deceptive half-truths about VitalSpring’s financial condition, tax compliance, and alleged imminent sale. Potarazu also caused someone to pose as a representative of a prospective buyer on shareholder conference calls to add legitimacy to his claims regarding VitalSpring’s imminent sale.
VitalSpring never generated a profit. Nonetheless, Potarazu falsely represented to shareholders that VitalSpring’s financial position and profitability was improving from 2008 to 2016, and that VitalSpring had millions of dollars in cash reserves. To support his scheme, Potarazu presented fake bank statements to some shareholders that showed inflated balances.
Potarazu also concealed from shareholders that VitalSpring owed substantial employment tax to the IRS. Potarazu provided or caused to be provided false corporate income tax returns to some shareholders that overstated VitalSpring’s income and omitted the accruing employment tax liability.
In November 2014, Potarazu created a Special Review Committee (SRC) in response to a lawsuit filed in Delaware by shareholders that claimed Potarazu misled the victim investors about VitalSpring’s finances, the status of the impending sale, and Potarazu’s compensation. Potarazu provided the SRC with false financial records, fake tax returns, and fake bank statements to induce the SRC to believe that VitalSpring was financially healthy and to cause the SRC to make materially false representations to the Delaware court and victim investors. He also falsely represented that the alleged imminent sale would yield substantial returns to the shareholders, and used this to induce additional investments. Members of the SRC traveled interstate to the Eastern District of Virginia to attend meetings in which Potarazu presented false information for their review.
In truth, there was no imminent sale pending. Potarazu provided false financial records, including fake balance sheets, fabricated bank statements, and false tax returns, to several prospective buyers, financial advisors and investment banks. In December 2014, when he was questioned by Prospective Buyer 1 as to the accuracy and authenticity of bank records provided, Potarazu presented false or misleading emails purporting to be from a bank employee to bolster the legitimacy of the false bank records. Potarazu also presented Prospective Buyer 1 with a link to a fake website that was made to look like a website for a major national bank, and which referred Prospective Buyer 1 to VitalSpring’s false bank statements, and used a shadow, secondary email account assigned to a VitalSpring employee to provide false information to Prospective Buyer 1, thereby creating the appearance that Potarazu had not provided the information.
In October 2014, Prospective Buyer 2 informed Potarazu that it was no longer interested in VitalSpring. Nevertheless, Potarazu continued to represent to shareholders for months thereafter that there was a deal pending with Prospective Buyer 2. In March 2015 and February 2016, Potarazu organized, or caused to be organized, conference calls with shareholders to discuss the alleged sale. In advance of the calls, Potarazu obtained questions from the shareholders and used them to prepare the individual who posed as a representative of Prospective Buyer 2 for each call.
From 2011 to 2015, in addition to his salary paid by VitalSpring, Potarazu diverted at least $5 million from the victim investors and VitalSpring for his own personal use.
Employment Tax Fraud
Potarazu admitted that from 2007 to 2016, VitalSpring accrued employment tax liabilities of more than $7.5 million. Potarazu withheld taxes from VitalSpring employees’ wages, but failed to fully pay over the amounts withheld to the IRS. As CEO and President of VitalSpring, Potarazu was a “responsible person” obligated to collect, truthfully account for, and pay over VitalSpring’s employment taxes. Ultimate and final decision-making authority regarding VitalSpring’s business activities rested with Potarazu.
Potarazu was aware of the employment tax liability as early as 2007 and between 2007 and 2016, was frequently apprised of VitalSpring’s employment tax responsibilities by his employees. In addition, IRS special agents interviewed Potarazu in 2011 and informed him of the employment tax liability. In all but one quarter between the first quarter of 2007 and the last quarter of 2011, as well as the second and third quarters of 2015, Potarazu failed to file VitalSpring’s Employer’s Quarterly Federal Tax Return (Forms 941) with the IRS. Potarazu also failed to pay over any of the employment tax withheld from VitalSpring’s employees’ wages in all but one quarter between the second quarter of 2007 and the third quarter of 2011, as well as the third and fourth quarters of 2015.
Between 2008 and 2015, instead of paying over employment tax, Potarazu caused VitalSpring to make millions of dollars of expenditures, including thousands of dollars in transfers to himself and others, the publication of his book, “Get Off the Dime,” a sedan car service and travel.
In addition to the term of prison imposed, U.S. District Court Judge Gerald Bruce Lee ordered Potarazu to serve three years of supervised release, and to pay $49,511,169 in restitution to the shareholders and $7,691,071 to the IRS, and forfeiture of several homes, vehicles, and bank accounts. He was remanded into custody.
Acting Deputy Assistant Attorney General Goldberg and U.S. Attorney Boente commended special agents of IRS CI and the FBI, who conducted the investigation, and Assistant Chief Caryn Finley and Trial Attorney Jack Morgan of the Tax Division, and Assistant U.S. Attorney Jack Hanly, who prosecuted the case.
Additional information about the Tax Division’s enforcement efforts can be found on the division’s website.
On Dec. 2, a federal jury in Greeneville, Tennessee, convicted Peter Bolos, 44, of Tampa, Florida, of 22 counts of mail fraud, conspiracy to commit health care fraud and introduction of a misbranded drug into interstate commerce, following a month-long trial.
According to court documents and evidence presented at trial, Bolos and his co-conspirators, Andrew Assad, Michael Palso, Maikel Bolos, Larry Smith, Scott Roix, HealthRight LLC, Mihir Taneja, Arun Kapoor, and Sterling Knight Pharmaceuticals, as well as various other companies owned by them, deceived pharmacy benefit managers (PBMs), such as Express Scripts and CVS Caremark, regarding tens of thousands of prescriptions. The PBMs processed and approved claims for prescription drugs on behalf of insurance companies. Bolos and his co-conspirators defrauded the PBMs into authorizing claims worth more than $174 million that private insurers such as Blue Cross Blue Shield of Tennessee, and public insurers such as Medicaid and TRICARE, paid to pharmacies controlled by the co-conspirators.
Court documents and evidence at trial established that Bolos, Assad and Palso owned and operated Synergy Pharmacy in Palm Harbor, Florida. Under their direction, Synergy agreed with Scott Roix, a Florida telemarketer operating under the name HealthRight, to generate prescriptions for Synergy and the other pharmacies involved in the scheme. The prescriptions were typically for drugs such as pain creams, scar creams and vitamins. To obtain the prescriptions, evidence showed Roix used HealthRight’s telemarketing platform as a telemedicine service, calling consumers and deceiving them into agreeing to accept the drugs and to provide their personal insurance information. HealthRight then paid doctors to authorize the prescriptions through its telemedicine platform, even though the doctors never communicated directly with the patients and relied solely on the telemarketers’ screening process as the basis for their authorizations. Because this faulty and fraudulent process made the prescriptions invalid, the drugs were misbranded under the Food, Drug and Cosmetic Act. Synergy and the other pharmacies nonetheless dispensed the drugs to consumers as part of the scheme, so that Bolos could submit fraudulent reimbursement claims.
Court documents and evidence at trial established that during the conspiracy, which lasted from May 2015 through April 2018, Bolos paid Roix more than $30 million to buy at least 60,000 invalid prescriptions generated by HealthRight. Evidence showed Bolos selected specific medications for the prescriptions that he could submit for highly profitable reimbursements. In addition, Bolos used illegal means to hide his activity from the PBMs so that he could remain undetected. Evidence showed that Bolos was responsible for at least $89 million out of the total $174 million in fraudulently paid billings.
“The defendants deceived consumers in order to facilitate the distribution of drugs without proper medical oversight, and overbilled insurers for illegal prescriptions,” said Deputy Assistant Attorney General Arun G. Rao of the Justice Department’s Civil Division. “The Department will continue to investigate and prosecute individuals who use telemedicine to advance fraudulent schemes that violate the Food, Drug, and Cosmetic Act.”
“The United States Attorney’s Office for the Eastern District of Tennessee applauds the unwavering efforts of the multiple agencies involved in this collaborative investigation to bring this extensive healthcare fraud and misbranding scheme to justice,” said Acting U.S. Attorney Francis M. Hamilton III for the Eastern District of Tennessee. “The scope and nature of this fraud and misbranding scheme shock the conscience. Patients were given medications that they neither requested nor wanted, and the trial proof demonstrated that the prescriptions were specifically chosen by Bolos to maximize the fraudulent scheme’s profits, rather than for the patients’ healthcare needs. The guilty verdict against Bolos and the guilty pleas obtained from his co-defendants should send a strong message that the Department of Justice will aggressively prosecute fraud against health insurance providers.”
“Healthcare fraud is an egregious crime problem that impacts every American,” said Special Agent in Charge Joseph E. Carrico of the FBI’s Knoxville Field Office. “The guilty verdict was a result of a multi-agency investigation into a complex health care fraud scheme that required substantial investigative resources. Along with its law enforcement partners, the FBI remains committed to investigate these crimes and prosecute all those that are intent in defrauding the American public."
“Distributing misbranded prescription drugs in the U.S. marketplace places patients’ health at risk,” said Special Agent in Charge Justin C. Fielder of the FDA Office of Criminal Investigations Miami Field Office. “We will continue to pursue and bring to justice those who put profits ahead of public health.”
“Bolos and his co-conspirators used their pharmacies to fraudulently bill insurance companies hundreds of millions of dollars, and that type of health care fraud impacts everyone,” said Special Agent in Charge John Condon of Homeland Security Investigations (HSI) Tampa. “HSI will continue to work with our law enforcement partners at the federal, state and local level to investigate all fraud and bring those responsible to justice.”
“Bolos and his co-conspirators sought to increase their profits by executing a comprehensive health care fraud scheme involving innocent patients,” said Special Agent in Charge Derrick L. Jackson of the U.S. Department of Health and Human Services, Office of Inspector General. “This conviction should serve as a warning to individuals who wish to deceive the government and steal from taxpayers. Alongside our law enforcement partners, we will continue to pursue medical professionals who engage in fraudulent activity.”
“The verdict in this case sends a clear message that these types of schemes will not be tolerated,” said Special Agent in Charge Matthew Modafferi of the U.S. Postal Service Office of Inspector General in the Northeast Area Field Office. “The Special Agents of the U.S. Postal Service Office of Inspector General will continue to work closely with the U.S. Attorney’s Office and our law enforcement partners to bring to justice those who commit these kinds of offenses.”
Roix, Assad, Palso, Smith, Maikel Bolos and various associated business entities previously pleaded guilty to their roles in the conspiracy. Taneja, Kapoor, and Sterling Knight pleaded guilty to felony misbranding in a conspiracy with Bolos. U.S. District Judge J. Ronnie Greer set sentencing for Bolos for May 19, 2022, in the United States District Court for the Eastern District of Tennessee at Greeneville. Sentencings for the other defendants will be set for dates in 2022.
The trial and plea agreements resulted from a multi-year investigation conducted by the U.S. Department of Health & Human Services Office of Inspector General (Nashville); Food and Drug Administration Office of Criminal Investigations (Nashville); U.S. Postal Service, Office of Inspector General (Buffalo); Federal Bureau of Investigation (Knoxville and Johnson City, Tennessee); Office of Personnel Management Office of Inspector General (Atlanta); and the Department of Homeland Security, Homeland Security Investigations (Tampa). The U.S. Marshals Service also assisted in the investigation and the forfeiture of assets.
Assistant U.S. Attorneys TJ Harker and Mac Heavener for the Eastern District of Tennessee and Trial Attorney David Gunn of the Department of Justice Civil Division’s Consumer Protection Branch in Washington, and a former Assistant U.S. Attorney in Knoxville, prosecuted and tried the case. They were assisted by Barbra Pemberton, Bryan Brandenburg and April Denard from the U.S. Attorney’s office.
The Justice Department, along with federal partners, announced today a $7.2 billion settlement with Deutsche Bank resolving federal civil claims that Deutsche Bank misled investors in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) between 2006 and 2007. This $7.2 billion agreement represents the single largest RMBS resolution for the conduct of a single entity. The settlement requires Deutsche Bank to pay a $3.1 billion civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). Under the settlement, Deutsche Bank will also provide $4.1 billion in relief to underwater homeowners, distressed borrowers and affected communities.
“This resolution holds Deutsche Bank accountable for its illegal conduct and irresponsible lending practices, which caused serious and lasting damage to investors and the American public,” said Attorney General Loretta E. Lynch. “Deutsche Bank did not merely mislead investors: it contributed directly to an international financial crisis. The cost of this misconduct is significant: Deutsche Bank will pay a $3.1 billion civil penalty, and provide an additional $4.1 billion in relief to homeowners, borrowers, and communities harmed by its practices. Our settlement today makes clear that institutions like Deutsche Bank cannot evade responsibility for the great cost exacted by their conduct.”
“This $7.2 billion resolution – the largest of its kind – recognizes the immense breadth of Deutsche Bank’s unlawful scheme by demanding a painful penalty from the bank, along with billions of dollars of relief to the communities and homeowners that continue to struggle because of Wall Street’s greed,” said Principal Deputy Associate Attorney General Bill Baer. “The Department will remain relentless in holding financial institutions accountable for the harm their misconduct inflicted on investors, our economy and American consumers.”
“In the Statement of Facts accompanying this settlement, Deutsche Bank admits making false representations and omitting material information from disclosures to investors about the loans included in RMBS securities sold by the Bank. This misconduct, combined with that of the other banks we have already settled with, hurt our economy and threatened the banking system,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “To make matters worse, the Bank’s conduct encouraged shoddy mortgage underwriting and improvident lending that caused borrowers to lose their homes because they couldn’t pay their loans. Today’s settlement shows once again that the Department will aggressively pursue misconduct that hurts the American public.”
“Investors who bought RMBS from Deutsche Bank, and who suffered catastrophic losses as a result, included individuals and institutions that form the backbone of our community,” said U.S. Attorney Robert L. Capers for the Eastern District of New York. “Deutsche Bank repeatedly assured investors that its RMBS were safe investments. Instead of ensuring that its representations to investors were accurate and transparent, so that investors could make properly informed investment decisions, Deutsche Bank repeatedly misled investors and withheld critical information about the loans it securitized. Time and again, the bank put investors at risk in pursuit of profit. Deutsche Bank has now been held accountable.”
“Deutsche Bank knowingly securitized billions of dollars of defective mortgages and subsequently made false representations to investors about the quality of the underlying loans,” said Special Agent In Charge Steven Perez of the Federal Housing Finance Agency, Office of the Inspector General. “Its actions resulted in enormous losses to investors to whom Deutsche Bank sold these defective Residential Mortgage-Backed Securities. Today’s announcement reaffirms our commitment to working with our law enforcement partners to hold accountable those who deceived investors in pursuit of profits, and contributed to our nation’s financial crisis. We are proud to have worked with the U.S. Department of Justice and the U.S Attorney’s Office for the Eastern District of New York.”
As part of the settlement, Deutsche Bank agreed to a detailed Statement of Facts. That statement describes how Deutsche Bank knowingly made false and misleading representations to investors about the characteristics of the mortgage loans it securitized in RMBS worth billions of dollars issued by the bank between 2006 and 2007. For example:
Deutsche Bank represented to investors that loans securitized in its RMBS were originated generally in accordance with mortgage loan originators’ underwriting guidelines. But as Deutsche Bank now acknowledges, the bank’s own reviews confirmed that “aggressive” revisions to the loan originators’ underwriting guidelines allowed for loans to be underwritten to anyone with “half a pulse.” More generally, Deutsche Bank knew, based on the results of due diligence, that for some securitized loan pools, more than 50 percent of the loans subjected to due diligence did not meet loan originators’ guidelines.
Deutsche Bank also knowingly misrepresented that loans had been reviewed to ensure the ability of borrowers to repay their loans. As Deutsche Bank acknowledges, the bank’s own employees recognized that Deutsche Bank would “tolerate misrepresentation” with “misdirected lending practices” as to borrower ability to pay, accepting even blocked-out borrower pay stubs that concealed borrowers’ actual incomes. As a Deutsche Bank employee stated, “What goes around will eventually come around; when performance (default) begins affecting profits and/or the investors who purchase the securities, only then will Wall St. take notice. For now, the buying continues.”
Deutsche Bank concealed from investors that significant numbers of borrowers had second liens on their properties. In one instance, a supervisory Deutsche Bank trader specifically instructed his team that if investors asked about second liens, “‘[t]ell them verbally . . . [b]ut don’t put in the prospectus.’” Deutsche Bank knew that these second liens increased the likelihood that a borrower would default on his or her loan.
Deutsche Bank purchased and securitized loans with substantial defects to provide “flexibility” to the mortgage originators on whom Deutsche Bank’s RMBS program depended for a continued supply of loans. Indeed, after the president of a large mortgage originator told Deutsche Bank he was “very upset with the rejection percentage,” Deutsche Bank’s diligence team was instructed, on three separate occasions, to clear loans it previously determined should be rejected.
While Deutsche Bank conducted due diligence on samples of loans it securitized in RMBS, Deutsche Bank knew that the size and composition of these loan samples frequently failed to capture loans that did not meet its representations to investors. In fact, Deutsche Bank knew “the more you sample, the more you reject.”
Deutsche Bank knowingly and intentionally securitized loans originated based on unsupported and fraudulent appraisals. Deutsche Bank knew that mortgage originators were “‘giving’ appraisers the value they want[ed]” and expecting the resulting appraisals to meet the originators’ desired value, regardless of the actual value of the property. Deutsche Bank concealed its knowledge of pervasive and consistent appraisal fraud, instead representing to investors home valuation metrics based on appraisals it knew to be fraudulent. Deutsche Bank misrepresented to investors the value of the properties securing the loans securitized in its RMBS and concealed from investors that it knew that the value of the properties securing the loans was far below the value reflected by the originator’s appraisal.
By May 2007, Deutsche Bank knew that there was an increasing trend of overvalued properties being sold to Deutsche Bank for securitization. As one employee noted, “We are finding ourselves going back quite often and clearing large numbers of loans [with inflated appraisals] to bring down the deletion percentages.” Deutsche Bank nonetheless purchased and securitized such loans because it received favorable prices on the fraudulent loans. Ultimately, Deutsche Bank enriched itself by paying reduced prices for risky loans while representing to investors valuation metrics based on appraisals the Bank knew to be inflated.
Deutsche Bank represented to investors that disclosed borrower FICO scores were accurate as of the “cut-off date” of the RMBS issuance. However, Deutsche Bank knowingly represented borrowers’ FICO scores as of the time of the origination of their loans despite the bank’s knowledge that these scores had often declined materially by the cut-off date.
Assistant U.S. Attorneys Edward K. Newman, Matthew R. Belz, Jeremy Turk, and Ryan M. Wilson of the U.S. Attorney’s Office for the Eastern District of New York investigated Deutsche Bank’s conduct in connection with the issuance and sale of RMBS between 2006 and 2007. The investigation was conducted with the Office of the Inspector General for the Federal Housing Finance Agency.
The $3.1 billion civil monetary penalty resolves claims under FIRREA, which authorizes the federal government to impose civil penalties against financial institutions that violate various predicate offenses, including wire and mail fraud. It is one of the largest FIRREA penalties ever paid. The settlement does not release any individuals from potential criminal or civil liability. As part of the settlement, Deutsche Bank has agreed to fully cooperate with investigations related to the conduct covered by the agreement.
Deutsche Bank will also provide $4.1 billion in the form of relief to aid consumers harmed by its unlawful conduct. Specifically, Deutsche Bank will provide loan modifications, including loan forgiveness and forbearance, to distressed and underwater homeowners throughout the country. It will also provide financing for affordable rental and for-sale housing throughout the country. Deutsche Bank’s provision of consumer relief will be overseen by an independent monitor who will have authority to approve the selection of any third party used by Deutsche Bank to provide consumer relief.
To report RMBS fraud, go to: http://www.stopfraud.gov/rmbs.html.
About the RMBS Working Group:
The RMBS Working Group, part of the Financial Fraud Enforcement Task Force, was established by the Attorney General in late January 2012. The Working Group has been dedicated to initiating, organizing, and advancing new and existing investigations by federal and state authorities into fraud and abuse in the RMBS market that helped precipitate the 2008 Financial Crisis. The Working Group’s efforts to date have resulted in settlements providing for tens of billions of dollars in civil penalties and consumer relief from banks and other entities that are alleged to have committed fraud in connection with the issuance of RMBS.
CLEVELAND – Federal, county, and local law enforcement officials today announced that 59 individuals were charged and arrested in connection with firearms-trafficking, narcotics, conspiracy, or other firearms offenses after a three month, violent-crime-reduction initiative in Cleveland this summer. The vast majority were charged in United States District Court, while the remaining individuals were charged in state court. These individuals were apprehended in a series of coordinated arrests made during the last two weeks.
United States Attorney Rebecca C. Lutzko made the announcement earlier today. Bureau of Alcohol, Tobacco, Firearms, and Explosives (“ATF”) Director Steven M. Dettelbach, United States Marshal Peter J. Elliott, and Cleveland Mayor Justin M. Bibb provided additional details relating to the initiative, as well as regarding larger firearms enforcement and violence-prevention efforts.
"The Justice Department's work to disrupt and dismantle the criminal gun trafficking pipelines that flood our communities with illegal guns had never been more urgent than it is now," said Attorney General Merrick B. Garland. "That is why our prosecutors and agents are working more closely than ever before with our local law enforcement partners to get illegal guns off of our streets and hold accountable those who put illegal guns in the hands of violent criminals."
Indictments and complaints were recently unsealed in federal court. They detail a lengthy investigation, led by ATF, that focused on reducing firearms-related crime in several areas of Cleveland by studying data about areas with gun-crime violence, then identifying illegal firearms sellers to disrupt their trafficking. The investigation resulted in the seizure of over 240 firearms, 203 of which law enforcement purchased from illegal sellers and permanently removed from Cleveland’s streets. NIBIN data shows that a significant number of those firearms are connected to violent criminal activity, including homicides and felonious assaults, that took place in Cleveland and surrounding Northeast Ohio suburbs in 2022 and 2023. Of the purchased firearms, 17 are “ghost guns”—meaning, unserialized and untraceable firearms, typically assembled at home—and 28 are machinegun conversion devices or “switches”—a device that enables a firearm to fire in fully automatic mode.
In one case, law enforcement purchased more than 50 firearms from a group of 7 people working together to sell firearms on Cleveland’s streets, even though none of the involved individuals holds a federal firearms license. Those firearms included stolen firearms, firearms with obliterated serial numbers, “switches,” already-loaded firearms, assault rifles, and firearms that had been previously used to commit violent crimes. Sometimes, these individuals also sold controlled substances to law enforcement officers at the same time. In two additional cases, law enforcement purchased, respectively, 33 firearms (including “switches”) and 23 firearms (including “switches”) from two other individuals who do not hold a federal firearms license. Many of these sales took place in public parking lots of business establishments during business hours or in recreational areas while nearby uninvolved, law-abiding citizens were engaged in their day-to-day errands or engaged in recreational activities.
Also during this investigation, the ATF identified 5 individuals who were actively engaged in a conspiracy to conduct a home invasion and rob, at gunpoint, what they believed to be a “stash house” containing several kilograms of cocaine. Law enforcement intervened before these individuals could carry out their plan. Additionally, during this investigation, law enforcement purchased or seized almost 1.5 kilograms of cocaine, 215 grams of cocaine base, almost 3 kilograms of methamphetamine, 686 fentanyl pills, almost 1.5 kilograms of heroin/fentanyl mix, and 1,144 MDMA pills (otherwise known as Molly or Ecstasy).
Some defendants were charged together, but several others were charged individually. In all cases, however, the charges stemmed from the extensive, targeted, and sustained effort this past summer, led by ATF and assisted by other federal, state, and local law enforcement partners, to clamp down on the illegal firearms trafficking, use, and possession, as well as the associated distribution of drugs, in Cleveland.
The following is a breakdown of the charges in United States District Court, according to court documents:
MALACHI BERRY, 21, Cleveland, DARVELL JACKSON, 20, Cleveland, and STEVEN ARMSTRONG, 19, Cleveland, were charged together in a Conspiracy to Possess a Machinegun. JACKSON and ARMSTRONG were further charged with Illegal Possession of a Machinegun.
In the same indictment, these individuals, along with NIMAR LINDER, 21, Cleveland, were also charged with Conspiracy to Engage in the Business of Dealing Firearms without a Federal Firearms License.
ARMSTRONG and LINDER were charged as Felons in Possession of a Firearm.
According to court documents, the following individuals have been indicted on Distribution of Drugs charges:
CARLOS DUPREE, 43, Cleveland, DOMINIQUE GOLDSBY, 32, Cleveland, JESSE MCDADE, 41, Cleveland, NORMAN YOUNG, 37, Cleveland, MARTIN
GOODSON, 41, Cleveland, LAJUAN ERWIN, 25, Mayfield Heights, CHEVEZ MOORER, 23, Cleveland, AARON WIMBLEY, 22, Garfield Heights, ALEXANDER
DUNCAN, 19, Cleveland, DAMIEN BODY, 39, Cleveland, DERRICK DONALD, 41, Cleveland, NAHUM HOLMES, 31, Brook Park, AKIL EDMONDS, 39, Cleveland, WILLIE C. JACKSON, 36, Cleveland, and DEANDRE SMITH, 36, Cleveland.
Indicted together were JOSEAN ORTIZ-STUART, 34, Cleveland, JESUS VEGA, 29, Cleveland, who were both charged with Distribution of Drugs. Also named in that indictment was GERALD MATOS, 38, Cleveland, who was charged with being a Felon in Possession of a Firearm.
Indicted together were ELIAS PAGAN 32, Cleveland, IVAN SANTANA, 26, Cleveland, ANGEL SANTIAGO, 46, also of Cleveland. PAGAN also faces numerous charges for Distribution of Drugs, as well being a Felon in Possession of Firearms, and both PAGAN and SANTANA were also charged with Engaging in the Business of Importing, Manufacturing, or Dealing in Firearms Without a Federal Firearms License.
SANTIAGO is also charged with Distribution of Drugs.
AMBRAY UNDERWOOD, 25, Euclid, was charged in an indictment for Conspiracy to Distribute Drugs, and Drug Distribution.
WILLIE EARL JACKSON, 26, Cleveland, and SHANE PLATS, 31, Ashtabula, were charged in the same indictment with Engaging in the Business of Dealing Firearms without a Federal Firearms License. WIILIE EARL JACKSON was also charged in that indictment with Trafficking in Firearms.
DESHONN BROWN age, 19, Cleveland; DEMARIUS JEFFERSON, 18, Cleveland, were both charged with Illegal Possession of Machineguns.
JACOB PLUMB, 40, Parma, was charged with Distribution of Drugs and Possession of a Firearm in Furtherance of a Drug Trafficking Crime.
ISAIAH OVERTON, 23, Cleveland, and CHARLES MORRIS, 33, East Cleveland, were charged in a single indictment with Distribution of Drugs. Additionally, OVERTON was charged with Using and Carrying a Firearm During and in Relation to a Drug Trafficking Crime.
CORTE’Z BUGGS, 29, Cleveland was charged in an indictment with Distribution of Drugs and Receipt of Firearm while Under Felony Indictment.
MICHAEL MCPHERRAN, 38, Parma, Ohio, was charged with Conspiracy to Distribute Drugs, and Distribution of Drugs.
HAROLD PEARL, 39, Cleveland, was charged with Distribution of Drugs and being a Felon in Possession of a Firearm.
Charged by complaint with Conspiracy to Possess with Intent to Distribute Drugs and Possession of a Firearm in Furtherance of a Drug Trafficking Crime were ALANTE HEARD, 33, Cleveland, ANTONIO SWEENEY, 24, Cleveland, MAURICE COMMONS, 22, North Randall, and MARKUS WILLIAMS, 33, Cleveland.
Charged with being a Felon in Possession of a Firearm were MARQUIS HENSON, 38, Cleveland, DEON BROWN, 19, Cleveland, and CLARENCE PAYNE, 38, Cleveland.
KENNETH SMITH, 23, East Cleveland, was charged with Engaging in the Business of Dealing Firearms without a Federal Firearms License, Illegal Possession of a Machinegun, and being a Felon in Possession of Firearms.
ANDRE LEWIS, 35, Cleveland, was charged with Distribution of Drugs and Using and Carrying a Firearm During and in Relation to a Drug Trafficking Crime.
DEVAUNTY LEWIS, 31, Cleveland, NICHOLAS JOHNSON, 33, Cleveland, were charged jointly in an indictment with Conspiracy to Engage in the Business of Importing, Manufacturing, or Dealing in Firearms without a Federal Firearms License, and Conspiracy to Engage in Firearms Trafficking. Both were individually charged with Engaging Business in Dealing with Firearms Without a License and Trafficking in Firearms.
LEWIS was also charged with being a Felon in Possession of a Firearm.
JOHNSON was also charged with Engaging in the Business of Importing, Manufacturing, or Dealing in Firearms without a Federal Firearms License.
The following were charged in an indictment with Conspiracy to Engage in the Business of Importing, Manufacturing, or Dealing in Firearms Without a Federal Firearms License: MAURICE STERETT, 39, Cleveland, ANTONIO CROSS, 22, Cleveland, MARVELL ROACH, 43, Willoughby, KENNETH TIMBERLAKE, 30, Cleveland, and TRAVIS WILLIAMS, 46, Cleveland.
STERETT, CROSS, TIMBERLAKE, and WILLIAMS were further charged, individually, with Engaging in the Business of Importing, Manufacturing, or Dealing in Firearms Without a Federal Firearms License.
STERETT, CROSS, ROACH, TIMBERLAKE, and WILLIAMS were also charged with Conspiracy to Engage in Firearms Trafficking and individual counts of Firearms Trafficking.
STERETT, TIMBERLAKE, TRAVIS WILLIAMS, and ROACH were also charged with being a Felon in Possession of Firearms.
STERETT was further charged with Distribution of Drugs.
Finally, CROSS was also charged with Illegal Transfer of a Machinegun.
DARION SHELTON, 20, Cleveland, was charged with Engaging in the Business of Dealing Firearms without a Federal Firearms License, and Trafficking in Firearms in connection with machinegun conversation devices or “switches.” He has also been charged with Illegal Possession of a Machinegun.
The following is a breakdown of the charges in the Cuyahoga County Court of Common Pleas, according to court documents:
MARCEL BATTLE, 30, Canton, Drug Trafficking.
AVANT WILSON, 22, Cleveland, Receiving Stolen Property (Motor Vehicle).
NATHAN ROBY, 44, Cleveland, Drug Trafficking.
RAYMOND CALLAHAN, 34, Cleveland, Drug Trafficking.
RAPHAEL DEEN, 30, Cleveland, Drug Trafficking.
TERRY LYONS, 33, Cleveland, Drug Trafficking.
An indictment or complaint is only a charge and is not evidence of guilt. A defendant is entitled to a fair trial in which it will be the government’s burden to prove guilt beyond a reasonable doubt.
If convicted, each defendant’s sentence will be determined by the Court after review of factors unique to this case, including the defendant’s prior criminal records, if any, the defendant’s role in the offense and the characteristics of the violation. In all cases, the sentence will not exceed the statutory maximum, and, in most cases, it will be less than the maximum.
The investigation preceding the indictments was led by the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), with assistance from the Cleveland Division of Police (“CDP”), the United States Marshals Service (“USMS”), the Drug Enforcement Administration (“DEA”), the Federal Bureau of Investigation (“FBI”), the Department of Homeland Security Investigations (“HSI”), the Ohio Bureau of Criminal Investigation (“BCI”), the Ohio Adult Parole Authority (“APA”), the Ohio Investigative Unit (“OIU”), Customs and Border Patrol (“CBP”), Air and Marine Division, the Ohio State Highway Patrol (“OSP”), and the Cuyahoga County Sheriff’s Office. This Operation was also part of an Organized Crime Drug Enforcement Task Forces (OCDETF) initiative. The cases stemming from this investigation are being prosecuted by a team of AUSAs in the U.S. Attorney’s Office, led by AUSA Kelly Galvin, and by the Cuyahoga County Prosecutor’s Office.
Today, Mohamad Jamal Khweis, 27, of Alexandria, Virginia, was convicted by a federal jury for providing material support to the Islamic State of Iraq and al-Sham (ISIS), a designated foreign terrorist organization.
Dana J. Boente, Acting Assistant Attorney General for National Security, and U.S. Attorney for the Eastern District of Virginia; and Andrew W. Vale, Assistant Director in Charge of the FBI’s Washington Field Office, made the announcement after U.S. District Judge Liam O’Grady accepted the verdict.
“Khweis is not a naïve kid who didn’t know what he was doing,” said Dana J. Boente, Acting Assistant Attorney General for National Security, and U.S. Attorney for the Eastern District of Virginia. “He is a 27-year-old man who studied criminal justice in college. He strategically planned his travel to avoid law enforcement suspicion, encrypted his communications, and planned for possible alibis. Khweis knew exactly what he was doing, knew exactly who ISIS was, and was well aware of their thirst for extreme violence. Nonetheless, this did not deter him. Instead, Khweis voluntarily chose to join the ranks of a designated foreign terrorist organization, and that is a federal crime, even if you get scared and decide to leave. This office, along with the National Security Division and our investigative partners, are committed to tracking down anyone who provides or attempts to provide material support to a terrorist organization.”
“Mohamad Khweis purposefully traveled overseas with the intent to join ISIL in support of the terrorist group’s efforts to conduct operations and execute attacks to further their radical ideology,” said Andrew W. Vale, Assistant Director in Charge in Charge of the FBI’s Washington Field Office. “Furthermore, when ISIL leaders questioned Khweis' commitment to serving as a suicide bomber to carry out acts of terrorism, Khweis stated that he agreed and recognized that ISIL uses violence in its expansion of its caliphate. Today’s verdict underscores the dedication of the FBI and our partners within the Joint Terrorism Task Force in pursuing and disrupting anyone who poses a risk of harm to U.S. persons or interests or by providing material support to a terrorist group.”
According to court records and evidence presented at trial, Khweis left the U.S. in mid-December 2015, and ultimately crossed into Syria through the Republic of Turkey in late December 2015. Before leaving, Khweis quit his job, sold his car, closed online accounts, and did not tell his family he was leaving to join ISIS. During his travel to the Islamic State, he used numerous encrypted devices to conceal his activity, and downloaded several applications on his phone that featured secure messaging or anonymous web browsing. Khweis used these applications to communicate with ISIS facilitators to coordinate and secure his passage to the Islamic State.
After arriving in Syria, Khweis stayed at a safe house with other ISIS recruits in Raqqa and filled out ISIS intake forms, which included his name, age, skills, specialty before jihad, and status as a fighter. When Khweis joined ISIS, he agreed to be a suicide bomber. In February 2017, the U.S. military recovered his intake form, along with an ISIS camp roster that included Khweis’ name with 19 other ISIS fighters.
During the trial, Khweis admitted to spending approximately 2.5 months as an ISIS member, traveling with ISIS fighters to multiple safe houses and participating in ISIS-directed religious training. Kurdish Peshmerga military forces detained Khweis in March 2016. A Kurdish Peshmerga official testified at trial that he captured Khweis on the battlefield after Khweis left an ISIS-controlled neighborhood in Tal Afar, Iraq.
On a cross examination, Khweis admitted he consistently lied to U.S. and Kurdish officials about his involvement with ISIS, and that he omitted telling U.S. officials about another American who had trained with ISIS to conduct an attack in the U.S.
The jury convicted Khweis, a U.S. citizen, on all three charged counts, including providing and conspiring to provide material support or resources to ISIS, and a related firearms count. Khweis faces a mandatory minimum of 5 years and a maximum penalty of life in prison when sentenced on October 13. Actual sentences for federal crimes are typically less than the maximum penalties. A federal district court judge will determine any sentence after taking into account the U.S. Sentencing Guidelines and other statutory factors.
Trial Attorney Raj Parekh of the National Security Division’s Counterterrorism Section and Assistant U.S. Attorney Dennis Fitzpatrick for the Eastern District of Virginia are prosecuting the case. The FBI’s Joint Terrorism Task Force provided assistance in this case.
Federal, county, and local law enforcement officials today announced that 59 individuals were charged and arrested in connection with firearms-trafficking, narcotics, conspiracy, or other firearms offenses after a three month, violent-crime-reduction initiative in Cleveland this summer. The vast majority were charged in U.S. District Court, while the remaining individuals were charged in state court. These individuals were apprehended in a series of coordinated arrests made during the last two weeks.
“The Justice Department’s work to disrupt and dismantle the criminal gun trafficking pipelines that flood our communities with illegal guns has never been more urgent than it is now,” said Attorney General Merrick B. Garland. “That is why our prosecutors and agents are working more closely than ever before with our local law enforcement partners to get illegal guns off of our streets and hold accountable those who put illegal guns in the hands of violent criminals.”
Indictments and complaints were recently unsealed in federal court. They detail a lengthy investigation, led by the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), that focused on reducing firearms-related crime in several areas of Cleveland by studying data about areas with gun-crime violence, then identifying illegal firearms sellers to disrupt their trafficking. The investigation resulted in the seizure of over 240 firearms, 203 of which law enforcement purchased from illegal sellers and permanently removed from Cleveland’s streets. National Integrated Ballistic Information Network (NIBIN) data shows that a significant number of those firearms are connected to violent criminal activity, including homicides and felonious assaults, that took place in Cleveland and surrounding Northeast Ohio suburbs in 2022 and 2023. Of the purchased firearms, 17 are “ghost guns” – meaning, unserialized and untraceable firearms, typically assembled at home – and 28 are machinegun conversion devices or “switches” – a device that enables a firearm to fire in fully automatic mode.
In one case, law enforcement purchased more than 50 firearms from a group of seven people working together to sell firearms on Cleveland’s streets, even though none of the involved individuals hold a federal firearms license. Those firearms included stolen firearms, firearms with obliterated serial numbers, “switches,” already-loaded firearms, assault rifles, and firearms that had been previously used to commit violent crimes. Sometimes, these individuals also sold controlled substances to law enforcement officers at the same time. In two additional cases, law enforcement purchased, respectively, 33 firearms (including “switches”) and 23 firearms (including “switches”) from two other individuals who do not hold a federal firearms license. Many of these sales took place in public parking lots of business establishments during business hours or in recreational areas while nearby uninvolved, law-abiding citizens were engaged in their day-to-day errands or engaged in recreational activities.
Also, during this investigation, the ATF identified five individuals who were actively engaged in a conspiracy to conduct a home invasion and rob, at gunpoint, what they believed to be a “stash house” containing several kilograms of cocaine. Law enforcement intervened before these individuals could carry out their plan. Additionally, during this investigation, law enforcement purchased or seized almost 1.5 kilograms of cocaine, 215 grams of cocaine base, almost three kilograms of methamphetamine, 686 fentanyl pills, almost 1.5 kilograms of heroin/fentanyl mix, and 1,144 MDMA pills (otherwise known as Molly or Ecstasy).
Some defendants were charged together, but several others were charged individually. In all cases, however, the charges stemmed from the extensive, targeted, and sustained effort this past summer, led by the ATF and assisted by other federal, state, and local law enforcement partners, to clamp down on the illegal firearms trafficking, use, and possession, as well as the associated distribution of drugs, in Cleveland.
The following is a breakdown of the charges in U.S. District Court, according to court documents:
Malachi Berry, 21; Darvell Jackson, 20; and Steven Armstrong, 19, all of Cleveland, were charged together with conspiracy to possess a machinegun. Jackson and Armstrong were further charged with illegal possession of a machinegun. In the same indictment, these individuals, along with Nimar Linder, 21, of Cleveland, were also charged with conspiracy to engage in the business of dealing firearms without a federal firearms license. Armstrong and Linder were charged as felons in possession of a firearm.
Carlos Dupree, 43, of Cleveland; Dominique Goldsby, 32, of Cleveland; Jesse Mcdade, 41, of Cleveland; Norman Young, 37, of Cleveland; Martin Goodson, 41, of Cleveland; Lajuan Erwin, 25, of Mayfield Heights; Chevez Moorer, 23, of Cleveland; Aaron Wimbley, 22, of Garfield Heights; Alexander Duncan, 19, of Cleveland; Damien Body, 39, of Cleveland; Derrick Donald, 41, of Cleveland; Nahum Holmes, 31, of Brook Park; Akil Edmonds, 39, of Cleveland; Willie C. Jackson, 36, of Cleveland; and Deandre Smith, 36, of Cleveland, were indicted on distribution of drugs charges.
Josean Ortiz-Stuart, 34, and Jesus Vega, 29, both of Cleveland, were indicted together and both charged with distribution of drugs. Also named in that indictment was Gerald Matos, 38, of Cleveland, who was charged with being a felon in possession of a firearm.
Elias Pagan, 32, Ivan Santana, 26, and Angel Santiago, 46, all of Cleveland, were indicted together. Pagan faces numerous charges for distribution of drugs, as well being a felon in possession of firearms, and both Pagan and Santana were also charged with engaging in the business of importing, manufacturing, or dealing in firearms without a federal firearms license. Santiago is also charged with distribution of drugs.
Ambray Underwood, 25, of Euclid, was charged in an indictment for conspiracy to distribute drugs, and drug distribution.
Willie Earl Jackson, 26, of Cleveland, and Shane Plats, 31, of Ashtabula, were charged in the same indictment with engaging in the business of dealing firearms without a federal firearms license. Wiilie Earl Jackson was also charged in that indictment with trafficking in firearms.
Deshonn Brown, 19, and Demarius Jefferson, 18, both of Cleveland, were both charged with illegal possession of machineguns.
Jacob Plumb, 40, of Parma, was charged with distribution of drugs and possession of a firearm in furtherance of a drug trafficking crime.
Isaiah Overton, 23, of Cleveland, and Charles Morris, 33, of East Cleveland, were charged in a single indictment with distribution of drugs. Additionally, Overton was charged with using and carrying a firearm during and in relation to a drug trafficking Crime.
Corte’z Buggs, 29, of Cleveland, was charged in an indictment with distribution of Drugs and receipt of firearm while under felony indictment.
Michael Mcpherran, 38, of Parma, was charged with conspiracy to distribute drugs and distribution of drugs.
Harold Pearl, 39, of Cleveland, was charged with distribution of drugs and being a felon in possession of a firearm.
Alante Heard, 33, of Cleveland; Antonio Sweeney, 24, of Cleveland; Maurice Commons, 22, of North Randall; and Markus Williams, 33, of Cleveland, were charged by complaint with conspiracy to possess with intent to distribute drugs and possession of a firearm in furtherance of a drug trafficking crime.
Marquis Henson, 38; Deon Brown, 19; and Clarence Payne, 38, all of Cleveland, were charged with being a felon in possession of a firearm.
Kenneth Smith, 23, of East Cleveland, was charged with engaging in the business of dealing firearms without a federal firearms license, illegal possession of a machinegun, and being a felon in possession of firearms.
Andre Lewis, 35, of Cleveland, was charged with distribution of drugs and using and carrying a firearm during and in relation to a drug trafficking crime.
Devaunty Lewis, 31, and Nicholas Johnson, 33, both of Cleveland, were charged jointly in an indictment with conspiracy to engage in the business of importing, manufacturing, or dealing in firearms without a federal firearms license, and conspiracy to engage in firearms trafficking. Both were individually charged with engaging business in dealing with firearms without a license and trafficking in firearms. Lewis was also charged with being a felon in possession of a firearm. Johnson was also charged with engaging in the business of importing, manufacturing, or dealing in firearms without a federal firearms license.
Maurice Sterett, 39, of Cleveland; Antonio Cross, 22, of Cleveland; Marvell Roach, 43, of Willoughby; Kenneth Timberlake, 30, of Cleveland; and Travis Williams, 46, of Cleveland, were charged in an indictment with conspiracy to engage in the business of importing, manufacturing, or dealing in firearms without a federal firearms license. Sterett, Cross, Timberlake, and Williams were further charged, individually, with engaging in the business of importing, manufacturing, or dealing in firearms without a federal firearms license. Sterett, Cross, Roach, Timberlake, and Williams were also charged with conspiracy to engage in firearms trafficking and individual counts of firearms trafficking. Sterett, Timberlake, Travis Williams, and Roach were also charged with being a felon in possession of firearms. Sterett was further charged with distribution of drugs. Cross was also charged with illegal transfer of a machinegun.
Darion Shelton, 20, of Cleveland, was charged with engaging in the business of dealing firearms without a federal firearms license, and trafficking in firearms in connection with machinegun conversation devices or “switches.” He has also been charged with illegal possession of a machinegun.
The following is a breakdown of the charges in the Cuyahoga County Court of Common Pleas, according to court documents:
Marcel Battle, 30, of Canton: drug trafficking;
Avant Wilson, 22, of Cleveland: receiving stolen property (motor vehicle);
Nathan Roby, 44, of Cleveland: drug trafficking;
Raymond Callahan, 34, of Cleveland: drug trafficking;
Raphael Deen, 30, of Cleveland: drug trafficking;
Terry Lyons, 33, of Cleveland: drug trafficking;
If convicted, a federal district court judge will determine any penalty after considering the U.S. Sentencing Guidelines and other statutory factors.
Attorney General Garland and U.S. Attorney Rebecca C. Lutzko for the Northern District of Ohio made the announcement. ATF Director Steven M. Dettelbach, U.S. Marshal Peter J. Elliott, and Cleveland Mayor Justin M. Bibb provided additional details relating to the initiative, as well as regarding larger firearms enforcement and violence-prevention efforts.
ATF investigated these cases, with assistance from the Cleveland Division of Police, U.S. Marshals Service, the Drug Enforcement Administration, FBI, Homeland Security Investigations, Ohio Bureau of Criminal Investigation, the Ohio Adult Parole Authority, Ohio Investigative Unit, Customs and Border Patrol, Air and Marine Division, Ohio State Highway Patrol, and the Cuyahoga County Sheriff’s Office.
Assistant U.S. Attorney Kelly Galvin and other Assistant U.S. Attorneys for the Northern District of Ohio and the Cuyahoga County Prosecutor’s Office are prosecuting the cases.
An indictment or complaint is merely an allegation. All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
A federal jury today convicted two Bucharest, Romania, residents of 21 counts related to their scheme to infect victim computers with malware in order to steal credit card and other information to sell on dark market websites, mine cryptocurrency and engage in online auction fraud, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and U.S. Attorney Justin E. Herdman of the Northern District of Ohio.
Bogdan Nicolescu, 36, and Radu Miclaus, 37, were convicted after a 12-day trial of conspiracy to commit wire fraud, conspiracy to traffic in counterfeit service marks, aggravated identity theft, conspiracy to commit money laundering and 12 counts each of wire fraud. Sentencing has been set for Aug. 14, 2019 before Chief Judge Patricia A. Gaughan of the Northern District of Ohio.
According to testimony at trial and court documents, Nicolescu, Miclaus, and a co-conspirator who pleaded guilty, collectively operated a criminal conspiracy from Bucharest, Romania. It began in 2007 with the development of proprietary malware, which they disseminated through malicious emails purporting to be legitimate from such entities as Western Union, Norton AntiVirus and the IRS. When recipients clicked on an attached file, the malware was surreptitiously installed onto their computer.
This malware harvested email addresses from the infected computer, such as from contact lists or email accounts, and then sent malicious emails to these harvested email addresses. The defendants infected and controlled more than 400,000 individual computers, primarily in the United States.
Controlling these computers allowed the defendants to harvest personal information, such as credit card information, user names and passwords. They disabled victims’ malware protection and blocked the victims’ access to websites associated with law enforcement.
Controlling the computers also allowed the defendants to use the processing power of the computer to solve complex algorithms for the financial benefit of the group, a process known as cryptocurrency mining.
The defendants used stolen email credentials to copy a victim’s email contacts. They also activated files that forced infected computers to register email accounts with AOL. The defendants registered more than 100,000 email accounts using this method. They then sent malicious emails from these addresses to the compromised contact lists. Through this method, they sent tens of millions of malicious emails.
When victims with infected computers visited websites such as Facebook, PayPal, eBay or others, the defendants would intercept the request and redirect the computer to a nearly identical website they had created. The defendants would then steal account credentials. They used the stolen credit card information to fund their criminal infrastructure, including renting server space, registering domain names using fictitious identities and paying for Virtual Private Networks (VPNs) which further concealed their identities.
The defendants were also able to inject fake pages into legitimate websites, such as eBay, to make victims believe they were receiving and following instructions from legitimate websites, when they were actually following the instructions of the defendants.
They placed more than 1,000 fraudulent listings for automobiles, motorcycles and other high-priced goods on eBay and similar auction sites. Photos of the items were infected with malware, which redirected computers that clicked on the image to fictitious webpages designed by the defendants to resemble legitimate eBay pages.
These fictitious webpages prompted users to pay for their goods through a nonexistent “eBay Escrow Agent” who was simply a person hired by the defendants. Users paid for the goods to the fraudulent escrow agents, who in turn wired the money to others in Eastern Europe, who in turn gave it to the defendants. The payers/victims never received the items and never got their money back.
This resulted in a loss of millions of dollars.
The Bayrob group laundered this money by hiring “money transfer agents” and created fictitious companies with fraudulent websites designed to give the impression they were actual businesses engaged in legitimate financial transactions. Money stolen from victims was wired to these fraudulent companies and then in turn wired to Western Union or Money Gram offices in Romania. European “money mules” used fake identity documents to collect the money and deliver it to the defendants.
The FBI investigated the case, with assistance from the Romanian National Police. Senior Counsel Brian Levine of the Criminal Division’s Computer Crime and Intellectual Property Section (CCIPS) and Assistant U.S. Attorneys Duncan T. Brown and Brian McDonough of the Northern District of Ohio prosecuted the case. The Office of International Affairs also provided assistance in this case.
A federal jury in Little Rock, Arkansas, found Eric Scott Kindley, 52, a private prisoner transport officer, guilty of sexually assaulting two different women in his custody during two different transports in 2014 and 2017, and for knowingly possessing a firearm in furtherance of the 2017 sexual assault.
“The defendant was a prison transport officer who abused his law enforcement authority by sexually assaulting prisoners entrusted to his custody. That is a federal crime, and the Department of Justice will vigorously investigate and prosecute law enforcement officers who unlawfully use their position to abuse those in their custody,” said Assistant Attorney General Eric Dreiband for the Civil Rights Division. “Today’s conviction was made possible by the brave women who testified about their abuse, and the tireless work of federal investigators and prosecutors over the last three years.”
"Kindley took advantage of his authority to exploit the very people he was entrusted with transporting across the country,” said Sean Kaul, Special Agent in Charge of the FBI Phoenix Field Office. “We commend the many victims, across the nation, who came forward to report this despicable crime. This conviction should serve as notice that anyone who uses their authority to exploit individuals in their custody, will be held accountable and the FBI will continue to aggressively pursue these types of cases. We would like to thank the FBI agents across the country whose tireless efforts helped bring Kindley to justice and the Department of Justice for their tremendous work on this case.”
Evidence at trial showed that Kindley operated a private prisoner transport company that contracted with local jails throughout the country to transport individuals who were arrested on out-of-state warrants. Kindley transported individuals alone, without any oversight, in his unmarked white minivan, often for hundreds of miles. The jury heard from six women whom he transported between 2013 and 2017, all of whom described Kindley’s pattern of conduct. Kindley transported them alone over long distances, handcuffed and shackled in the backseat of the van. Kindley forced them to listen to sexually explicit comments that escalated in intensity and depravity. Some women dealt with the comments by trying to make a joke of it; others attempted to talk back and end the comments, while others sat silently. In each instance, Kindley drove to desolate locations, putting the women in fear of being sexually assaulted, severely hurt, or worse.
One of those women testified at trial that when Kindley transported her Alabama to Arizona in 2017, he stopped his van in a deserted area near Little Rock and sexually assaulted her while she was handcuffed, reminding her, as he did with other victims that she was “an inmate in transport” and that no one would believe her if she reported her. A second woman testified that when Kindley transported her in 2014, he stopped his van in a deserted area, also in Arkansas, and forced her to perform a sex act on him. A third woman testified that during her transport by Kindley in 2013 from Florida to Texas, he pulled his van over on the side of a dark road and sexually assaulted her. A fourth woman also testified that during her 2012 transport by from Nevada to California, Kindley stopped his van in a deserted park. He forced her to perform a sex act on him in a park bathroom. A fifth woman testified that during her 2013 transport from California to Montana, Kindley attempted to sexually assault her after he pulled over on the side of the road during a snowstorm. The jury heard testimony that none of the women who testified knew one another.
Kindley is also under indictment in the Central District of California for committing similar offenses related to his sexual assault of two other women in his custody in 2012 and 2017, and for brandishing a firearm during one of the sexual assaults. One of those women testified at this trial.
Kindley faces a maximum of life in prison. A sentencing date has not yet been set.
This case is being investigated by the Phoenix Division of the FBI with assistance from FBI field offices throughout the United States. It is being prosecuted by Special Litigation Counsel Fara Gold and Trial Attorney Maura White of the Criminal Section of the Civil Rights Division of the U.S. Department of Justice, with assistance from the United States Attorney’s Offices for the Eastern District of Arkansas and the District of Arizona.
A Beverly Hills, California, resident pleaded guilty today to filing false tax returns which did not report his offshore accounts in Germany and Israel and did not report the income earned on those accounts, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman and U.S. Attorney Nicola T. Hanna of the Central District of California.
According to the plea agreement and related court documents, Teymour Khoubian pleaded guilty to filing false tax returns for tax years 2009 and 2010 that failed to report foreign financial accounts in Germany and Israel, and failed to report income earned on those accounts. Between 2005 and 2012, Khoubian jointly owned multiple accounts at Bank Leumi in Israel with his mother that held between $15 million and $20 million. Additionally, since at least 2005, Khoubian also owned a foreign account at Commerzbank AG in Germany. Despite his ownership interest in these accounts and a legal requirement to declare all offshore accounts containing $10,000 or more, Khoubian prepared false tax returns for tax years 2005 through 2011 that did not fully disclose his foreign accounts, nor report all the interest income earned on those accounts. For instance, Khoubian’s Bank Leumi accounts generated interest income in excess of $4 million between 2005 and 2010, none of which was reported to the Internal Revenue Service (IRS). The total tax loss associated with the Bank Leumi accounts is approximately $ 1.2 million.
At least since 2009, Khoubian was aware of the IRS’s Offshore Voluntary Disclosure Program (the OVDP). The OVDP allowed U.S. taxpayers to voluntarily disclose their previously unreported foreign accounts and pay a reduced penalty to resolve their civil liability for not declaring foreign accounts to U.S. authorities. During 2011 and 2012, Bank Leumi requested that Khoubian sign a Form W-9 for U.S. tax reporting purposes. In an August 13, 2012, recorded telephone conversation with a banker at Bank Leumi, Khoubian stated that the reason he did not want to sign a Form W-9, was "because you have to pay half of it."
In 2012 and 2014, Khoubian knowingly made multiple false statements to IRS special agents investigating his foreign accounts, including falsely stating that the Bank Leumi accounts were not in his name, that he did not own a bank account in Germany from 2005 to 2010, that he closed his German bank account and moved all of that money to the United States, and that none of the money in his German bank account was moved to Israel.
As part of the plea agreement, Khoubian agreed to the entry of a civil judgment against him for an FBAR penalty in the amount of $7,686,004. Khoubian further agreed to pay an additional $612,310 in restitution to the IRS.
Khoubian faces a maximum of three years in prison for each of the tax counts to which he pleaded guilty, as well as monetary penalties and a period of supervised release.
This case is being prosecuted by Trial Attorneys Christopher S. Strauss and Ellen M. Quattrucci of the Justice Department’s Tax Division, with the assistance of Assistant United States Attorney Robert Conte of the U.S. Attorney’s Office for the Central District of California, and was investigated by the Internal Revenue Service-Criminal Investigation.
JOON LLC, d/b/a AJIN USA (Ajin), an auto-parts manufacturing company, was sentenced in federal court today in Montgomery, Alabama, after pleading guilty to a charge related to the death of a machinery operator.
Regina Elsea, who was 20 years old, worked at Ajin’s Cusseta, Alabama, facility. On June 18, 2016, she entered an enclosure — called a “cell” — containing several robots and other pieces of machinery. While she was inside the cell, troubleshooting a sensor fault, one of the machines started up and Elsea was struck by a robotic arm. She died of her injuries.
The Occupational Safety and Health Act (OSH Act) requires employers to develop and utilize procedures to de-energize machinery during maintenance and servicing activities to prevent the kind of unplanned startup that killed Elsea. These procedures are often referred to as “lockout/tagout.” Ajin knew these procedures were required and had developed them, but Ajin also knew that — over a period of at least two years — supervisors did not effectively enforce them.
In the 15 minutes prior to Elsea’s fatal injury — in the presence of their supervisors — workers entered cells to troubleshoot machinery without following lockout/tagout no less than five times, and the supervisors did not take any action to stop or reprimand them. In two other instances, the supervisors themselves entered a cell without following lockout/tagout. At the time of Elsea’s fatal injury, several individuals were inside the cell, none of whom had followed lockout/tagout procedures to de-energize the machinery within the cell.
Ajin pleaded guilty to a willful violation of the OSH Act standard requiring the use of lockout/tagout procedures. U.S. Magistrate Judge Stephen Michael Doyle sentenced Ajin to pay a $500,000 fine — the statutory maximum — $1,000,000 in restitution to Elsea’s estate, and a three-year term of probation, during which Ajin must comply with a safety compliance plan, overseen by a third-party auditor. Among other things, the safety compliance plan requires a full review of Ajin’s lockout/tagout procedures, weekly inspections to ensure compliance, and creation of a mechanism for employees to report any safety concerns about the facility anonymously.
“Regina’s tragic death was preventable,” said Principal Deputy Assistant Attorney General Jonathan D. Brightbill of the Justice Department’s Environment and Natural Resources Division. “OSH Act standards exist to protect American workers, but employers must actually implement them. When safety policies exist only on paper, tragedies like this occur. Ajin knew its supervisors and managers were turning a blind eye to the company’s safety procedures. Now, Ajin must take responsibility for its conduct. It will implement the safety compliance plan, and work to make its facility safer for its employees. Employers should be aware that they must follow workplace safety laws.”
“Every worker expects to return home safely at the end of his or her shift,” said U.S. Attorney Louis V. Franklin Sr. of the Middle District of Alabama. “The OSH Act was passed to ensure that workers could trust that their employers create and maintain a safe work environment. While most companies abide by the OSH Act, the unfortunate reality is that some of them do not. Ajin failed to comply with the OSH Act and, as a direct result of their failure, Regina Elsea did not return home safely at the end of her shift. Her death was preventable and Ajin’s failure to keep her out of harm’s way is inexcusable. I hope this prosecution sends a message to companies that people are their most valuable resource and complying with the OSH Act is a must in protecting its employees.”
“Employers are responsible for worker safety and health, and the failure in this situation was tragic,” said Principal Deputy Assistant Secretary of Labor for Occupational Safety and Health Loren Sweatt. “Well-known safety procedures were repeatedly ignored that could have prevented this tragedy. While nothing can ever replace the loss of life, the court has sent a clear message that such disregard for worker safety is unacceptable.”
The case was prosecuted by Assistant U.S. Attorney Stephanie Billingslea and former Assistant U.S. Attorney Ben M. Baxley of the Middle District of Alabama and Trial Attorney Erica H. Pencak of the Environment and Natural Resources Division’s Environmental Crimes Section. The case was investigated by the U.S. Department of Labor Office of Investigations.
The year 2020 marks the 150th anniversary of the Department of Justice. Learn more about the history of our agency at www.Justice.gov/Celebrating150Years.
Three people are now in custody in relation to the fatal raid that occurred in January 2019 on Harding Street in Houston, Texas, announced Assistant Attorney General Eric Dreiband of the Department of Justice’s Civil Rights Division, U.S. Attorney Ryan K. Patrick for the Southern District of Texas and Special Agent in Charge Perrye K. Turner of the FBI.
A federal grand jury returned the nine count indictment Nov. 14 against Gerald M. Goines, 55, and Steven M. Bryant, 46, both former Houston Police Department (HPD) officers. Also charged is Patricia Ann Garcia, 53. All are residents of Houston. The indictment was unsealed this morning as authorities took all three into custody. They are expected to make their initial appearances before U.S. Magistrate Judge Dena H. Palermo at 2 p.m. central time.
The federal indictment stems from the Jan. 28 narcotics raid HPD conducted on the 7800 block of Harding Street in Houston. The enforcement action resulted in the deaths of two residents at that location.
Goines is charged with two counts of depriving the victims’ constitutional right to be secure against unreasonable searches. The indictment alleges Goines made numerous materially false statements in the state search warrant he obtained for their residence. The execution of that warrant containing these false statements resulted in the death of the two individuals as well as injuries to four other persons, according to the indictment.
Goines and Bryant are charged with obstructing justice by falsifying records. Goines allegedly made several false statements in his tactical plan and offense report prepared in connection with that search warrant. The indictment alleges Bryant falsely claimed in a supplemental case report he had previously assisted Goines in the Harding Street investigation. Bryant allegedly identified a brown powdery substance (heroin) he retrieved from Goines’ vehicle as narcotics purchased from the Harding Street residence Jan. 27.
Goines is further charged with three separate counts of obstructing an official proceeding. The federal grand jury alleges Goines falsely stated Jan. 30 that a particular confidential informant had purchased narcotics at the Harding Street location three days prior. He also falsely stated Jan. 31 that a different confidential informant purchased narcotics at that residence that day, according to the charges. On Feb. 13, he also falsely claimed he had purchased narcotics at that residence on that day. The indictment alleges none of these statements were true.
The charges against Garcia allege she conveyed false information by making several fake 911 calls. Specifically, on Jan. 8, she allegedly made several calls claiming her daughter was inside the Harding Street location. According to the indictment, Garcia added that the residents of the home were addicts and drug dealers and that they had guns – including machine guns – inside the home. The charges allege none of Garcia’s claims were true.
If convicted of the civil rights charges, Goines faces up to life in prison. Each obstruction count carries a potential 20-year sentence, while Garcia faces a five-year term of imprisonment for conveying false information.
The FBI is conducting the investigation. Assistant U.S. Attorneys Alamdar S. Hamdani, Arthur R. Jones and Sharad S. Khandelwal, and Special Litigation Counsel Jared Fishman of the Department of Justice’s Civil Rights Division, are prosecuting the case.
An indictment is a formal accusation of criminal conduct, not evidence. A defendant is presumed innocent unless convicted through due process of law.
A Massachusetts man was sentenced yesterday to 33 months in prison followed by two years of supervised release for a scheme to illegally export defense technical data to foreign nationals in Turkey in connection with the fraudulent manufacturing of parts and components used by the U.S. military, in violation of the Arms Export Control Act. The U.S. Department of Defense (DOD) later determined that some of the parts were substandard and unsuitable for use by the military.
On Aug. 10, 2022, Arif Ugur, 53, of Cambridge, pleaded guilty to two counts of wire fraud, two counts of violating the Arms Export Control Act and one count of conspiring to violate the Arms Export Control Act.
“The defendant willfully defrauded the Department of Defense and gave access to controlled defense information to individuals in a foreign country for personal gain,” said Assistant Attorney General Matthew G. Olsen of the Justice Department’s National Security Division. “This type of brazen disregard for our export control laws threatens our military readiness and technological advantage and will not be tolerated by this department.”
According to court documents, in 2015, Ugur, founded and was the sole managing partner of the Anatolia Group Limited Partnership (Anatolia), a domestic limited partnership registered in Massachusetts. Beginning in approximately July 2015, Ugur bid on and acquired numerous contracts to supply the DOD with various parts and components intended for use by the U.S. military. Many of these contracts required that the parts be manufactured in the United States. Both in bids submitted to DOD and in subsequent email communications with DOD representatives, Ugur falsely claimed that Anatolia was manufacturing the parts in the United States. In fact, Anatolia was a front company with no manufacturing facilities whatsoever. Unbeknownst to DOD, Ugur contracted with a company in Turkey to make the parts and then passed them off to DOD as if they had been manufactured by Anatolia in the United States. Because they had not been manufactured in the United States in accordance with the contacts, Ugur failed to allow DOD to inspect the parts prior to delivery to the U.S. military. Many of the parts were substandard and some could not be used at all.
To enable the Turkish company to manufacture the parts, Ugur shared technical specifications and drawings of the parts with his co-conspirators overseas, some of whom were employees of the Turkish company. Ugur also provided his overseas co-conspirators with access to DOD’s online library of technical specifications and drawings. Because of their military applications, many of these parts were designated as Defense Articles under the International Traffic in Arms Regulations (ITAR) and the United States Munitions List (USML). Thus, an export license was required to export the parts and related technical data (blueprints, specifications, etc.) from the United States to Turkey. Ugur knew of these restrictions, but nonetheless exported technical data controlled under the ITAR and USML to employees of the Turkish manufacturer without an export license.
Assistant Attorney General Matthew G. Olsen of the Justice Department’s National Security Division; U.S. Attorney Rachael S. Rollins for the District of Massachusetts; Special Agent in Charge Patrick J. Hegarty of the Department of Defense, Office of Inspector General, Defense Criminal Investigative Service, Northeast Field Office; Special Agent in Charge Matthew B. Millhollin of Homeland Security Investigations in Boston; and Acting Special Agent in Charge Rashel Assouri of the U.S. Department of Commerce Office of Export Enforcement, Boston Field Office made the announcement.
Assistant U.S. Attorneys Jason A. Casey and Timothy H. Kistner for the District of Massachusetts prosecuted the case.
Four Peruvian residents have been extradited to the United States, where they stand accused of operating a large-scale extortion scheme from 2012 through 2015, the Justice Department and U.S. Postal Inspection Service today announced.
Jesus Gerardo Gutierrez Rojas, 37, Maria de Guadalupe Alexandra Podesta Bengoa, 38, Virgilio Ignacio Polo Davila, 43, and Omar Alfredo Portocarrero Caceres, 39, face federal charges in Miami. Peruvian authorities arrested the four in late 2017, based upon a U.S. indictment. All four remained incarcerated in Peru since the time of their arrest. Peru approved their extradition to the U.S. on Jan. 18, 2019.
“The Department of Justice will pursue criminals who target and extort U.S. consumers, wherever they are,” said Assistant Attorney General Jody Hunt for the Department of Justice’s Civil Division. “Those who extort U.S. consumers by phone cannot escape justice by placing their calls from abroad. I thank the Republic of Peru for extraditing these individuals to face charges in U.S. courts.”
“Individuals who defraud American consumers will be brought to justice, no matter where they are located,” said U.S. Attorney Ariana Fajardo Orshan for the Southern District of Florida. “Protecting the elderly and vulnerable members of our community from extortion schemes, such as this one, is a top priority of this Office and the Department of Justice, and I thank the U.S. Postal Inspection Service for their unwavering commitment to rid the U.S. mail system of these schemes. This is a reminder to our community to be wary of those individuals who threaten imprisonment, a negative credit score or a change in immigration status; please report those threats immediately.”
“The U.S. Postal Inspection Service will continue to aggressively investigate and pursue those who threaten U.S. consumers and extort them of their hard earned money, regardless of what country they operate from,” said U.S. Postal Inspector in Charge Antonio J. Gomez. “The U.S. Postal Inspection Service appreciates the continued partnership with the Department of Justice’s Consumer Protection Branch in pursuing South American call center operators who victimize consumers through the U.S. mail.”
Podesta, Polo, and Portocarrero allegedly managed and operated Peruvian call centers that placed calls to Spanish-speaking consumers across the United States while lying and threatening them into paying fraudulent settlements for nonexistent debts. Many of the consumer victims were elderly. Gutierrez was allegedly the general manager of a larger company where he worked in partnership with Podesta, Polo, and Portocarrero to facilitate their extortion scheme. The defendants’ associates in Miami collected the payments and sometimes shipped packages to victims in the U.S.
According to the allegations in the indictment, Podesta, Polo, Portocarrero, and their employees in Peru used Internet-based telephone calls and claimed to be attorneys and government representatives to threaten victims in the United States. The callers falsely claimed that victims failed to pay for or receive a delivery of products. The callers also falsely claimed that victims would be sued and that the companies would obtain large monetary judgements against them. Some victims were also threatened with negative marks on their credit reports, imprisonment, or immigration status. The callers said these threatened consequences could be avoided if the victims immediately paid “settlement fees.” Many victims made monetary payments based on these baseless threats.
A 34-count federal indictment was filed against the defendants in the U.S. District Court for the Southern District of Florida on Dec. 6, 2016, and was unsealed upon the defendants’ extradition to the U.S. The defendants are approved to face 12 extortion counts pending against them. An indictment merely alleges that crimes have been committed. All defendants are presumed innocent until proven guilty beyond a reasonable doubt.
The case is being prosecuted by Trial Attorney Phil Toomajian of the Department of Justice’s Consumer Protection Branch. The Postal Inspection Service investigated the case. The Criminal Division’s Office of International Affairs, the U.S. Attorney’s Office of the Southern District of Florida, the Diplomatic Security Service, and the Peruvian National Police provided critical assistance.
A federal judge in Greeneville, Tennessee, sentenced two Florida men for their roles in a multimillion-dollar health care fraud scheme.
Peter Bolos, 44, of Tampa, was convicted by a federal jury in December 2021 of conspiracy to commit health care fraud, 22 counts of mail fraud and introduction of a misbranded drug into interstate commerce. U.S. District Judge J. Ronnie Greer sentenced Bolos to 14 years in prison and ordered him to pay more than $24.6 million in restitution and $2.5 million in forfeiture. The court also sentenced Bolos’s co-defendant, Michael Palso, 48, of Tampa, to 33 months in prison and ordered him to pay more than $24.6 million in restitution. Palso previously pleaded guilty to his role in the conspiracy, as did 14 other defendants in related cases. The remaining defendants are scheduled to be sentenced later this week.
According to court documents and evidence presented at trial, Bolos, Palso and their co-conspirators, Andrew Assad, Scott Roix, Larry Smith, Mihir Taneja, Arun Kapoor and Maikel Bolos, as well as various other companies owned or controlled by some of these individuals, deceived pharmacy benefit managers (PBMs), such as Express Scripts and CVS Caremark, regarding tens of thousands of prescriptions. The PBMs processed and approved claims for prescription drugs on behalf of insurance companies. Bolos and his co-conspirators defrauded the PBMs into authorizing millions of dollars’ worth of claims that private insurers such as Blue Cross Blue Shield of Tennessee, and public insurers such as Medicaid and TRICARE, paid to pharmacies controlled by the co-conspirators.
“The significant sentences imposed by the court are a reflection of the gravity of the crimes that the defendants in this case committed,” said Deputy Assistant Attorney General Arun G. Rao, head of the Civil Division’s Consumer Protection Branch. “The department will continue to work with law enforcement partners to prosecute those who take advantage of telemedicine to perpetrate fraud schemes.”
“The scale of the prescription-drug fraud scheme orchestrated by these defendants and their conspirators was astonishing, and the Court’s prison sentences reflect the seriousness of their crimes,” said U.S. Attorney Francis M. Hamilton III for the Eastern District of Tennessee. “The financial harm caused by health care fraud hurts all Americans, and the United States Attorney’s Office for the Eastern District of Tennessee will continue to support the cooperation among its federal law enforcement partners that is necessary to bring criminal swindlers like these defendants to justice.”
“This sentencing is the result of a multi-agency investigation into a complex telemedicine pharmacy fraud scheme, requiring substantial investigative resources,” said Special Agent in Charge Joseph E. Carrico of the FBI’s Knoxville Field Office. “The FBI, with its law enforcement partners, will remain vigilant to assure that unscrupulous individuals who exploit our health care system are brought to justice.”
“Distributing misbranded prescription drugs in the U.S. marketplace places patients’ health at risk,” said Special Agent in Charge Justin C. Fielder of the FDA Office of Criminal Investigations (OCI) Miami Field Office. “We will continue to pursue and bring to justice those who put profits ahead of public health.”
“Bolos and his co-conspirators abandoned their responsibilities in the health care industry through an elaborate fraud scheme and manipulated the system without regard for patient need or medical necessity to line their pockets,” said Special Agent in Charge John Condon of Homeland Security Investigations (HSI) Tampa. “This significant sentence should serve as a warning to anyone who attempts to deceive the government and steal from taxpayers.”
“Providers who solicit beneficiaries’ personal information and use it to defraud federal health care programs not only undermine the integrity of those programs; they also divert valuable taxpayer dollars for self-serving purposes,” said Special Agent in Charge Tamala E. Miles of the Department of Health and Human Services, Office of Inspector General (HHS-OIG). “HHS-OIG is proud to work alongside our law enforcement partners to investigate and hold accountable perpetrators of federal health care fraud.”
“The U.S. Postal Service, Office of Inspector General, will continue to vigorously investigate those who commit frauds against federal benefit programs and the U.S. Postal Service,” said Special Agent in Charge Matthew Modafferi of the U.S. Postal Service, Office of Inspector General Northeast Area Field Office. “The sentencing in this case sends a clear message to pharmaceutical companies that tactics like these will not be tolerated. The U.S. Postal Service, Office of Inspector General would like to thank our law enforcement partners and the Department of Justice for their dedication and efforts in this investigation.”
Court documents and evidence at trial established that Bolos, Assad and Palso owned and operated Synergy Pharmacy in Palm Harbor, Florida. Under their direction, Synergy employed Scott Roix, a Florida telemarketer operating under the name HealthRight, to generate prescriptions for Synergy and the other pharmacies involved in the scheme. The prescriptions were typically for drugs such as pain creams, scar creams and vitamins. To obtain the prescriptions, Roix used HealthRight’s telemarketing platform as a telemedicine service, cold-calling consumers and deceiving them into agreeing to accept the drugs and to provide their personal insurance information. HealthRight then paid doctors to authorize the prescriptions through its telemedicine platform, even though the doctors never communicated directly with the patients and relied solely on the telemarketers’ screening process as the basis for their authorizations. Because this faulty and fraudulent process made the prescriptions invalid, the drugs were misbranded under the Food, Drug and Cosmetic Act. Synergy and the other pharmacies nonetheless dispensed the drugs to consumers as part of the scheme, so that Bolos could submit fraudulent reimbursement claims.
Court documents and evidence at trial established that during the conspiracy, which lasted from May 2015 through April 2018, Bolos and Palso, along with co-defendant Andrew Assad, paid Roix millions of dollars to buy at least 60,000 invalid prescriptions generated by HealthRight. Bolos selected specific medications for the prescriptions that he could submit for profitable reimbursements at inflated prices. In addition, Bolos, Palso, and Assad used illegal means to hide his activity from the PBMs so that they could remain undetected.
The sentencings for the remaining defendants — all of whom pleaded guilty prior to trial — are scheduled to occur later this week. Larry Smith, Alpha-Omega Pharmacy, Germaine Pharmacy, Zoetic Pharmacy, Tanith Enterprises LLC, ULD Wholesale Group and Taneja will be sentenced on May 17. Kapoor, Sterling Knight Pharmaceuticals and Maikel Bolos will be sentenced on May 18. Assad, Roix and HealthRight LLC will be sentenced on May 19. All of the sentencings will occur before Judge Greer in the U.S. District Court for the Eastern District of Tennessee at Greeneville.
The trial verdict and plea agreements resulted from a multi-year investigation conducted by the HHS-OIG (Nashville); FDA-OCI (Nashville); U.S. Postal Service, Office of Inspector General (Buffalo); FBI (Knoxville and Johnson City, Tennessee); OPM-OIG (Atlanta); and HSI (Tampa). The U.S. Marshals Service also assisted in the investigation and the forfeiture of assets.
Assistant U.S. Attorney Mac Heavener of the U.S. Attorney’s Office for the Eastern District of Tennessee and Senior Trial Attorney David Gunn of the Civil Division’s Consumer Protection Branch in Washington are prosecuting the case. They were assisted by Barbra Pemberton, Bryan Brandenburg and April Denard from the U.S. Attorney’s Office.
Attorney General William P. Barr announced today the appointment of Timothy Shea as Interim U.S. Attorney for the District of Columbia, pursuant to 28 U.S.C. § 546, effective February 3. The Office is the largest U.S. Attorney’s Office in the country, serving as both the local and the federal prosecutor for the nation’s capital, with over 300 attorneys responsible for litigation before over 100 judges in federal and local courts.
“I am pleased to appoint Tim Shea as Interim U.S. Attorney for the District of Columbia. Tim brings to this role extensive knowledge and expertise in law enforcement matters as well as an unwavering dedication to public service, reflected in his long and distinguished career in state and federal government,” said Attorney General William P. Barr. “His reputation as a fair prosecutor, skillful litigator, and excellent manager is second-to-none, and his commitment to fighting violent crime and the drug epidemic will greatly benefit the city of Washington. I would also like to express my gratitude to Jessie Liu, who has served with distinction as U.S. Attorney for the District of Columbia since 2017, and has been nominated to a new role at the Department of the Treasury.”
Shea served as Associate Deputy Attorney General from 1990-1992 and as Counselor to the Attorney General since 2019. In both roles, he advised the Attorney General on law enforcement operations, criminal justice policy, and management issues affecting the Department. He recently spearheaded the Department’s Operation Relentless Pursuit, a crackdown targeting violent crime in seven U.S. cities.
From 1992-1997, Shea served as an Assistant U.S. Attorney in the Eastern District of Virginia where he prosecuted federal criminal cases, including violent crimes, drug trafficking, fraud cases, perjury and obstruction of justice investigations, federal tax fraud and evasion cases, civil rights matters, and public corruption cases. He headed the Task Force responsible for investigating and prosecuting crimes at the District of Columbia correctional facilities at Lorton, supervising AUSAs and D.C. government attorneys. He was also the coordinator for matters related to the Criminal Enforcement Child Support.
In state government, Shea served as the Chief of Public Protection Bureau in the Massachusetts Attorney General’s office where he managed several divisions staffed by attorneys and investigators. In that position, he was responsible for the enforcement of state law related to consumer protection, civil rights, antitrust, regulated industries, insurance rate setting, telecommunications, energy, environment, public charities, and elder protection. Shea also served in Congressional roles, including as Chief Counsel and Staff Director of the U.S. Senate Permanent Subcommittee on Investigations under the chairmanship of Senator Susan Collins and on the U.S. House Appropriations Committee professional staff under Ranking Republican Member Silvio O. Conte. During his 20 years of private practice, Shea served as Of Counsel for Bingham McCutchen and Morgan Lewis, handling complex civil litigation.
Shea earned his J.D. degree magna cum laude in 1991 from the Georgetown University Law Center where he was elected to the Order of the Coif. He was also a senior staff member of the America Criminal Law Review. He received his B.A. degree magna cum laude from Boston College in 1982 where he received the Kenealy Award for Academic Excellence.
SHERMAN, Texas – An Oklahoma City, OK woman has been convicted of various federal crimes related to an international drug trafficking conspiracy in the Eastern District of Texas, announced U.S. Attorney Brit Featherston today.
Debra Lynn Mercer-Erwin, 60, was found guilty by a jury following a two-week trial before U.S. District Judge Amos Mazzant. Mercer-Erwin was convicted of money laundering; wire fraud; conspiracy to manufacture and distribute cocaine; and conspiracy to manufacture and distribute cocaine knowing it would be imported into the United States.
“In the aircraft world, planes registered in the United States and displaying a ‘N’ tail-number, are coveted as being properly vetted and trusted to legally operate around the world. Mercer-Erwin found ways to exploit the registration process in order to profit from illegally obtained money being paid for her services,” said U. S. Attorney Featherston. “Mercer-Erwin became a drug dealer when she became aware of planes she had registered were being used to transport large quantities of cocaine. Mercer-Erwin knew that many of her clients were in the illegal drug business and she hid their identities and the sources of their money in order to reap a large profit. She became a money launderer when she created fake sales of planes that were not actually for sale in order to hide and move drug money. Transnational criminal organizations require assistance to operate in the U.S. and Mercer-Erwin facilitated the drug dealing by exploiting the plane registration process.”
“This investigation required cooperation between our international partners, investigating agents and our prosecutors,” added U.S. Attorney Featherston. “They did an amazing job putting the case together, and they are to be commended for their work.”
“This guilty verdict stems from the collaborative efforts of our trusted international, federal, state and local law enforcement partners,” said Lester R. Hayes Jr., Special Agent in Charge HSI Dallas. “Disrupting the illegal activities of transnational criminal organizations is one of HSI ‘s highest priorities and is enhanced by our partnerships at all levels. After listening to testimony of high-ranking leaders of the Columbian and Nicaraguan governments, I am convinced this investigation has significantly decreased the flow of narcotics smuggled into the U.S.”
“This investigation and successful prosecution serves as an example of how federal, state, and international law enforcement agencies work together to take down those involved in large scale money laundering in support of international drug trafficking organizations,” said Special Agent in Charge Trey McClish of the Dallas Field Office of the Department of Commerce’s Office of Export Enforcement (OEE). “OEE and our law enforcement partners will continue to identify, investigate, and dismantle transnational criminal organizations who pose a threat to our national security.”
According to information presented in court, between 2010 and 2020, Mercer-Erwin conspired with others to enable the distribution of cocaine in the United States by purchasing and illegally registering aircraft under foreign corporations and other individuals for export to other countries. Non-US citizens are allowed to register an aircraft with the FAA if the aircraft is placed in a trust that is managed by a U.S. trustee. Mercer-Erwin was the owner of Wright Brothers Aircraft Title (WBAT) and Aircraft Guaranty Corporation (AGC). WBAT often served as an escrow agent for transactions involving AGC and was the designated party responsible for FAA filings related to AGC aircraft. AGC, a corporation at that time operating out of Onalaska, Texas, an east Texas town in the Eastern District of Texas, without an airport. AGC acted as trustee to over 1,000 aircrafts with foreign owners. This allowed the foreign nationals to receive an “N” tail number for their aircrafts. The “N” tail number is valuable because foreign countries are less likely to inspect a U.S.-registered aircraft for airworthiness or force down an American aircraft.
According to prosecutors, several of the illegally registered and exported aircraft were used by transnational criminal organizations in Colombia, Venezuela, Ecuador, Belize, Honduras, Guatemala, and Mexico to smuggle large quantities of cocaine destined for the United States. The illicit proceeds from the subsequent drug sales were then transported as bulk cash from the United States to Mexico and used to buy more aircraft and cocaine. Aircraft purchases were typically completed by foreign nationals working for transnational criminal organizations who came to the United States with drug proceeds and purchased aircraft valued in the hundreds of thousands of dollars.
Mercer-Erwin exploited her position as trustee to circumvent U.S. laws by disguising the true identity of the foreign owners, failing to conduct due diligence as to the identity of the foreign owners, providing false aircraft locations, and falsifying and forging documents. Trial testimony revealed the investigation was initiated after aircraft filing irregularities were discovered in tandem with numerous AGC aircraft found carrying substantial amounts of cocaine. The testimony further revealed additional aircraft in AGC’s trust were not seized but found by foreign officials destroyed or abandoned near clandestine landing strips in several South American countries. Some of these wrecked or abandoned aircraft still contained muti-ton kilos of cocaine onboard, and few, if any, of the seized or destroyed aircraft were in the location they were reported to be located. When authorities confronted Mercer-Erwin as the representative of AGC, she refused to comply and each time law enforcement would seize an AGC registered aircraft laden with drugs, Mercer-Erwin attempted to distance herself from the narcotic’s trafficking by transferring ownership of the aircraft using fictitious information to conceal the nature, location, source, ownership, and control of the aircraft.
Additionally, Mercer-Erwin and co-defendants participated in a series of bogus aircraft sales transactions in order to conceal the movement of illegally obtained funds. The co-defendants would provide buyers and investors with fabricated documents and supply false representations regarding the bogus sale of an unsellable aircraft. The aircraft was unsellable because, unbeknownst to the buyers, the true owners of the aircraft had no knowledge or intention of selling the aircraft. Other bogus sales presented to buyers consisted of aircraft that was owned by a commercial airline and previously decommissioned and inoperable. None of the aircraft presented to the buyers were for sale.
The defendants would convince the buyer to place a deposit into an escrow account with WBAT, the title company owned by Mercer-Erwin, pending the completion of the sale. Once the money was placed in WBAT’s escrow account, the buyers were responsible for the interest accrued, and an escrow fee would be charged. In a typical sale, the deposit would remain in the escrow account. However, Mercer-Erwin would transfer the money from the escrow account to bank accounts controlled by the co-conspirators.
Since the aircraft was not truly for sale, the purchase of the aircraft would inevitably fall through, and the deposit would have to be returned. The co-conspirators would repeat the process by luring another buyer for the purchase of another unsellable aircraft. Each transaction would pay for the previous one, and Mercer-Erwin would receive an escrow fee ranging from $25,000 to $150,000 for her participation in the scheme.
Mercer-Erwin was the only defendant to proceed to trial. Co-defendants Kayleigh Moffett and Carlos Rocha Villaurrutia pleaded guilty on April 10, 2023. Moffett pleaded guilty to wire fraud and conspiracy to commit export violations, and Villaurrutia pleaded guilty to conspiracy to manufacture and distribute cocaine knowing it would be unlawfully imported into the United States; conspiracy to commit money laundering; and conspiracy to commit export violations. Four other defendants have active arrest warrants but are not in custody and are presumed innocent until proven guilty.
Mercer-Erwin was indicted by a federal grand jury in February 2021. She faces up to life in federal prison. The maximum statutory sentence prescribed by Congress is provided here for information purposes, as the sentencing will be determined by the court based on the advisory sentencing guidelines and other statutory factors. A sentencing hearing will be scheduled after the completion of a presentence investigation by the U.S. Probation Office.
This is an Organized Crime Drug Enforcement Task Force (OCDETF) case and is being investigated by Homeland Security Investigations (Dallas, Brownsville, Laredo, Guatemala, Colombia, Honduras, Mexico, and Transnational Criminal Investigative Units); Department of Commerce, Bureau of Industry and Security (Dallas and Houston offices); Department of Transportation Office of Inspector General (DOT-OIG); Office of Export Enforcement; Polk County Constable Precinct 1; Southeast Texas Export Investigations Group; Internal Revenue Service; Federal Aviation Administration (FAA); Estado Mayor De La Defensa Nacional Guatemala; Fuerza Aerea Guatemalteca; and Fuerza Aerea Colombiana. OCDETF identifies, disrupts, and dismantles the highest-level drug traffickers, money launderers, gangs, and transnational criminal organizations that threaten the United States by using a prosecutor-led, intelligence-driven, multi-agency approach that leverages the strengths of federal, state, and local law enforcement agencies against criminal networks.
This case was prosecuted by Assistant U.S. Attorneys Ernest Gonzalez, Heather Rattan, and Lesley Brooks.
Two biofuel company owners were sentenced to prison for conspiracy and making false statements to the U.S. Environmental Protection Agency (EPA) and conspiracy to defraud the IRS and preparing a false tax claim.
U.S. District Judge John E. Jones III sentenced Ben Wootton, 55 of Savannah, Georgia, to 70 months and Race Miner, 51, of Marco Island, Florida, to 66 months, after a jury convicted both defendants and their company, Keystone Biofuels Inc. (Keystone), in April 2019. The company was originally located in Shiremanstown, Pennsylvania, and later in Camp Hill, Pennsylvania. Miner was the founder and chief executive officer of Keystone. Wootton was president of Keystone, and a former member of the National Biodiesel Board. The court ordered both men to pay restitution of $4,149,383.41 to the IRS and restitution of $5,076,376.07 to the Pennsylvania Department of Environmental Protection. Wootton and Miner will also have to serve a three-year term of supervised release after their term of imprisonment. Keystone was sentenced to five years’ probation and ordered to pay restitution of $4,149,383.41 to the IRS and restitution of $5,076,376.07 to the Pennsylvania Department of Environment Protection criminal fine.
“The EPA and IRS renewable fuels incentive programs are important components of the Congressional program to increase the use of biofuels to benefit the environment,” said Principal Deputy Assistant Attorney General Jonathan D. Brightbill of the Justice Department’s Environment and Natural Resources Division. “Today’s sentences are a strong reminder that the federal government will not allow supposed “green” conmen to illegally take advantage of federal and state programs that are meant to offer financial incentives to enhance the environment and energy sustainability.”
“The complex fraud perpetrated by the defendants in this case struck directly at the heart of a government program that was specifically created to benefit the environment, business owners and the community at large,” said U.S. Attorney David J. Freed of the Middle District of Pennsylvania. “Encouraging companies to develop and provide for sale clean renewable fuels is truly a win-win proposition for everyone. Unfortunately, the defendants used this program to benefit only themselves. Today’s sentences send a clear message that my office, our federal partners and the United States Department of Justice will not tolerate renewable fuels fraud and related offenses.”
“The defendants defrauded the IRS and sought to profit from a system intended to protect the environment,” said Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division. “The Tax Division will continue to aggressively investigate and prosecute with our partners such tax crimes.”
“Today’s sentencing demonstrates there are real penalties for those defrauding the Renewable Fuel Standard (RFS) program,” said Jessica Taylor, Director of the EPA’s criminal enforcement program. “With this action EPA and its enforcement partners are continuing to protect both the integrity of the RINs program and the American taxpayer.”
“Wootton and Miner actively engaged in a multimillion-dollar scheme designed to rob the government and line their own pockets. Today, they learned there is a steep price to be paid for such greed,” said Jim Lee, Chief, IRS Criminal Investigation (IRS-CI). “It is the partnerships between IRS-CI and other federal agencies like the EPA that allow cases like this to come to fruition, holding accountable those who seek to enrich themselves through fraudulent means.”
“The only green resource these two cared about was money, and they told lie after lie to perpetuate their fraud,” said Special Agent in Charge Michael J. Driscoll of the FBI's Philadelphia Field Office. “Fair warning to anyone else seeking to scam the U.S. government and taxpayers like this: the FBI and our partners stand ready to investigate and hold you accountable as well.”
Wootton, Miner, and Keystone falsely represented that they were able to produce a fuel meeting the requirements set by the American Society for Testing and Materials (ASTM) for biodiesel (a renewable fuel) and adopted by the EPA, and as such were entitled to create renewable fuel credits, known as RINs, based on each gallon of renewable fuel produced. The fuel and the RINs have financial value and could be sold and purchased by participants within the federal renewable fuels commercial system.
Wootton and Miner were also convicted of fraudulently claiming federal tax refunds based on IRS’s Biofuel Mixture Credit. The Biodiesel Mixture Credit is a type of “blender’s credit” for persons or businesses who mix biodiesel with diesel fuel and use or sell the mixture as a fuel. Wootton and Miner caused Keystone to fraudulently claim tax refunds based on non-qualifying fuel and, in at least some instances, non-existent or non-mixed fuel. In an attempt to hide their fraud scheme, the men created false corporate books and records and sham financial transactions to account for the nonexistent and non-qualifying fuel, and to create the appearance of legitimacy.
The prosecution of Wootton, Miner and Keystone is the first prosecution of a case under the federal renewable fuels program based on fuel that did not meet the program renewable fuel quality standards.
The case was prosecuted by Senior Litigation Counsel Howard P. Stewart of the Environment and Natural Resources Division’s Environmental Crimes Section, Assistant U.S. Attorney Geoffrey MacArthur, Special Assistant U.S. Attorney David Lastra, and Trial Attorneys Mark Kotila and Michael C. Vasiliadis of the Tax Division. EPA Region III Criminal Investigation Division, IRS Criminal Investigation and the FBI Philadelphia’s Harrisburg Resident Agency investigated the matter.
The year 2020 marks the 150th anniversary of the Department of Justice. Learn more about the history of our agency at www.Justice.gov/Celebrating150Years.
A Texas man was taken into custody on allegations he fraudulently obtained more than $1.1 million in Paycheck Protection Program (PPP) loans, announced Acting Assistant Attorney General Brian C. Rabbitt of the Justice Department’s Criminal Division and U.S. Attorney Ryan K. Patrick for the Southern District of Texas.
Joshua Thomas Argires, 29, of Houston, Texas, is charged in a criminal complaint, unsealed Monday upon his arrest, with making false statements to a financial institution, wire fraud, bank fraud and engaging in unlawful monetary transactions. He made his initial appearance Monday before U.S. Magistrate Judge Peter Bray.
Argires allegedly perpetrated a scheme to file two fraudulent loan applications seeking more than $1.1 million in forgivable loans. The Small Business Administration (SBA) guarantees the loans for COVID-19 relief through the PPP under the Coronavirus Aid, Relief and Economic Security (CARES) Act.
The complaint alleges Argires submitted two fraudulent PPP loan applications to federally insured banks. One of these applications was submitted on behalf of an entity called Texas Barbecue; the other was filed on behalf of a company called Houston Landscaping. Argires allegedly claimed these two companies had numerous employees and hundreds of thousands of dollars in payroll expenses.
According to the complaint, neither Texas Barbecue nor Houston Landscaping has employees or pays wages consistent with the amounts claimed in the PPP loan applications. The complaint further asserts that both of these loans were funded, but that none of the funds were used for payroll or other expenses authorized under the PPP. Rather, the funds received on behalf of Texas Barbecue were invested in a cryptocurrency account, while the funds obtained for Houston Landscaping were held in a bank account and slowly depleted via ATM withdrawals, according to the charges.
The CARES Act is a federal law enacted March 29. It is designed to provide emergency financial assistance to millions of Americans who are suffering the economic effects resulting from the COVID-19 pandemic. One source of relief the CARES Act provides is the authorization of up to $349 billion in forgivable loans to small businesses for job retention and certain other expenses through the PPP. In April 2020, Congress authorized over $300 billion in additional PPP funding.
The PPP allows qualifying small businesses and other organizations to receive loans with a maturity of two years and an interest rate of one percent. Businesses must use PPP loan proceeds for payroll costs, interest on mortgages, rent and utilities. The PPP allows the interest and principal to be forgiven if businesses spend the proceeds on these expenses within a set time period and use at least a certain percentage of the loan towards payroll expenses.
A federal criminal complaint is merely an accusation. A defendant is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
The Federal Housing Finance Agency Office of the Inspector General (OIG), SBA OIG and U.S. Postal Inspection Service’s Houston Division conducted the investigation. Trial Attorney Timothy A. Duree of the Criminal Division’s Fraud Section and Assistant U.S. Attorney James McAlister for the Southern District of Texas are prosecuting the case.
The year 2020 marks the 150th anniversary of the Department of Justice. Learn more about the history of our agency at www.Justice.gov/Celebrating150Years.
A long-time Philadelphia-area political consultant and attorney was sentenced today for his role in two criminal schemes to violate federal campaign finance laws announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and U.S. Attorney William M. McSwain of the Eastern District of Pennsylvania.
Kenneth Smukler, 57, of Villanova, Pennsylvania, was sentenced to 18 months in prison followed by one year of supervised release by the Honorable Jan E. DuBois. In the 2012 Democratic primary election for Pennsylvania’s First Congressional District, Jimmie Moore, a former Philadelphia Municipal Court Judge, ran against the incumbent Congressman Bob Brady. Assisted and directed by Smukler, Moore executed a corrupt deal in which he agreed to withdraw from the race in exchange for funds from the Bob Brady for Congress campaign (the Brady campaign) to be used to pay off Moore’s campaign debts. Those debts included money that Jimmie Moore for Congress (the Moore campaign) owed to several vendors, to Moore himself and to Moore’s campaign manager, Carolyn Cavaness. On Feb. 29, 2012, Moore withdrew from the race and Cavaness had prepared a list of debts owed by the Moore campaign, which they provided to Smukler, a campaign consultant for the Brady campaign. Smukler arranged for the Moore campaign to receive $90,000 from the Brady campaign through false documents and a series of concealing pass-throughs, including the consulting firm of another Brady associate and co-conspirator, D.A. Jones. Smukler ensured that the Brady campaign reported none of the concealed payments, which exceeded the federal contribution limits, to the Federal Election Commission (FEC). Rather, he executed the scheme by ensuring that the three installments were falsely and illegally disguised from the FEC and the public as payments for poll and consulting services.
Later, during the 2014 Democratic primary election for Pennsylvania’s Thirteenth Congressional District, Smukler again committed federal campaign finance offenses, this time for the benefit of another client, Marjorie Margolies, a former Member of the U.S. House of Representatives. Smukler, a veteran of prior Margolies political campaigns, ran the Margolies campaign in 2014.
In April 2014, during a close primary race, the Margolies campaign was running out of money that it could legally spend in the primary. Smukler then caused the Margolies campaign to illegally spend general election funds in his attempt to win the primary election for his client. He further lied about his illegal spending to the campaign’s lawyer. That lawyer, in turn, unwittingly reported Smukler’s lies to the FEC in response to a complaint filed by another candidate. Additionally, Smukler caused excessive campaign contributions and illegal conduit contributions to the Margolies campaign, all of which were hidden or disguised from the campaign’s FEC filings.
“When political operatives like Kenneth Smukler engage in hidden illegal campaign finance schemes, they undermine the integrity of the electoral process,” said Assistant Attorney General Benczkowski. “This is a just sentence that reflects the seriousness of these crimes.”
“In order to win at all costs, Smukler knowingly and purposefully undermined our democratic process by misusing campaign funds and lying about it,” said U.S. Attorney McSwain. “My Office will continue to prosecute public corruption wherever and whenever we uncover it. Now Smukler is headed to jail, and I am grateful that the Court imposed a just sentence reinforcing the fact that this kind of corruption will never be tolerated.”
On Dec. 3, 2018, a jury found Smukler guilty of one count of conspiracy, two counts of excessive campaign contributions, two counts of false statements, two counts of conduit contributions, one count of willfully causing a false statement to the FEC and one count of obstruction of justice.
Former Public Integrity Section Trial Attorney Jonathan I. Kravis and the FBI investigated the case. Richard C. Pilger, Director of the Election Crimes Branch of the Public Integrity Section, Trial Attorney Rebecca Moses of the Public Integrity Section and Assistant U.S. Attorney Eric L. Gibson of the Eastern District of Pennsylvania prosecuted the case.
Massachusetts-based medical device manufacturer Alere Inc. and its subsidiary Alere San Diego (Alere) have agreed to pay the United States $33.2 million to resolve allegations that Alere caused hospitals to submit false claims to Medicare, Medicaid, and other federal healthcare programs by knowingly selling materially unreliable point-of-care diagnostic testing devices, the Justice Department announced today.
“The United States is fortunate that innovative healthcare companies regularly develop medical devices that improve patients’ lives, often in remarkable ways,” said Acting Assistant Attorney General Chad A. Readler for the Justice Department’s Civil Division. “But the Department will hold medical device manufacturers accountable if they knowingly sell defective products that waste taxpayer dollars and adversely impact patient care.”
The United States alleged that between January 2006 and March 2012, Alere knowingly sold materially unreliable rapid point-of-care testing devices marketed under the trade name Triage®. The Triage® devices aided in the diagnosis of acute coronary syndromes, heart failure, drug overdose, and other serious conditions, and the devices were frequently used in emergency departments where timely decisions are critical to ensuring proper patient care. According to the government’s allegations, Alere received customer complaints that put it on notice that certain devices it sold produced erroneous results that had the potential to create false positives and false negatives that adversely affected clinical decision-making. Nonetheless, the company failed to take appropriate corrective actions until FDA inspections prompted a nationwide product recall in 2012. Of the $33.2 million to be paid by Alere, $28,378,893 will be returned to the federal government and a total of $4,860,779 will be returned to individual states, which jointly funded claims for Triage devices submitted to state Medicaid programs.
“Physicians who work to treat patients with suspected myocardial infarctions rely upon devices such as Alere’s Triage Cardiac products for quick and accurate readings," said Stephen M. Schenning, Acting United States Attorney for the District of Maryland. "When manufacturers such as Alere make changes to the specifications that affect the product’s reliability without informing physicians or the FDA, patient care is put at substantial risk.”
“Congress passed the False Claims Act on March 2, 1863 to protect taxpayer dollars from fraud and abuse and to allow private citizens to join the effort,” said Maureen R. Dixon, Special Agent in Charge for the U.S. Department of Health and Human Services Office of Inspector General in Philadelphia. “We will continue to work with concerned citizens, the Department of Justice and our investigative partners to ensure the federal government only pays for honest, high quality, health care products and services.”
The settlement with Alere resolves a lawsuit filed under the whistleblower provision of the False Claims Act, which permits private parties to file suit on behalf of the United States for false claims and share in a portion of the government’s recovery. The civil lawsuit was filed by Amanda Wu, who formerly worked for Alere as a senior quality control analyst. As part of today’s resolution, Ms. Wu will receive approximately $5.6 million.
The settlement with Alere was the result of a coordinated effort among the U.S. Attorney’s Office for the District of Maryland, the Commercial Litigation Branch of the Justice Department’s Civil Division, and the National Association of Medicaid Fraud Control Units, with assistance from the FDA’s Office of Chief Counsel, and HHS’ Office of Counsel to the Inspector General. The investigation was conducted by HHS-OIG, FDA’s Office of Criminal Investigations, and the Department of Defense Criminal Investigative Services.
The claims resolved by this settlement are allegations only, and there has been no determination of liability. The lawsuit is captioned United States ex rel. Amanda Wu v. Alere San Diego, et al., No. GLR-11-CV-1808.
A complaint was unsealed today, charging two U.S. citizens with federal crimes related to Iran. Muzzamil Zaidi, 36, a U.S. citizen who resides in Qom, Iran, was charged with acting in the United States as an agent of the government of Iran without first notifying the Attorney General. Zaidi, Asim Naqvi, 36, a U.S. citizen who lives in Houston, Texas, and Ali Chawla, 36, a Pakistani national who lives in Qom, Iran, were all charged with violations of the International Emergency Economic Powers Act. The complaint alleges that both charges stem from the defendants’ campaign to transport U.S. currency from the United States to Iran on behalf of the Supreme Leader of Iran in 2018 and 2019. Both Zaidi and Naqvi were arrested in Houston yesterday, Aug. 18, 2020.
“Disrupting Iran’s ability to raise U.S. dollars is key to combating its ability to sponsor international terrorism and destabilize the Middle East, including through its military presence in Yemen,” said Assistant Attorney General for National Security John C. Demers. “Zaidi, Naqvi, and Chawla allegedly raised money in the United States on behalf of Iran’s Supreme Leader, and illegally channeled these dollars to the government of Iran. As a result of today’s charges, their unlawful scheme has been exposed and brought to an end. The U.S. Department of Justice and its National Security Division are committed to holding accountable individuals who operate covert networks within the United States in order to provide support and funds to hostile foreign governments like Iran in violation of U.S. law.”
“This case is significant on many levels,” said Michael R. Sherwin, Acting United States Attorney for the District of Columbia. “To begin, as alleged in the criminal complaint, the defendants have considerable operational links to the IRGC, which has conducted multiple terrorist operations throughout the world over the past several years. The life-blood of these terrorist operations is cash – and the defendants played a key role in facilitating that critical component.”
“Today’s charges demonstrate our commitment to preventing agents of hostile foreign governments from having access and freedom to operate within the borders of the United States,” said James A. Dawson, acting Assistant Director in Charge of the FBI’s Washington Field Office. “In addition to being charged with acting as an illegal agent of Iran, Zaidi allegedly operated with his co-conspirators at the behest of the Iranian government — a known sponsor of terrorism — to overtly solicit U.S. money to further Iranian causes, in violation of the International Emergency Economic Powers Act (IEEPA). This is why IEEPA was established: to prevent hostile foreign governments from leveraging the U.S. financial system in furtherance of their global destabilizing endeavors.”
“The arrests today are the direct result of the undeterred efforts of the FBI Houston Counterterrorism investigative team,” said FBI Houston Field Office Special Agent in Charge, Perrye K. Turner. “By engaging in around the clock collaboration with multiple Field Offices and Intelligence Community partners, our agents ensure that those who send money to terrorist regimes will ultimately be held accountable and lose their freedom.”
As alleged in the affidavit in support of a criminal complaint, Zaidi offered his services to the Supreme Leader of Iran in or around July 2015 and said that he could serve the “Islamic Republic in the socio-political or another field.” The complaint alleges that Zaidi traveled to Syria in or around June 2018 and that, while there, flew to an active war zone in an armed Iranian military or intelligence aircraft. The complaint alleges that Zaidi had access to bases under the command of Iran’s Islamic Revolutionary Guard Corps (IRGC) while in that war zone, including a “Sepah Qods” (IRGC Qods Force) base. The IRGC was designated as a terrorist organization by the U.S on April 4, 2019. Qassem Soleimani, a major general in the IRGC, was commander of the Qods Force until he was killed in a U.S. airstrike on Jan. 3, 2020.
According to the complaint, in December 2018, Zaidi and other members of an organization known as “Islamic Pulse,” including Chawla, received the permission of the Supreme Leader of Iran to collect khums, a religious tax, on the Supreme Leader’s behalf, and to send half of that money to Yemen. The complaint alleges that permission was formalized on or about Feb. 28, 2019, in a letter confirming the permission of the Supreme Leader of Iran and another Ayatollah to spend khums money in Yemen.
Based on the complaint, in or around July 2019, Islamic Pulse released a video soliciting donations for its purported Yemen campaign that showed money moving from the United States and other Western countries to Yemen through Iran. The complaint alleges that Chawla replied to donors’ concerns about how the campaign was able to get money into Yemen by stating that the matter could not be discussed over email. The complaint further alleges that Chawla sought U.S. dollars specifically, stated that Islamic Pulse could not accept electronic transfers, and admitted that Islamic Pulse was not a registered charity.
The complaint alleges that after the United States placed sanctions on the Supreme Leader of Iran in June 2019, Zaidi told Naqvi that the action was a “straight hit on khums.” The complaint alleges that in summer and fall 2019 Zaidi and Naqvi continued to collect U.S. currency in the United States and have it transported it to Iran, sometimes via Iraq, structured in such a way as to avoid reporting requirements. After a group of 25 travelers carried money destined for Iran on behalf of Zaidi and Naqvi in October 2019, Zaidi and Naqvi discussed the screening the travelers underwent at the airport and Naqvi’s hope that none of the travelers would confess to authorities upon their return.
The complaint alleges that, during his current stay in the United States, which began in June 2020, Zaidi has exhibited behavior that is consistent with having received training from a foreign government or foreign intelligence service, such as the government of Iran or IRGC. According to the complaint, that behavior includes a reluctance to discuss matters over the phone, or even over encrypted applications, because Zaidi claims that doing so could be dangerous.
The charges in criminal complaints are merely allegations, and every defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt. The maximum penalty for a violation of 18 U.S.C. § 951 is 10 years, and the maximum penalty for a violation of the International Emergency Economic Powers Act is 20 years. The maximum statutory sentence is prescribed by Congress and is provided here for informational purposes.
The investigation into this matter was conducted by the FBI’s Washington Field Office and Houston Field Office. The case is being prosecuted by the National Security Section of the U.S. Attorney’s Office for the District of Columbia, along with the Counterintelligence and Export Control Section and Counterterrorism Section of the National Security Division of the Department of Justice.
The co-owners of a Boston-area home healthcare company pleaded guilty in federal court yesterday for tax crimes resulting in over $1 million in losses, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division and U.S. Attorney Andrew E. Lelling for the District of Massachusetts.
Hannah Holland, 51, of Quincy, Massachusetts, and Sheila O’Connell, 51, of North Weymouth, Massachusetts, each pleaded guilty to one count of conspiracy to defraud the United States and three counts of aiding and assisting in the preparation of false tax returns.
According to court documents, Holland and O’Connell co-owned and operated Erin’s Own Home Healthcare Inc. (Erin’s Own), a home healthcare business. Between 2010 and 2014, Holland and O’Connell directed another individual to cash over $3.5 million of Erin’s Own business checks through nominee bank accounts. During this time, Holland also personally deposited or cashed over $77,000 of Erin’s Own business checks. None of these funds were reported to the Internal Revenue Service (IRS) or accounted for in the company’s tax filings. Instead, Holland and O’Connell provided their tax preparer with a limited set of financial records that did not cover the substantial amounts of business funds Holland and O’Connell diverted. As a result of the underreporting, Erin’s Own caused a loss of $1,126,112 to the United States.
Sentencing is scheduled for February 13, 2019. Holland and O’Connell each face a maximum sentence of five years in prison on the conspiracy count and three years in prison on each count of aiding and assisting in the preparation of false tax returns, as well as a period of supervised release, restitution, and monetary penalties.
Principal Deputy Assistant Attorney General Zuckerman and U.S. Attorney Lelling commended special agents from IRS-Criminal Investigation, who are investigating the case, and Assistant U.S. Attorney Jordi de Llano, Deputy Chief of the United States Attorney’s Securities and Financial Fraud Unit, and Tax Division Trial Attorney Brittney Campbell, who are prosecuting the case. Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.
