Medicare Advantage Organization & Former COO to Pay $32.5 Million

Tuesday, May 30, 2017

Freedom Health Inc., a Tampa, Florida-based provider of managed care services, and its related corporate entities (collectively “Freedom Health”), agreed to pay $31,695,593 to resolve allegations that they violated the False Claims Act by engaging in illegal schemes to maximize their payment from the government in connection with their Medicare Advantage plans, the Justice Department announced today. In addition, the former Chief Operating Officer (COO) of Freedom Health Siddhartha Pagidipati, has agreed to pay $750,000 to resolve his alleged role in one of these schemes.

“When entering into agreements with managed care providers, the government requests information from those providers to ensure that patients are afforded the appropriate level of care,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division. “Today’s result sends a clear message to the managed care industry that the United States will hold managed care plan providers responsible when they fail to provide truthful information.”

The government alleged that Freedom Health submitted or caused others to submit unsupported diagnosis codes to CMS, which resulted in inflated reimbursements from 2008 to 2013 in connection with two of their Medicare Advantage plans operating in Florida. It also alleged that Freedom Health made material misrepresentations to CMS regarding the scope and content of its network of providers (physicians, specialists and hospitals) in its application to CMS in 2008 to expand in 2009 into new counties in Florida and in other states. The government’s settlement with Mr. Pagidipati resolves his alleged role in this latter scheme.

“Medicare Advantage plans play an increasingly important role in our nation’s health care market,” said Acting U.S. Attorney Stephen Muldrow. “This settlement underscores our Office’s commitment to civil health care fraud enforcement.”

“Medicare Advantage insurers must play by the rules and provide Medicare with accurate information about their provider networks and their patients’ health,” said Chief Counsel to the Inspector General Gregory Demske of the Department of Health and Human Services Office of Inspector General (HHS-OIG). “OIG will investigate and hold managed care organizations accountable for fraud. Moving forward, the innovative CIA reduces the risks to patients and taxpayers by focusing on compliance issues unique to Medicare Advantage plans.”

The allegations resolved by these settlements were brought in a lawsuit under the qui tam, or whistleblower, provisions of the Federal False Claims Act and the Florida False Claims Act. These statutes permit private parties to sue on behalf of the government for false claims and to receive a share of any recovery. The whistleblower in this action is Darren D. Sewell, who was a former employee of Freedom Health. The whistleblower’s share in this case has not yet been determined.

The corporate entities related to Freedom and which were part of today’s settlements are: Optimum HealthCare Inc., America’s 1st Choice Holdings of Florida LLC, Liberty Acquisition Group LLC, Health Management Services of USA LLC, Global TPA LLC, America’s 1st Choice Holdings of North Carolina LLC, America’s 1st Choice Holdings of South Carolina LLC, America’s 1st Choice Insurance Company of North Carolina Inc. and America’s 1st Choice Health Plans Inc.

Today’s settlements were the result of a coordinated effort by the Civil Division’s Commercial Litigation Branch, The U.S. Attorneys’ Office for the Middle District of Florida, HHS-OIG and the Florida Office of the Attorney General.

The claims resolved by the settlements are allegations only, and there has been no determination of liability. The case is captioned United States ex rel. Sewell v. Freedom Health, Inc., et al., Case No. 8:09-cv-1625 (M.D. Fla.).

US Files Forfeiture Complaint Against Chinese Company for Laundering Money for North Korea

Thursday, June 15, 2017

Company Allegedly Violated Sanctions by Laundering U.S. Dollar Transactions on Behalf of North Korea’s Foreign Trade Bank
WASHINGTON – The United States has filed a complaint to civilly forfeit $1,902,976 from Mingzheng International Trading Limited (Mingzheng), a company based in Shenyang, China. The complaint alleges that Mingzheng is a front company that was created to launder United States dollars on behalf of sanctioned North Korean entities.
According to the complaint, Mingzheng conspired to evade U.S. economic sanctions by facilitating prohibited U.S. dollar transactions through the United States on behalf of the Foreign Trade Bank, a sanctioned entity in the Democratic People’s Republic of Korea (North Korea) and to launder the proceeds of that conduct through U.S. financial institutions.

The forfeiture action was announced today by U.S. Attorney Channing D. Phillips and Michael DeLeon, Special Agent in Charge of the FBI’s Phoenix Field Office.

The action represents one of the largest seizures of North Korean funds by the Department of Justice.

“This complaint alleges that parties in China established and used a front company to surreptitiously move North Korean money through the United States and violated the sanctions imposed by our government on North Korea,” said U.S. Attorney Phillips. “Sanctions laws are critical to our national security and foreign policy interests, and this case demonstrates that we will seek significant remedies for those companies that violate them.”

“The FBI has dedicated substantial resources to investigate complex illegal monetary transactions involving foreign adversaries. This specific case has significant national security implications,” said Special Agent in Charge DeLeon. “The men and women of the FBI’s Phoenix Field Division worked diligently to identify the illegal transactions. We hope this sends a strong message to those who utilize US banking systems for illegal activities.”

The complaint was filed on June 14, 2017, in the U.S. District Court for the District of Columbia. According to the complaint, Mingzheng is owned by a Chinese national and is based in Shenyang, China. Mingzheng allegedly operated as a front company for a foreign-based branch of the North Korea-based Foreign Trade Bank (FTB). In March 2013, the U.S. Treasury Department designated the Foreign Trade Bank as a sanctioned entity pursuant to the Weapons of Mass Destruction Proliferators Sanctions Regulations. The designation noted that the Foreign Trade Bank is a state-owned bank, and “acts as North Korea’s primary foreign exchange bank.” The designation further noted that North Korea uses the Foreign Trade Bank to facilitate millions of dollars in transactions on behalf of actors linked to its proliferation network.

The United Nations Panel of Experts reported in 2017 as to how North Korean banks have been able to evade sanctions and continue to access the international banking system. Specifically, despite strengthened financial sanctions, North Korean networks are adapting by using greater ingenuity in accessing formal banking channels. This includes maintaining correspondent bank accounts and representative offices abroad, which are staffed by foreign nationals making use of front companies. These broad interwoven networks allow the North Korean banks to conduct illicit procurement and banking activity.

An FBI investigation revealed that Mingzheng’s alleged activities mirror this money laundering paradigm. Specifically, Mingzheng acts a front company for a covert Chinese branch of the Foreign Trade Bank. This branch is operated by a Chinese national who has historically been tied to the Foreign Trade Bank.

The government is seeking to forfeit $1,902,976 that was transacted in October and November of 2015 by Mingzheng, via wire transfers, using their Chinese bank accounts. These U.S. dollar payments, which cleared through the United States, are alleged to violate U.S. law, because Mingzheng was surreptitiously making them on behalf of the Foreign Trade Bank, whose designation precluded such U.S. dollar transactions.

The claims made in the complaint are only allegations and do not constitute a determination of liability.

The FBI’s Phoenix Field Office is investigating the case. Assistant U.S Attorneys Arvind K. Lal, Zia M. Faruqui, Christopher B. Brown, Deborah Curtis and Brian P. Hudak are prosecuting the case, with assistance from Paralegal Specialist Toni Anne Donato.

Houston Man Faces Twenty Years in Prison for His Role in $6.5 Million Diamond Fraud Scheme

Tuesday, May 30, 2017

DALLAS — A Houston man, Christopher Arnold Jiongo, appeared this morning before U.S. Magistrate Judge Paul D Stickney and pleaded guilty to one count of wire fraud, announced U.S. Attorney John Parker of the Northern District of Texas.

Jiongo, 55, faces a maximum statutory penalty of twenty years in federal prison and a $250,000 fine. He will remain on bond pending sentencing, which is set for September 11, 2017, before U.S. District Judge David C. Godbey. Co-defendants Craig Allen Otteson, 64, of McKinney and Jay Bruce Heimburger, 58, of Dallas, are scheduled for trial July 17, 2017.

According to plea documents filed in the case, Otteson acted as the Managing Member and Chief Compliance Officer of Stonebridge Advisors, LLC, located on Belt Line road in Dallas. Stonebridge Advisors was involved as the Managing Partner of Worldwide Diamond Ventures, L.P., located at 6029 Belt Line in Dallas, and it acted as the General Partner of Worldwide Diamond. Heimburger acted as a Principal Partner of Worldwide Diamond, and he was also listed as the registered agent and Director of JBH Securities, Inc. located on San Rafael in Dallas. JBH Securities was primarily involved in the business of providing investment advice. Worldwide Diamond was primarily involved in the business of buying and reselling diamonds on the international market. On October 1, 2013, Worldwide Diamond filed for bankruptcy in the Northern District of Texas.

During the summer of 2011 through November 2011, Jiongo drafted $50,000 diamond notes which were later used as investment vehicles to generate investment funds. Jiongo, Otteson and Heimburger represented that all investment funds would be used to buy and resell diamonds and that every dollar invested would always be fully secured by the cash and diamond inventory of Worldwide Diamond. Sometime in the summer of 2011, Jiongo, Otteson and Heimburger realized that the original business plan was not working out as planned and that the defendants therefore could not honor the original promises and representations made to investors. Jiongo, Otteson, and Heimburger then engaged in a scheme to defraud investors by fraudulently concealing from investors that investor funds were being used for unauthorized purposes unrelated to the purchase and resale of diamonds. These unauthorized purposes included making several loans totaling approximately $2.4 million to third parties and to Global Reach Industries Limited for purposes not disclosed to or authorized by the investors. Jiongo, Otteson and Heimburger also fraudulently concealed from Worldwide Diamond investors that defendants planned to make an unauthorized $1 million loan of investor funds to Global Reach Industries Limited, a company established and controlled by defendant Jiongo.

During July 2011, Jiongo, Otteson and Heimburger all agreed to fraudulently wire transfer $400,000 of investor funds into several bank accounts designated by Jiongo. In August 2011, all three defendants agreed that defendant Jiongo would cause another $600,000 of investor funds to be wire transferred directly into a trust account controlled by Jiongo.

As a result of this scheme to defraud during the period from about 2011 through 2012, documents reflect that millions of dollars were fraudulently collected from Worldwide Diamond investors.

This case is one of several felony prosecutions of bankruptcy-related crimes generated by the Bankruptcy Fraud Initiative in the Northern District of Texas. Of the 26 defendants charged as part of that initiative – 17 have been convicted, 1 resulted in a mistrial and 8 are pending trial.

The U.S. Postal Inspection Service investigated the case. Assistant U.S. Attorney David Jarvis is in charge of the prosecution.

The CBP Officer of the Future

 

by Janet.Labuda@FormerFedsGroup.Com

At the recent U.S Customs and Border Protection (CBP) west coast trade symposium, a panel titled “Global Innovation,” which included representatives from the Department of Homeland Security’s Office of Science and Technology, CBP’s National Targeting Center [It is not clear if this is one or two organizations.] discussed innovations in software applications and data usage that enhance supply chain security.

 

One question raised by the panel was, what would a future port look like?  The question I raised, in return, was what will a future CBP officer look like? The question remained unanswered, but is one that needs to be considered seriously.

 

As CBP continues to seek and use innovative technologies, it is the officer who needs to understand the technology as it will serve as his/her partner in both the agency’s enforcement and facilitation missions. Ultimately, the officer will need to become a savvy data analyst.

 

In addition, the operational personnel, i.e., Customs and Border Protection officers, import specialists, and trade analysts must be grounded in a solid understanding of the import and export dynamics of international trade. This includes production, sourcing, and logistics trends.

 

In order to be able to maximize the use of available technology, strategic and critical thinking skills must be in the officer’s tool box. Being able to identify, address and prioritize problems will be essential. The days of continuing to focus on low-hanging fruit that fails to bring positive returns to both the agency and the trade community will be over.

 

The mere accessing of data is a waste of time if the ability to evaluate it does not exist. Effective evaluation is critical to enabling supervisors and managers to make decisions on the optimal deployment of limited resources.

 

In general, the officer must be flexible and nimble as global trade trends shift along with the potential risk. Continuing to hold onto historic trends and patterns will only cause the officer to be reactive, instead of proactive, as new challenges emerge. In addition, quick communication by analysts to officers at the port is vital. There is nothing worse than acting on inaccurate or old data. If your efforts do not produce results you must swiftly react to make necessary adjustments.

 

Corporate compliance officers need to have the same skills and approaches to be effective and provide a value-added service across company operations.

 

Former CEO And President Of Real Estate Investment Company Pleads Guilty To Embezzling $1.6 Million And Evading Taxes

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

FOR IMMEDIATE RELEASE
Tuesday, May 23, 2017

Joon H. Kim, the Acting United States Attorney for the Southern District of New York, announced that ROCKWELL GAJWANI pled guilty today to one count of wire fraud and three counts of tax evasion in connection with embezzling over $1.6 million from the Manhattan-based real estate investment company for which he had served as chief executive officer and president. As part of his plea, GAJWANI agreed to pay $1,975,068.04 in restitution and $1,612,841 in forfeiture. GAJWANI pled guilty before United States District Judge Loretta A. Preska.

Acting U.S. Attorney Joon H. Kim said: “As he admitted today, for years Rockwell Gajwani siphoned money from his employer’s accounts, lining his own pockets with more than $1.6 million. Instead of working diligently as his company’s CEO, Gajwani put his efforts into concealing his crimes and hiding his ill-gotten gains from the IRS. Thanks to the dedicated work of the Postal Inspection Service and the IRS, Gajwani will now be held to account for his crimes.”

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

From October 2011 through March 2013, GAJWANI was the chief executive officer and president of a real estate investment company based in Manhattan (the “Manhattan Real Estate Company”). During this period, GAJWANI took more than $1.6 million in company funds to which he was not entitled by, among other means, making wire transfers from the company’s bank account to his personal bank account, writing company checks to himself, and making cash withdrawals from the company’s bank account.

To accomplish this scheme, among other means, GAJWANI took steps to conceal his true salary and to conceal from the Manhattan Real Estate Company’s parent company (the “Parent Company”) the amount of money he had taken from the Manhattan Real Estate Company’s bank account.

Beginning in late 2012, the director of accounting for the Manhattan Real Estate Company (the “Director of Accounting”) asked GAJWANI for details regarding GAJWANI’s compensation on more than one occasion, and GAJWANI repeatedly said he would get such details to her, but failed to do so. On another occasion, in connection with a request from the Parent Company for financial information, GAJWANI told the Director of Accounting not to provide that information to the Parent Company. To further conceal the funds he had taken from the Manhattan Real Estate Company, GAJWANI directed employees of the Manhattan Real Estate Company to lump the compensation of all employees together in accounting materials provided to the Parent Company, so that GAJWANI’s compensation would not be listed separately from the aggregate figure. GAJWANI also directed certain employees of the Manhattan Real Estate Company not to communicate with employees of the Parent Company.

Over the course of his employment, GAJWANI wrote himself over $940,000 in checks from the Manhattan Real Estate Company’s bank account, and wired over $1.7 million to his personal bank account. Although some of these funds were purportedly for expenses, by the end of his employment GAJWANI had taken over $1.6 million more from the Manhattan Real Estate Company’s bank account than he was entitled to under his employment agreement.

GAJWANI also concealed his fraud on the Manhattan Real Estate Company. Specifically, on two occasions in May 2012, wrote checks to an employee of the Manhattan Real Estate Company (“Employee-2”) from the company’s bank account. wrote “expenses” in the memo line of each check, although neither check was meant to pay company expenses, and instructed Employee-2 to write a check in return directly to GAJWANI himself. Employee-2 did so on both occasions. In this manner, was able to secure over $30,000 in payments that GAJWANI appeared to receive from Employee-2 but in reality were funds GAJWANI had taken from the Manhattan Real Estate Company.

In addition to defrauding the Manhattan Real Estate Company, GAJWANI did not file tax returns or pay taxes for his legitimate salary or for the money he had secured through fraud. Ultimately, in July 2015, after he learned of a criminal investigation, GAJWANI filed tax returns for calendar years 2011, 2012, and 2013. Each of those returns included false representations. For tax year 2011, the federal income tax return that GAJWANI filed understated GAJWANI’s actual income by more than $480,000, and included over $85,000 in false, impermissible tax deductions. For tax year 2012, the federal income tax return that GAJWANI filed included over $260,000 in false, impermissible tax deductions. For tax year 2013, the federal income tax return that GAJWANI filed underreported GAJWANI’s actual income by $270,000.

* * *

GAJWANI, 53, of Darien, Connecticut, pled guilty to one count of wire fraud, which carries a maximum sentence of 20 years in prison, and three counts of tax evasion, each of which carries a maximum sentence of five years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the Judge. As part of his plea, GAJWANI agreed to pay $1,975,068.04 in restitution and $1,612,841.04 in forfeiture.

GAJWANI is scheduled to be sentenced by Judge Preska on September 12, 2017, at 4:00 p.m.

Mr. Kim praised the outstanding investigative efforts of law enforcement personnel at U.S. Postal Inspection Service and the Internal Revenue Service, Criminal Investigation Division.

The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Jonathan Cohen and Andrew D. Beaty are in charge of the prosecution.

Janet Labuda on Trade by the Numbers

By Janet.Labuda@FormerFedsGroup.Com

Recently, President Trump sent a memo directing Secretary of Commerce, Wilber Ross, to initiate an investigation of steel and aluminum products. The rarely used investigative authority found under section 232(b)(1)(A) of the Trade Expansion Act of 1962 (19 U.S.C. 1862(b)(1) determines any detrimental trade activity affecting U.S. national security.

In addition, the Presidential memo lists other “core industries such as…vehicles, aircraft, shipbuilding, and semiconductors. The administration considers these as “critical elements of our manufacturing and defense industrial bases, which we must defend against unfair trade practices and other abuses.”

The Secretary of Commerce reports to the President, within 270 days of initiating the investigation and focuses on whether the importation of the article in question is in such quantities or under such circumstances as to threaten to impair the national security. The President can concur, or not, with the Secretary’s recommendations, and take action to “adjust the imports of an article and its derivatives,” or other non-trade related actions as deemed necessary.

Another trade remedy is found in Section 301 of the Trade Act of 1974. This law provides the United States with the authority to enforce trade agreements, resolve trade disputes, and open foreign markets to U.S. goods and services. It is the principal statutory authority under which the United States may impose trade sanctions on foreign countries that either violate trade agreements or engage in other unfair trade practices. When negotiations to remove the offending trade practice fail, the United States may take action to raise import duties on the foreign country’s products as a means to address the trade imbalance.

Under section 332 of the Tariff Act of 1930 (19 U.S.C. 1332), the U.S. International Trade Commission (USITC) conducts investigations into trade and tariff matters upon request of the President, the U.S. House Committee on Ways and Means, the U.S. Senate Committee on Finance, either branch of the Congress, or upon the Commission’s own initiative. The USITC has broad authority to investigate matters pertaining to the customs laws of the United States, foreign competition with domestic industries, and international trade relations.

The USITC can also conduct investigations using section 337, to determine whether there is unfair competition in the importation of products into, or their subsequent sale in, the United States. Section 337 declares the infringement of a U.S. patent, copyright, registered trademark, or mask work to be an unlawful practice in import trade. It also declares unlawful other unfair methods of competition and unfair acts in the importation and subsequent sale of products in the United States, the threat or effect of which is to destroy or substantially injure a domestic industry, prevent the establishment of such an industry, or restrain or monopolize trade and commerce in the United States.

Section 337 investigations require formal hearings held before an administrative law judge. If a violation is found, the USITC may issue orders barring the importation of certain products into the United States. In addition to requesting long-term relief, complainants also may move for temporary relief pending final resolution of the investigation based on a showing of, among other things, irreparable harm in the absence of such temporary relief.

Subtitle A of title VII of the Tariff Act of 1930, as added by the Trade Agreements Act of 1979 (19 U.S.C. § 1671 et seq.) and subsequently amended, provides that countervailing duties will be imposed when two conditions are met: (a) the U.S. Department of Commerce (Commerce) determines that the government of a country, or any public entity within the territory of a country, is providing, directly or indirectly, a countervailable subsidy with respect to the manufacture, production, or export of the subject merchandise that is imported or sold (or likely to be sold) for importation into the United States and (b), in the case of merchandise imported from a Subsidies Agreement country, the USITC determines that an industry in the United States is materially injured or threatened with material injury, or that the establishment of an industry is materially retarded, by reason of imports of that merchandise.

If Commerce determines that a countervailable subsidy is being bestowed upon merchandise imported from a country that is not a Subsidies Agreement country, a countervailing duty can be levied on the merchandise in the amount of the net countervailable subsidy without a USITC determination of material injury.

In addition, Subtitle B provides that antidumping duties will be imposed when two conditions are met: (a) Commerce determines that the foreign subject merchandise is being, or is likely to be, sold in the United States at less than fair value, and (b) the USITC determines that an industry in the United States is materially injured or threatened with material injury, or that the establishment of an industry is materially retarded, by reason of imports of that merchandise.

Sections 201 to 204 of the Trade Act of 1974 (19 U.S.C. 2251 to 2254) concern investigations conducted by the USITC to determine if a product is being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to a domestic industry.

If the USITC makes an affirmative determination, it recommends to the President the action that will address the serious injury or threat and facilitate positive adjustment by the industry to import competition. The President makes the final decision on remedy, including the form, amount, and duration.

There is no doubt that the current administration will use every available tool to initiate investigations and take action where such investigations determine injury to U.S. domestic industry by foreign imports. Continue to keep track of the announcements by the White House, Commerce, the USITC and CBP, and don’t get tripped up on the numbers.

Former CEO Pleads Guilty to Investment Fraud Scheme

Department of JusticeU.S. Attorney’s Office

Eastern District of Virginia

FOR IMMEDIATE RELEASE

Monday, May 22, 2017
ALEXANDRIA, Va. – A former chief executive officer of an investment company pleaded guilty today to her role in an investment fraud scheme involving foreign exchange currency.
According to the statement of facts filed with the plea agreement, Angelina Lazar, 54, a Canadian citizen from Windsor, Ontario, was the Chairman and CEO of Charismatic Exchange, Inc., an investment firm in Las Vegas. From May 2005 through February 2007, Lazar solicited individuals to invest money in foreign exchange currency funds she managed. As part of the scheme, Lazar guaranteed investors a monthly return of 20 percent or more. However, Lazar falsely represented her experience, her success rate, how funds would be invested, and how funds were ultimately spent. For example, Lazar told investors her company used special software program to facilitate and enhance her ability to successfully trade foreign currencies. In truth, Lazar did not possess the software nor did her company ever purchase it. Likewise, Lazar showed investors trading reports that purportedly validated executed foreign currency trades resulting in significant profits. In fact, the trading reports represented only simulated currency trades and no money was actually invested. As a result of her fraudulent conduct, victim investors suffered at least $20,000 in losses.
As part of her plea agreement, Lazar will be immediately deported from the United States to Canada.
Dana J. Boente, 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 plea and announced the sentence. Assistant U.S. Attorney Uzo Asonye prosecuted the case.
A copy of this press release is located on the website of the U.S. Attorney’s Office for the Eastern District of Virginia. Related court documents and information is located on the website of the District Court for the Eastern District of Virginia or on PACER by searching for Case No. 1:09-cr-175.

CFO of Public Computer-Services Company Pleads Guilty to Federal Fraud Charge

Department of Justice
U.S. Attorney’s Office
Northern District of Illinois

FOR IMMEDIATE RELEASE
Friday, May 19, 2017

CHICAGO — The former chief financial officer of a public computer-services company admitted in federal court today that he participated in a scheme to defraud a global telecommunications provider out of at least $3 million.

ANTHONY ROTH, 52, of Upton, Mass., pleaded guilty to one count of wire fraud. The conviction carries a maximum sentence of 20 years in prison. U.S. District Judge Amy J. St. Eve did not immediately set a sentencing date.

The guilty plea was announced by Joel R. Levin, Acting United States Attorney for the Northern District of Illinois; and Michael J. Anderson, Special Agent-in-Charge of the Chicago office of the Federal Bureau of Investigation. The U.S. Securities and Exchange Commission provided valuable assistance.

Roth served as the chief financial officer of ContinuityX Solutions Inc., a computer-services company based in Metamora, Ill. Roth stated in a plea agreement that he and ContinuityX’s former chief executive officer, DAVID GODWIN, approached certain companies to buy services from an international telecommunications firm that the companies did not need or intend to use. Godwin and Roth promised these companies that they would not have to pay for the services because he had arranged separate side deals with other companies to fund and use the services, according to Roth’s plea agreement. Roth and Godwin then created false financial information to fraudulently inflate the financial condition of the companies, the plea agreement states. They did all of this so that the telecommunications firm would approve the sales to these companies and pay ContinuityX hundreds of thousands of dollars in commissions for purportedly having brought new customers to the telecommunications company, the plea agreement states.

In 2011 and 2012 Roth and Godwin fraudulently caused ContinuityX to receive approximately $3 million in commission payments from the telecommunications company, according to Roth’s plea agreement. The commissions were paid upfront, and Godwin provided some of the money to the companies that signed up for the services, the plea agreement states.

Godwin, 55, of Germantown Hills, Ill., and a third defendant, former ContinuityX sales representative JOHN COLETTI, 56, of Canyon Country, Calif., are also charged in the case. Godwin has pleaded not guilty to 14 counts of wire fraud, while Coletti has pleaded not guilty to five counts of wire fraud and one count of making false statements to the FBI. Godwin and Coletti are scheduled for a jury trial on Sept. 25, 2017.

The public is reminded that charges are not evidence of guilt. Godwin and Coletti are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

The government is represented by Assistant U.S. Attorneys Steven Dollear, Brian Wallach and John Mitchell.

Chicago Scrap Iron Refining Company and Its President Plead Guilty to Criminal Tax Violations for Concealing $11.6 Million from IRS

Department of Justice U.S. Attorney’s Office

Northern District of Illinois

shutterstock_73722895

FOR IMMEDIATE RELEASE

Wednesday, May 10, 2017

CHICAGO — A Chicago-based scrap iron refining business and its president admitted in federal court today that they concealed from the Internal Revenue Service more than $11.6 million in cash wages paid to employees.

ACME REFINING CO., which does business as Acme Refining Scrap Iron & Metal Co., and its president, LAURENCE C. BARON, each pleaded guilty to impairing and impeding the IRS. Acme and Baron admitted in plea agreements that from 2009 to 2013 they paid cash wages of more than $11.6 million to at least 50 employees, but failed to report the payments to the IRS. Acme and Baron also acknowledged that they willfully failed to withhold for the government the required amounts for FICA taxes and Medicare.

As part of their plea agreements, Baron and Acme agreed to pay restitution of $5,878,327 to the IRS and the state of Illinois, with Acme paying $4,545,243 and Baron paying $1,333,084.

The guilty pleas were announced by Joel R. Levin, Acting United States Attorney for the Northern District of Illinois; and Gabriel L. Grchan, Special Agent-in-Charge of the Internal Revenue Service Criminal Investigation Division in Chicago.

Impairing and impeding the IRS is punishable by up to three years in prison. Baron, 70, of Burr Ridge, also pleaded guilty to a separate count of willfully filing a false individual income tax return, which carries the same maximum penalty. U.S. District Judge Harry D. Leinenweber set sentencing for Sept. 14, 2017.

The cases against Acme and Baron are part an ongoing federal investigation of cash transactions in the Chicago-area scrap metal industry that has resulted in several previous convictions.

According to the plea agreements, Baron directed Acme employees to issue multiple vouchers for cash payments due to suppliers that exceeded $10,000, using nominee or fictitious payees as the purported seller. Between 2009 and 2013 the company and Baron obtained approximately $152 million in cash from two currency exchanges, then used the money to pay 85 separate scrap metal suppliers in order to assist those suppliers in underreporting their income and taxes.

Acme – at the direction of Baron – also spent at least $1.6 million to fund construction of a personal residence in Wisconsin that had no business-related purpose, the plea agreements state. The company falsely recorded this expenditure as “cost of goods sold,” in order to reduce Acme’s tax liability and conceal the payment on behalf of its corporate officers. The bogus records included phony invoices that fraudulently identified the payments as purchases of scrap steel.

Baron also admitted filing false individual income tax returns for tax years 2011 and 2012. The fraudulent returns resulted in a total federal and state tax loss of approximately $208,875, the plea agreement states.

The government is represented by Assistant U.S. Attorney Patrick King.

Department of Justice U.S. Attorney’s Office

Southern District of New York

FOR IMMEDIATE RELEASE

Friday, April 21, 2017

Chinese National Pleads Guilty To Attempting To Illegally Export High-Grade Carbon Fiber To China
Joon H. Kim, the Acting United States Attorney for the Southern District of New York, and Mary B. McCord, the Acting Assistant Attorney General for the National Security Division of the Department of Justice (“NSD”), announced that FUYI SUN, a/k/a “Frank,” a citizen of the People’s Republic of China (“China”), pled guilty today before U.S. District Judge Alvin K. Hellerstein to violating the International Emergency Economic Powers Act (“IEEPA”) in connection with a scheme to illegally export to China, without a license, high-grade carbon fiber, which is used primarily in aerospace and military applications.

 

Acting Manhattan U.S. Attorney Joon H. Kim said: “As Fuyi Sun admitted today in court, he tried to skirt U.S. export laws by hiding his purchase of high-grade carbon fiber for the Chinese military. Sun used fraudulent documents and codewords in his efforts to obtain this highly protected material, which is used in aerospace and defense programs, and to avoid detection. Together with our law enforcement partners, we will continue to enforce the laws that protect our national security.”

 

NSD Acting Assistant Attorney General Mary McCord said: “Today, Fuyi Sun admitted to attempting to procure high-grade carbon fiber – which has sophisticated aerospace and defense applications – for the Chinese military. The defendant was willing to pay a premium to evade U.S. export laws and illegally transfer this highly protected material. The National Security Division will continue to identify those who violate IEEPA and other laws that protect our national assets from reaching the hands of potential adversaries.”

 

According to the allegations contained in the Complaint and the Indictment filed against SUN and statements made in court filings and proceedings, including today’s guilty plea:

 

Since approximately 2011, SUN has attempted to acquire extremely high-grade carbon fiber, including Toray type M60JB-3000-50B carbon fiber (“M60 Carbon Fiber”). M60 Carbon Fiber has applications in aerospace technologies, unmanned aerial vehicles (commonly known as “drones”) and other government defense applications. Accordingly, M60 Carbon Fiber is strictly controlled – and requires a license for export to China – for nuclear non-proliferation and anti-terrorism reasons.

 

In furtherance of his attempts to illegally export M60 Carbon Fiber from the United States to China without a license, SUN contacted what he believed was a distributor of carbon fiber – but was, in fact, an undercover entity created by HSI and “staffed” by HSI undercover special agents (the “UC Company”). SUN inquired about purchasing the M60 Carbon Fiber without the required license. In the course of his years’ long communications with the undercover agents and UC Company, SUN repeatedly suggested various security measures that he believed would protect them from “U.S. intelligence.” Among other such measures, at one point, SUN instructed the undercover agents to use the term “banana” instead of “carbon fiber” in their communications. Consequently, soon thereafter he inquired about purchasing 450 kilograms of “banana” for more than $62,000. In order to avoid detection, SUN also suggested removing the identifying barcodes for the M60 Carbon Fiber, prior to transshipment, and further suggested that they identify the M60 Carbon Fiber as “acrylic fiber” in customs documents.

 

On April 11, 2016, SUN traveled from China to New York for the purpose of purchasing M60 Carbon Fiber from the UC Company. During meetings with the undercover agents, on or about April 11 and 12, among other things, SUN repeatedly suggested that the Chinese military was the ultimate end-user for the M60 Carbon Fiber he sought to acquire from the UC Company, and claimed to have personally worked in the Chinese missile program. SUN further asserted that he maintained a close relationship with the Chinese military, had a sophisticated understanding of the Chinese military’s need for carbon fiber, and suggested that he would be supplying the M60 Carbon Fiber to the Chinese military or to institutions closely associated with it.

 

On April 12, 2016, SUN agreed to purchase two cases of M60 Carbon Fiber from the UC Company. On that date, SUN paid the undercover agents purporting to represent the UC Company $23,000 in cash for the carbon fiber, as well as an additional $2,000 as compensation for the risk he believed the UC Company was taking to illegally export the carbon fiber to China without a license. SUN was arrested the next day, April 13, 2016.

 

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SUN, 53, pled guilty today to attempting to violate IEEPA, which carries a maximum sentence of 20 years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. SUN is scheduled to be sentenced by Judge Hellerstein on July 26, 2017 at 11:00 a.m.

 

Mr. Kim praised the extraordinary investigative work of the New York Field Office of the Department of Homeland Security, Homeland Security Investigations; the New York Field Office of the Department of Commerce, Bureau of Industry and Security, Office of Export Enforcement; and the Northeast Field Office of the Department of Defense, Defense Criminal Investigative Service. Mr. Kim also thanked the Counterintelligence and Export Control Section of the Department of Justice’s National Security Division.

 

This prosecution is being handled by the Office’s Terrorism and International Narcotics and Complex Frauds and Cybercrime Units. Assistant United States Attorneys Matthew Podolsky, Patrick Egan, and Nick Lewin are in charge of the prosecution, with assistance from Trial Attorney David Recker of the Counterintelligence and Export Control Section.