Latest GrantFraud.Com post involves a $200 million credit card fraud scheme

Bradford L. Geyer is reading enforcement agency tea leaves and he is seeing signs of enhanced enforcement involving grant fraud and procurement fraud at grantfraud.com.  His latest note regarding an extensive credit card fraud scheme can be found here.

Liberty Reserve Exec Gets 20 Years For Laundering

 

Arthur Budovsky, 42, was sentenced today in the Southern District of New York to 20 years imprisonment for running a massive money laundering enterprise through his company Liberty Reserve S.A. (“Liberty Reserve”), a virtual currency once used by cybercriminals around the world to launder the proceeds of their illegal activity.

Assistant Attorney General Leslie R. Caldwell for the Justice Department’s Criminal Division and U.S. Attorney Preet Bharara for the Southern District of New York made the announcement.

In January, Budovsky pleaded guilty to one count of conspiring to commit money laundering.  In imposing sentence, the court noted that Budovsky ran an “extraordinarily successful” and “large-scale international money laundering operation.”  U.S. District Judge Denise L. Cote also ordered Budovsky to pay a $500,000 fine.

“The significant sentence handed down today shows that money laundering through the use of virtual currencies is still money laundering, and that online crime is still crime,” said Assistant Attorney General Caldwell.  “Together with our American and international law enforcement partners, we will protect the public even when criminals use modern technology to break the law.”

“Liberty Reserve founder Arthur Budovsky ran a digital currency empire built expressly to facilitate money laundering on a massive scale for criminals around the globe,” said Manhattan U.S. Attorney Bharara.  “Despite all his efforts to evade prosecution, including taking his operations offshore and renouncing his citizenship, Budovsky has now been held to account for his brazen violations of U.S. criminal laws.”

According to the indictment, Liberty Reserve billed itself as the Internet’s “largest payment processor and money transfer system” and allowed people all over the world to send and receive payments using virtual currency.  At all relevant times, Budovsky directed and supervised Liberty Reserve’s operations, finances, and business strategy and was aware that digital currencies were used by other online criminals, such as credit card traffickers and identity thieves.

Liberty Reserve grew into a financial hub for cybercriminals around the world, trafficking the criminal proceeds of Ponzi schemes, credit card trafficking, stolen identity information and computer hacking.  By May 2013, when the government shut it down, Liberty Reserve had more than 5.5 million user accounts worldwide and had processed more than 78 million financial transactions with a combined value of more than $8 billion.  United States users accounted for the largest segment of Liberty Reserve’s total transactional volume – between $1 billion and $1.8 billion – and the largest number of user accounts – over 600,000.

Four co-defendants, Vladimir Kats, Azzeddine El Amine, Mark Marmilev and Maxim Chukharev, have already pleaded guilty.  Marmilev and Chukharev were sentenced to five years and three years in prison, respectively.  Judge Cote is expected to sentence Kats and El Amine May 13. Charges remain pending against Liberty Reserve and two individual defendants who are fugitives.

The U.S. Secret Service, the Internal Revenue Service-Criminal Investigation and the U.S. Immigration and Customs Enforcement’s Homeland Security Investigations investigated this case as part of the Global Illicit Financial Team.  The U.S. Secret Service’s New York Electronic Crimes Task Force assisted with the investigation.  The Judicial Investigation Organization in Costa Rica, Interpol, the National High Tech Crime Unit in the Netherlands, the Spanish National Police’s Financial and Economic Crime Unit, the Cyber Crime Unit at the Swedish National Bureau of Investigation and the Swiss Federal Prosecutor’s Office also provided assistance.

Trial Attorney Kevin Mosley of the Criminal Division’s Asset Forfeiture and Money Laundering Section and Assistant U.S. Attorneys Christian Everdell, Christine Magdo and Andrew Goldstein of the Southern District of New York are prosecuting the case.  The Criminal Division’s Office of International Affairs and Computer Crime and Intellectual Property Section provided substantial assistance.

CCC: Recommended Blog: “Grand Jury Target”

Recommended Blog: “Grand Jury Target”

I’ve been following a blog for a while that I find informative and interesting: Grand Jury Target: Tracking Federal Prosecutions of Corporate Executives.  The blog is by Sara Kropf, a trial lawyer in Washington, D.C.  A March 8th post was titled:  “Why Are we Falling for the Department of Justice’s Sales Pitch?  The blog recounted Ms. Kropf’s experience at the recent White Collar Crime seminar, including the constant pitches by DOJ officials to rush in to confess.

This approach—to quickly rush to DOJ to win cooperation credit—seems to be the sad reality of current white collar practice when you represent large companies. (Don’t even get me started in the antitrust amnesty program and the problematic incentives that program creates.)

Check out the blog.  I think you’ll be well rewarded for your time.

Thanks for reading this one too!

American Metals Market Report on Hong Kong Unsealing by FormerFedsGroup of 13 Metric Tons of Mutilated Clad Coins Processed by Wealthy Max

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The country’s oldest and most respected metals market trade publication, AMM, attended the Hong Kong unsealing of 13 metric tons of US clad coins on February 23rd that were processed in Foshan, China by the Wealthy Max quality assurance line in September, 2014, immediately following its processing of four shipments of mutilated clad coins that were seized by the government as being counterfeit.  Now, the US Attorney’s Office of the Eastern District of Pennsylvania, which played no role in creating this mess, has, sensibly, reasonably and in good faith, has started referring to the coins as not meeting Mint specifications rather than in the preposterous terms used by the US Attorney’s Office of New Jersey and the Department of Homeland Security who, preposterously, continue to allege counterfeiting in one of the most slipshod, ramshackle and careless investigations in recent memory.  Linked here is the carefully researched article.

New Jersey Pipe Supply Company Owner Sentenced to 32 Months in Prison for Role in Fraud and Bribery Conspiracy in Power Generation Industry

Company Sentenced to Pay a Total of Over $1.7 Million in Fines and Restitution

A New Jersey industrial pipe supply company and its owner were sentenced today for conspiring to commit fraud and pay bribes to a purchasing manager at Consolidated Edison of New York in return for the manager’s efforts to steer contracts to the company, the Department of Justice announced.

Andrew Martingano, of Staten Island, New York, was sentenced by U.S. District Judge Deborah A. Batts of the Southern District of New York to 32 months and a day in prison.  American Pipe Bending and Fabrication Co. Inc. of Edison, New Jersey, was sentenced to pay a $150,000 criminal fine.  Martingano and American Pipe were also sentenced to pay over $1.6 million in restitution, jointly and severally with their co-conspirators, to the victim, Con Ed.  The company and its owner pleaded guilty to committing wire fraud and conspiring to defraud Con Ed on Aug. 15, 2012.

According to court documents, Martingano and others agreed to pay approximately $510,000 in cash bribes to James M. Woodason, a department manager of the purchasing department at Con Ed.  In exchange for the bribes, Woodason steered Con Ed industrial pipe supply contracts to American Pipe by secretly providing Martingano with confidential competitor bid information, thereby causing Con Ed to pay higher, non-competitive prices for materials.  At the time of Woodason’s arrest in August 2010, Woodason had already received approximately $45,000 in cash bribes from Martingano and American Pipe.

The department said the conspiracy took place from approximately January 2009 to August 2010.  In addition, Martingano and American Pipe defrauded Con Ed by requesting a 14 percent price increase and basing that request on a fake email purporting to document a “Steel Mill” price increase that American Pipe was passing on to Con Ed.  These false and fraudulent price increase requests caused actual losses to Con Ed in the amount of approximately $1.4 million and intended losses of approximately $9.4 million.

Con Ed is a regulated utility headquartered in Manhattan.  It provides electric service to approximately 3.2 million customers, and gas service to approximately 1.1 million customers in New York City and Westchester County, New York.  Con Ed received more than $10,000 in federal funding each year between 2003 through 2010, and cooperated with the department’s investigation.

Including Martingano and American Pipe, a total of five individuals and two companies have been charged as part of this investigation and have been ordered to serve a total of more than 16 years in prison and to pay criminal fines and restitution of more than $3 million.

The charges arose from an ongoing federal antitrust investigation of bid rigging, bribery, fraud and tax-related offenses in the power generation industry.  The investigation is being conducted by the Antitrust Division’s New York Office, with assistance from the FBI and the Internal Revenue Service-Criminal Investigation.  Anyone with information concerning bid rigging, bribery, tax offenses or fraud in the power generation industry should contact the FBI’s New York Division at 212-384-3720 or the Antitrust Division’s New York Office at 212-335-8000, or visit www.justice.gov/atr/contact/newcase.htm.

Big Brothers Big Sisters of America to Pay $1.6 Million to Resolve Allegations of False Claims For Federal Grants

– Big Brothers Big Sisters of America Corporation (Big Brothers) has agreed to pay the United States $1.6 million to resolve allegations of false claims for funds under Department of Justice grants awarded to help children at risk, announced United States Attorney Zane David Memeger and Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. Big Brothers is a not-for-profit organization that provides mentoring services to boys and girls throughout the United States. The organization, originally based in Philadelphia, Pennsylvania, now is headquartered in Tampa, Florida.
Big Brothers is a national organization that acts through approximately 300 independent affiliate agencies across the United States. Since 2004, Big Brothers has received millions of dollars in grants from the Justice Department to support initiatives on behalf of children at risk. As a condition of those grants, Big Brothers was required to maintain sound accounting and financial management systems in accordance with federal regulations and guidelines designed to ensure that grant funds would be properly accounted for and used only for appropriate purposes.
The United States alleges that Big Brothers violated these regulations and guidelines with respect to three grants awarded by the Justice Department from 2009 to 2011, by commingling the grant funds with general operating funds, failing to segregate expenditures to ensure that the funds for each grant were used as intended, and failing to maintain internal financial controls to safeguard the proper use of grant funds. These allegations were documented in a 2013 audit of the three grants performed by the Department of Justice Office of the Inspector General. Since 2013, Big Brothers has replaced its management team and begun implementing policies aimed at correcting deficiencies in its management and accounting of federal grant funds.
“The US Attorney’s office is committed to protecting federal grants and ensuring that the funds are appropriately spent,” said Memeger. “Federal grant recipients must administer these grants with transparency and diligence, and the compliance measures implemented pursuant to this settlement agreement will help to achieve those goals.”

“Organizations such as Big Brothers have an obligation to the populations they serve as well as to the taxpayer to ensure that government grant funds are used for their intended purpose,” said Mizer. “The settlement announced today exemplifies the Department’s commitment to hold those who mishandle such funds accountable.”
“We appreciate the support of the U.S. Attorney for the Eastern District of Pennsylvania and the Civil Division in working with us on these kinds of cases,” said Department of Justice Inspector General Michael E. Horowitz. “The OIG’s auditors and investigators will continue to work with each other closely to uncover misuses of grant funds, and with our law enforcement partners to ensure that justice is served.”
In addition to paying the United States $1.6 million, Big Brothers has agreed to institute a strict compliance program that requires the organization to engage in regular audits, both internally and by independent auditors; establish a compliance team, an employee code of conduct, whistleblower policies, and a disciplinary policy for employees who engage in or fail to disclose abuses of federal grant funds; provide regular employee training on these policies; and employ risk assessment tools to detect abuses that might otherwise go undetected.

The investigation was conducted by the Department of Justice Office of the Inspector General. The settlement was handled by Assistant U.S. Attorneys Joel M. Sweet and Scott W. Reid in coordination with Trial Attorney David W. Tyler of the Justice Department’s Civil Division, Commercial Litigation Branch. The claims resolved by this settlement are allegations only; there has been no determination of liability.

Former Idaho Construction Company President Sentenced to Prison for Fraud Scheme

The former president and majority stockholder of a construction company was sentenced to five years in prison today following her plea of guilty to filing a false tax return and her conviction by a jury of conspiracy to defraud the United States, wire fraud, mail fraud, false statements, interstate transportation of property taken by fraud, conspiracy to obstruct justice and obstruction of justice, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Wendy J. Olson for the District of Idaho.

Elaine Martin, 69, of Meridian, Idaho, was the president of MarCon Inc., a construction company based in Meridian.  In September 2013, after a 26-day jury trial, Martin was convicted of tax and fraud charges and sentenced to 84 months in prison.  In August 2015, the U.S. Court of Appeals for the Ninth Circuit vacated Martin’s sentence and her tax conviction and remanded for resentencing and further proceedings on the tax charge.  Today, Martin pleaded guilty to filing a false tax return and U.S. District Judge B. Lynn Winmill of the District of Idaho sentenced her to 60 months in prison on both the tax and fraud charges.  In addition to the prison term, Judge Winmill ordered Martin to pay restitution to the Internal Revenue Service (IRS) and Idaho Department of Transportation in the amount of $131,400.48, costs of prosecution in the amount of $22,859.60 and a forfeiture money judgment of $3,084,038.05, amounts Martin previously paid.

In the plea agreement, Martin admitted that she willfully signed false and fraudulent corporate income tax returns for Marcon Inc. for tax years 2005 and 2006.  Martin also admitted that she caused these tax returns to be false and fraudulent by keeping the unreported income off of the books and that she falsely told an IRS revenue agent, who was conducting a civil audit of Marcon, that all of Marcon’s gross receipts were deposited into its Wells Fargo operating account, when in fact, Martin was diverting and depositing gross receipts into Marcon’s Bank of Cascades account.  Martin withheld the records for Marcon’s Bank of Cascades from the individual who prepared her and Marcon’s tax returns for tax years 2005 and 2006.  Martin admitted that the total tax loss was $73,678.

Martin also admitted to conspiring to defraud the SBA 8(a) Program and the U.S. Department of Transportation, Disadvantaged Business Enterprise (DBE) Program, by submitting fraudulent tax returns and making false statements concerning her finances that caused Marcon to qualify and/or remain eligible for these programs.  Martin further admitted that her behavior affected the award of contracts pursuant to the 8(a) Program and DBE Programs.  For example, Marcon’s status as an Idaho DBE affected how and what DBE goals were set for particular construction projects and helped Marcon maintain a virtual monopoly in its geographic region between 2000 and 2006.  Marcon participated in the SBA 8(a) Program pursuant to direct negotiations with the awarding agency, rather than through fair and open competition.  Martin admitted that during the relevant time period, she would not have been awarded the 33 contracts at issue in the case but for the fraud.

As part of the plea agreement that Martin entered into today, she waived her right to further appeal.

Assistant Attorney General Ciraolo and U.S. Attorney Olson thanked special agents of IRS-Criminal Investigation, the FBI, the Office of Inspector General for the U.S. Small Business Administration and the Office of Inspector General for the U.S. Department of Transportation, who investigated the case and Trial Attorney Gregory Bernstein and former Trial Attorney Katherine Wong of the Tax Division and Assistant U.S. Attorney Raymond Patrico of the District of Idaho, who prosecuted the case.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations.  Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants.  For more information on the task force, visit www.stopfraud.gov.

Florida Investment Advisor Sentenced to 18 Months in Prison for Orchestrating $9 Million Investment Fraud Scheme

A Tampa, Florida, area investment advisor was sentenced to 18 months in prison today for perpetrating a $9 million investment fraud scheme involving Facebook stock.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney A. Lee Bentley III of the Middle District of Florida, Special Agent in Charge Paul Wysopal of the FBI’s Tampa Field Office and Inspector in Charge Ronald J. Verrochio of the U.S. Postal Inspection Service (USPIS) Miami Division made the announcement.

Gignesh Movalia, 40, a registered investment advisor, was also ordered by Chief U.S. District Judge Steven D. Merryday of the Middle District of Florida to pay $5,394,419 in restitution and to three years of supervised release following his prison sentence.  Movalia pleaded guilty on Aug. 13, 2015, to one count of investment advisor fraud.

In connection with his guilty plea, Movalia admitted that he founded OM Global Investment Fund LLC in 2009 and subsequently used the fund to defraud investors.  Specifically, in 2011 and 2012, Movalia raised more than $9 million from 130 investors by falsely claiming to have access to pre-initial public offering shares of Facebook Inc.  Rather than using this money to buy Facebook shares as promised, however, Movalia invested the money in other securities and concealed that fact from investors.  By September 2013 when it went into receivership, the OM Global Fund lost approximately $9 million, with $6 million of those losses as a result of the fraud scheme.

The case was investigated by the FBI and USPIS, with assistance provided by the U.S. Securities and Exchange Commission’s Miami Regional Office.  The case was prosecuted by Trial Attorney Andrew H. Warren of the Criminal Division’s Fraud Section.

Real Estate Investor Pleads Guilty to Bid Rigging and Fraud Conspiracies at Georgia Public Foreclosure Auctions

A Georgia real estate investor pleaded guilty today for his role in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Fulton and DeKalb counties, Georgia.

Morris Podber admitted that he conspired with others not to bid against one another at public real estate foreclosure auctions on selected properties.  After the public foreclosure auctions, Podber admitted that he and his co-conspirators would divvy up the targeted properties in private side auctions, open only to the conspirators.  Podber admitted to conspiring to use the mail to carry out their fraud, which included making and receiving payoffs and diverting money to co-conspirators that should have gone to the mortgage holders and others.

“This is the ninth real estate investor held accountable for bid rigging at public foreclosure auctions in Georgia,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division.  “We will continue to root out anticompetitive conduct at foreclosure auctions and obtain justice for homeowners and lenders.”

According to documents filed with the court, the purpose of the conspiracies was to suppress and restrain competition and divert money to the conspirators that otherwise would have gone to pay off the mortgage and other holders of debt secured by the properties, and, in some cases, the defaulting homeowner.  Podber admitted to participating in a conspiracy in Fulton County from July 2005 until August 2010; and to participating in a conspiracy in DeKalb County from October 2006 to August 2011.

“Incidents of bid rigging at public real estate auctions continue to be an issue in Georgia and elsewhere in the United States, and the FBI would like to remind the public that such matters are violations of federal law,” said Special Agent in Charge J. Britt Johnson of the FBI’s Atlanta Field Office.  “The FBI will continue to work with the U.S. Department of Justice’s Antitrust Division in identifying, investigating and prosecuting those individuals engaged in such activities.”

The ongoing investigation is being conducted by the Antitrust Division’s Washington Criminal II Section, the FBI’s Atlanta Division and the U.S. Attorney’s Office of the Northern District of Georgia.  Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Washington Criminal II Section of the Antitrust Division at 202-598-4000, call the Antitrust Division’s Citizen Complaint Center at 888-647-3258 or visit www.justice.gov/atr/contact/newcase.htm.

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

SEC Charges Three RMBS Traders With Defrauding Investors

FOR IMMEDIATE RELEASE

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Washington D.C., Sept. 8, 2015 —The Securities and Exchange Commission today announced fraud charges against three traders accused of repeatedly lying to customers relying on them for honest and accurate pricing information about residential mortgage-backed securities (RMBS).

The SEC alleges that Ross Shapiro, Michael Gramins, and Tyler Peters defrauded customers to illicitly generate millions of dollars in additional revenue for Nomura Securities International, the New York-based brokerage firm where they worked.  They misrepresented the bids and offers being provided to Nomura for RMBS as well as the prices at which Nomura bought and sold RMBS and the spreads the firm earned intermediating RMBS trades.  They also trained, coached, and directed junior traders at the firm to engage in the same misconduct.

In a parallel action, the U.S. Attorney’s Office for the District of Connecticut announced criminal charges against Shapiro, Gramins, and Peters, who no longer work at Nomura.

“The alleged misconduct reflects a callous disregard for the integrity and obligations expected of registered securities professionals,” said Andrew Ceresney, Director of the SEC’s Enforcement Division. “Not only did these traders lie to their customers, but they created a corrupt culture on Nomura’s trading desk by coaching more junior traders to employ the same deceptive and dishonest trading practices we allege in our complaint.”

According to the SEC’s complaint filed in federal court in Manhattan:

  • The lies and omissions to customers by Shapiro, Gramins, and Peters generated at least $5 million in additional revenue for Nomura, and lies and omissions by the subordinates they trained and coached generated at least $2 million in additional profits for the firm.
  • Nomura determined bonuses for Shapiro, Gramins, and Peters based on several factors including revenue generation.  Nomura paid total compensation of $13.3 million to Shapiro, $5.8 million to Gramins, and $2.9 million to Peters during the years this misconduct was occurring.
  • Customers sought and relied on market price information from these traders because the market for this type of RMBS is opaque and accurate price information is difficult for a customer to determine.  Therefore it was particularly important for the traders to provide honest and accurate information.
  • Shapiro, Gramins, and Peters went so far as to invent phantom third-party sellers and fictional offers when Nomura already owned the bonds the traders were pretending to obtain for potential buyers.

The SEC’s complaint charges Shapiro, Gramins, and Peters with violating Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 as well as Section 17(a) of the Securities Act of 1933.

The SEC separately entered into deferred prosecution agreements (DPAs) with three other individuals who have extensively cooperated with the SEC’s investigation and provided enforcement staff with access to critical evidence that otherwise would not have been available.

“The SEC is open to deferring charges based on certain factors, including when cooperators come forward with timely and credible information while candidly acknowledging their own misconduct,” said Michael Osnato, Chief of the SEC’s Complex Financial Instruments Unit.  “The decision to defer charges in this matter reflects the early and sustained assistance provided by these individuals.”

The SEC’s continuing investigation is being conducted by James R. Drabick, Susan Curtin, Rua Kelly, and Celia Moore.  The SEC’s litigation will be led by Ms. Kelly.