Department of Defense Procurement Official Sentenced for His Role in Contract Bribery Scheme

A Utah man was sentenced to serve 24 months in prison for his role in a bribery and fraud scheme involving federal procurement contracts, announced Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division and U.S. Attorney David B. Barlow of the District of Utah.

On Oct. 24, 2011, Jose Mendez, 50, of Farr West, Utah, pleaded guilty to conspiracy to commit bribery and procurement fraud, bribery, and procurement fraud.  Mendez was charged in an October 2011 indictment, along with Sylvester Zugrav, 71, and Maria Zugrav, 67, owners of Atlas International Trading Company in Sarasota, Fla.  The Zugravs were sentenced on Jan. 8, 2014.

According to court documents, while Mendez worked as a procurement program manager for the U.S. Air Force at Hill Air Force Base in Ogden, Utah, he conspired to enrich himself and others by exchanging money and other things of value for non-public information and favorable treatment in the procurement process.  Court records state that Mendez was offered approximately $1,240,500 in payments and other things of value throughout the course of the conspiracy.  Mendez admitted that from approximately 2008 to August 2011, he received more than $185,000 in payments and other things of value, with promises of additional bribe payments if Atlas were to receive future contracts from the U.S. government.

In return for the bribes offered and paid, Mendez admitted he gave Atlas and the Zugravs favorable treatment during the procurement process, including disclosing government budget and competitor bid information, which helped Atlas and the Zugravs in winning contracts.

The case was investigated by the FBI and the Air Force Office of Special Investigations. The case was prosecuted by Trial Attorneys Marquest J. Meeks and Edward P. Sullivan of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney Carlos A. Esqueda of the District of Utah.

 

Florida Couple Sentenced for Roles in Procurement Contract Bribery Scheme

A Florida man was sentenced to serve 15 months in prison, and his wife was sentenced to 24 months of probation, for their roles in a bribery and fraud scheme involving federal procurement contracts, announced Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division and U.S. Attorney David B. Barlow of the District of Utah.
On Feb. 26, 2013, Sylvester Zugrav, 70, of Sarasota, Fla., pleaded guilty to conspiracy to commit bribery and procurement fraud, and his wife, Maria Zugrav, 67, also of Sarasota, pleaded guilty to misprision of a felony related to her efforts to conceal the conspiracy.
The Zugravs were charged in an October 2011 indictment along with Jose Mendez, 51, of Farr West, Utah.   Mendez, a procurement program manager for the U.S. Air Force Foreign Materials Acquisition Support Office (FMASO) at Hill Air Force Base, in Ogden, Utah, was charged in the indictment with conspiracy, bribery and procurement fraud, and has since pleaded guilty to all charges and agreed to forfeit more than $180,000 he received as part of the bribery scheme.   Sentencing for Mendez is scheduled for Jan. 29, 2014.
According to court documents, the Zugravs owned Atlas International Trading Company, a business that contracted to provide foreign military materials to the U.S. government through FMASO.
In his plea agreement, Sylvester Zugrav admitted that, from 2008 through August 2011, he gave Mendez more than $180,000 in bribe payments and offered Mendez more than $1 million in additional bribe payments contingent upon Atlas’s receipt of future contracts with FMASO.   In exchange for Sylvester Zugrav’s bribe payments and offers, Mendez ensured that Atlas and Sylvester Zugrav received favorable treatment in connection with procurement contracts by, among other things, assisting Atlas in obtaining and maintaining procurement contracts; assisting Atlas in receiving payments on such contracts; and providing Atlas with contract bid or proposal information or source selection information before the award of procurement contracts.   In her plea agreement, Maria Zugrav admitted that she was aware of Sylvester Zugrav’s bribe payments to Mendez and assisted with concealing the crime.
According to court records, Sylvester Zugrav provided bribe payments to Mendez in three ways: cash payments via Federal Express to Mendez’s residential address; in-person payments of cash and other things of value; and electronic wire transfers to a bank account in Mexico opened by and in the name of Mendez’s cousin.   Between November 2009 and August 2011, Sylvester Zugrav sent nine FedEx packages to Mendez’s home address.   Each package contained $5,000 in cash, except the last package, which contained $3,000 and was seized by law enforcement.   Maria Zugrav assisted her husband and Mendez’s bribe scheme by limiting cash withdrawals from Atlas’s bank account to not more than $5,000 to avoid scrutiny by banking officials and law enforcement.
According to the plea documents, on multiple occasions when Sylvester Zugrav and Mendez traveled to the same location, Sylvester Zugrav would give Mendez cash payments and other things of value.   From 2008 through August 2011, Sylvester Zugrav gave Mendez seven in-person cash payments ranging from $500 to $10,000 and purchased for him[?] a laptop computer and software package worth over $2,900.
During the course of the corrupt scheme, Mendez opened a foreign bank account so that Sylvester Zugrav could pay Mendez larger bribe payments.   Mendez asked his cousin in Mexico to open an account there.   After the account was opened by Mendez’s cousin, Maria Zugrav made wire transfers to the bank account located in the name of Mendez’s cousin to avoid detection of the larger bribe payments by law enforcement.   From 2008 through August 2011, Maria Zugrav sent to the Mexico account 10 wire transfers ranging from $350 to $26,700.
Court records also describe additional steps taken to conceal the bribery scheme, including creating and using covert e-mail accounts, using encrypted documents, adopting false names and using code words.   For instance, to avoid detection of their e-mail communications, Sylvester Zugrav and Mendez established e-mail accounts to be used only to communicate requests and offers for bribe payments.   Sylvester Zugrav and Mendez also created password-protected documents for e-mail communications and used code words and false names.   Within the encrypted documents, Mendez adopted the moniker “Chuco” and Sylvester Zugrav used the codename “Jugo.”   They referred to cash as “literature.”
The case was investigated by the FBI and the Air Force Office of Special Investigations.   The case is being prosecuted by Trial Attorneys Marquest J. Meeks and Edward P. Sullivan of the Criminal Division’s Public Integrity Section, Assistant U.S. Attorney Carlos A. Esqueda of the District of Utah, and Trial Attorney Deborah Curtis of the National Security Division’s Counterespionage Section.

 

Former Owner of Salt Lake City Medical Equipment Supply Company Indicted and Three Company Employees Plead Guilty for Roles in Medicare Fraud Scheme

A former owner of a Salt Lake City medical equipment supply company has been indicted and three former company employees have pleaded guilty for allegedly engaging in a $20 million Medicare fraud scheme.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney David B. Barlow of the District of Utah, Special Agent in Charge Mary Rook of the FBI’s Salt Lake City Field Office, Special Agent in Charge Gerry Roy of the U.S. Department of Health and Human Services Office of Inspector General’s (HHS-OIG) Kansas City Regional Office, and Special Agent in Charge Janice M. Flores of the Defense Criminal Investigative Service’s (DCIS) Southwest Field Office made the announcement.

Jacob Kilgore, 34, of Fruit Heights, Utah, was indicted in the District of Utah on three counts of health care fraud, three counts of false statements relating to health care matters, and three counts of wire fraud.

According to court documents, Kilgore was the co-owner, vice president, and regional sales manager of Orbit Medical Inc. (Orbit), a durable medical equipment supplier located in Salt Lake City specializing in power wheelchairs.  From approximately September 2008 through June 2011, Kilgore allegedly directed a scheme to defraud Medicare by submitting false and fraudulent claims to Medicare for power wheelchairs.  Court documents allege that Kilgore and others falsified medical records – including power wheelchair prescriptions and chart notes obtained from physicians – to make it appear that beneficiaries qualified to receive power wheelchairs when they did not and that the claims otherwise met all Medicare requirements.  Kilgore and others then used these falsified documents to support false and fraudulent claims from Orbit to Medicare.

Additionally, former Orbit sales representatives Morgan Workman, 35, of Farmington, Utah; David Evans, 29, of South Jordan, Utah; and Hunter Hartman, 29, of Ladera Ranch, Calif., have each pleaded guilty to conspiring to commit health care fraud, based on the same alleged scheme to defraud Medicare.  They are awaiting sentencing.

The scheme allegedly resulted in more than $20 million in claims from Orbit to Medicare for power wheelchairs, of which Medicare paid more than $15 million.

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

The case was investigated by the FBI, HHS-OIG and DCIS.  This case is being prosecuted by Trial Attorney Niall M. O’Donnell of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Mark Y. Hirata of the U.S. Attorney’s Office for the District of Utah.

Florida Couple Pleads Guilty for Roles in Procurement Contract Bribery Scheme

Tuesday, February 26, 2013

A Florida couple who owned a military contracting company pleaded guilty today in federal court in Salt Lake City for their roles in a bribery and fraud scheme involving federal procurement contracts, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney David B. Barlow for the District of Utah.

Sylvester Zugrav, 70, of Sarasota, Fla., pleaded guilty to conspiracy to commit bribery and procurement fraud.  His wife, Maria Zugrav, 67, also of Sarasota, pleaded guilty to misprision of a felony related to her efforts to conceal the conspiracy.  The Zugravs were charged in an indictment, returned on Oct. 12, 2011, along with Jose Mendez, 51, of Farr West, Utah, a procurement program manager for the U.S. Air Force Foreign Materials Acquisition Support Office (FMASO) at Hill Air Force Base, in Ogden, Utah.

Mendez was charged in the indictment with conspiracy, bribery and procurement fraud, and has since pleaded guilty to all charges and agreed to forfeit more than $180,000 he received as part of the bribery scheme and awaits sentencing.

According to court documents, the Zugravs owned Atlas International Trading Company, a business that contracted to provide foreign military materials to the U.S. government through FMASO.

In his plea agreement, Sylvester Zugrav admitted that, from 2008 through August 2011, he gave Mendez more than $180,000 in bribe payments, and offered Mendez more than $1.05 million in additional bribe payments contingent upon Atlas’s receipt of future contracts with FMASO.  In exchange for Sylvester Zugrav’s bribe payments and offers, Mendez ensured that Atlas and Sylvester Zugrav received favorable treatment in connection with procurement contracts, including, among other things, assisting Atlas in obtaining and maintaining procurement contracts; assisting Atlas in receiving payments on such contracts; and providing Atlas with contract bid or proposal information or source selection information before the award of procurement contracts.

In her plea agreement, Maria Zugrav admitted that she was aware of Sylvester Zugrav’s bribe payments to Mendez and assisted with concealment of the crime.  According to court records, Sylvester Zugrav provided bribe payments to Mendez in three ways: cash payments via Federal Express to Mendez’s residential address; in-person payments of cash and other things of value; and electronic wire transfers to a bank account in Mexico opened by and in the name of Mendez’s cousin.  Between November 2009 and August 2011, Sylvester Zugrav sent nine FedEx packages to Mendez’s home address.  Each package contained $5,000 in cash, except the last package, containing $3,000, which was seized by law enforcement.  Maria Zugrav assisted her husband and Mendez’s bribe scheme by limiting cash withdrawals from Atlas’ bank account to not more than $5,000 to avoid scrutiny by banking officials and law enforcement. According to the plea documents, on multiple occasions when Sylvester Zugrav and Mendez traveled to the same location, Sylvester Zugrav would give Mendez cash payments and other things of value.  From 2008 through August 2011, Sylvester Zugrav gave Mendez seven in-person cash payments ranging from $500 to $10,000, and purchased a laptop computer and software package worth over $2,900.

As Mendez admitted, during the course of the corrupt scheme, Mendez opened a foreign bank account so that Sylvester Zugrav could pay Mendez larger bribe payments.  Mendez asked his cousin in Mexico to open an account there.  After the account was opened by Mendez’s cousin, Maria Zugrav made wire transfers to the bank account located in Mexico in the name of Mendez’s cousin to avoid detection of the larger bribe payments by law enforcement.  From 2008 through August 2011, Maria Zugrav sent 10 wire transfers to the Mexico account ranging from $350 to $26,700.

Court records also describe additional steps taken to conceal the bribery scheme, including creating and using covert e-mail accounts, using encrypted documents, adopting false names and using code words.  For instance, to avoid detection of their e-mail communications, Sylvester Zugrav and Mendez established e-mail accounts to be used only to communicate requests and offers for bribe payments.  Sylvester Zugrav and Mendez also created password-protected documents for e-mail communications, and used code words and false names. Within the encrypted documents, Mendez adopted the moniker “Chuco” and Sylvester Zugrav used the codename “Chuco”  They referred to cash as “literature.”

Sylvester Zugrav faces a maximum potential penalty of five years in prison and a $250,000 fine on the conspiracy count, and Maria Zugrav faces a maximum penalty of three years in prison and a $250,000 fine on the misprision count.  Sentencing for the Zugravs is scheduled for June 19, 2013.

The case was investigated by the FBI and the Air Force Office of Special Investigations.  The case is being prosecuted by Trial Attorneys Marquest J. Meeks and Edward P. Sullivan of the Criminal Division’s Public Integrity Section, Assistant U.S. Attorney Carlos A. Esqueda for the District of Utah and Trial Attorney Deborah Curtis of the National Security Division’s Counterespionage Section.

Former FBI Agent and Alleged Co-Conspirators Indicted for Scheme to Obstruct Federal Fraud Investigation

FOR IMMEDIATE RELEASE
Thursday, October 18, 2012
Former FBI Agent and Alleged Co-Conspirators Indicted for Scheme to Obstruct Federal Fraud Investigation

WASHINGTON – A federal grand jury in Salt Lake City today returned an 11-count indictment charging a former FBI special agent and two alleged accomplices with a scheme to use the agent’s official position to derail a federal investigation into the conduct of one of the alleged conspirators.  The charges were announced by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division, U.S. Attorney for the District of Utah David B. Barlow and Department of Justice Inspector General Michael E. Horowitz.

The indictment charges former FBI special agent Robert G. Lustyik Jr., 50, of Sleepy Hollow, N.Y.; Michael L. Taylor, 51, of Harvard, Mass., the principal of Boston-based American International Security Corporation (AISC); and Johannes W. Thaler, 49, of New Fairfield, Conn., each with one count of conspiracy, eight counts of honest services wire fraud, one count of obstructing justice and one count of obstructing an agency proceeding.

“According to the indictment, while active in the FBI, former Special Agent Lustyik used his position in an attempt to stave off the criminal investigation of a business partner with whom he was pursuing lucrative security and energy contracts,” said Assistant Attorney General Breuer.  “He allegedly acted through a childhood friend to secure promises of cash, purported medical expenses and business proceeds in exchange for abusing his position as an FBI agent.  The alleged conduct is outrageous, and we will do everything we can to ensure that justice is done in this case.”

DOJ Inspector General Horowitz stated:  “Law enforcement officers are sworn to uphold the law.  Agents who would sell their badges and impede the administration of justice will be vigorously pursued.”

According to the indictment, Robert Lustyik was an FBI special agent until September 2012, assigned to counterintelligence work in White Plains, N.Y.  The indictment also states that from at least June 2011, the three alleged conspirators had a business relationship involving the pursuit of contracts for security services, electric power and energy development, among other things, in the Middle East, Africa and elsewhere.

The indictment alleges that in September 2011, Taylor learned of a federal criminal investigation, begun in Utah in 2010, into whether Taylor, his business and others committed fraud in the award and performance of a contract with the U.S. Department of Defense.

Soon thereafter, Taylor allegedly began to give and offer things of value to Lustyik in exchange for Lustyik’s agreement to use his official position to impair and impede the Utah investigation.  The indictment also alleges that Thaler, a childhood friend of Lustyik’s, served as a conduit between Taylor and Lustyik, passing information and things of value.

Specifically, the indictment charges that Taylor offered Lustyik a $200,000 cash payment; money purportedly for the medical expenses of Lustyik’s minor child; and a share in the proceeds of several anticipated contracts worth millions of dollars.

According to the indictment, Lustyik used his official FBI position to impede the Utah investigation by, among other things, designating Taylor as an FBI confidential source, texting and calling the Utah investigators and prosecutors to dissuade them from charging Taylor and attempting to interview potential witnesses and targets in the Utah investigation.  As alleged in the indictment, Lustyik wrote to Taylor that he was going to interview one of Taylor’s co-defendants and “blow the doors off this thing.”  Referring to the Utah investigation, Lustyik also allegedly assured Taylor that he would not stop in his “attempt to sway this your way.”

According to the indictment, Lustyik, Taylor and Thaler attempted to conceal the full extent of Lustyik’s relationship with Taylor from the Utah prosecutors and agents, including by making and planning to make material misrepresentations and omissions to federal law enforcement involved in the investigation of Taylor.

For example, the indictment alleges that on Sept. 8, 2012, after Taylor was searched at the border and his computer seized, Lustyik sent a text message to Thaler, stating: “You might have to save me and testify that only you r doing business.”  Nine days later, according to the indictment, Thaler told federal law enforcement agents – in a voluntary, recorded interview – that Lustyik was not involved in Taylor’s and Thaler’s business.

The pair also allegedly used an email “dead drop” to avoid leaving a record of their interactions and used the names of football teams and nicknames as part of their coded communications.

Taylor and Lustyik were both previously arrested on prior criminal complaints in this case.  Taylor has been detained pending trial and Lustyik received a $2 million bond.  Thaler is expected to surrender to authorities tomorrow.

If convicted, the defendants each face a maximum potential penalty of five years in prison on the conspiracy charge, 20 years in prison on each of the wire fraud charges, 10 years in prison on the obstruction of justice charge and five years in prison on the obstruction of an agency proceeding charge.  Each charge also carries a maximum $250,000 fine, or twice the gross gain or loss from the offense.  The indictment also seeks forfeiture of any proceeds traceable to the conspiracy, wire fraud and obstruction of justice offenses.

The case is being investigated by the Department of Justice Office of the Inspector General and prosecuted by Trial Attorneys Kevin Driscoll and Maria Lerner of the Criminal Division’s Public Integrity Section; Acting Deputy Chief Pamela Hicks, Acting Assistant Deputy Chief Jeannette Gunderson and Trial Attorney Ann Marie Blaylock of the Criminal Division’s Asset Forfeiture and Money Laundering Section; and Assistant U.S. Attorney Carlos Esqueda.

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