Monthly Archives: July 2015

Florida Man Charged with Bribing Officials at Georgia Military Base

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A former agent for a large national trucking company was indicted for paying bribes to officials at the Marine Corps Logistics Base (MCLB) in Albany, Georgia, in order to obtain lucrative freight hauling business from the base.  Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney Michael J. Moore of the Middle District of Georgia made the announcement.

Ivan Dwight Brannan, 60, of Jupiter, Florida, is charged by indictment with one count of conspiracy to bribe a public official and three counts of bribery of a public official.

From 1999 to 2013, Brannan worked as a broker for a national trucking company that delivers both commercial and military freight.  According to the indictment, he was paid a commission for each delivery that he arranged.

According to the allegations in the indictment, from 2006 to 2012, Brannan provided cash and other items of value to Mitchell Potts, a former Traffic Office Supervisor for the Defense Logistics Agency (DLA) at MCLB-Albany, for the purpose of ensuring that Brannan’s trucking company client was awarded business at MCLB-Albany.  The indictment also alleges that Brannan directed truck driver David Nelson to provide cash to both Potts and Jeffrey Philpot, another official in the DLA Traffic Office at MCLB-Albany, to ensure that the trucking company continued to receive MCLB-Albany’s business.  According to the indictment, over the course of the conspiracy Nelson paid at least $120,000 in bribes to Potts and Philpot at Brannan’s behest.

In October 2014, Philpot, Nelson and Potts each pleaded guilty to one count of bribery of a public official.  They are scheduled to be sentenced on Sept. 29, 2015.

The charges and allegations in an indictment are merely accusations.  A defendant is presumed innocent unless and until proven guilty.

The case is being investigated by the U.S. Army Criminal Investigation Command, the Naval Criminal Investigative Service and the Defense Criminal Investigative Service.  The case is being prosecuted by Trial Attorney John Keller of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney K. Alan Dasher of the Middle District of Georgia.

Eight Additional Individuals Charged in NFL-Related Securities Fraud Scheme Targeting the Elderly

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Eight additional individuals were indicted for participating in a securities fraud scheme that targeted the elderly.

U.S. Attorney Wifredo A. Ferrer for the Southern District of Florida, and Special Agent in Charge George L. Piro for the Federal Bureau of Investigation’s (FBI) Miami Field Office made the announcement.

David Anthony Eratostene, 53, of Miramar, Florida, Christopher J. Borgo, 41, of Boca Raton, Florida, Alan D. Messina, 54, of Sunrise, Florida, Michael T. Angeletti, 33, of Sunrise, Florida, Michael J. Calash 34, of Boca Raton, Florida, Stephen R. Reynolds, 38, of Pompano Beach, Florida, Gary X. Schultz, 55, of Miramar, Florida, Chazon Stein, 36, North Miami Beach, Florida, were charged with conspiracy to commit mail and wire fraud.

“Securities fraud schemes that target members of our community jeopardize our personal investments and security,” said U.S. Attorney Ferrer.  “Our Office, in collaboration with the FBI, strives to prevent the victimization of our elderly residents.  By combatting these invasive fraud schemes, we help to protect potential victims from losing their hard-earned money to telemarketing thieves.”

According to allegations contained in the indictment, the defendants pressured investors into purchasing stock in two companies, Thought Development Inc. (TDI) and Virgin Gaming.  TDI was a Miami Beach-based company that claimed its signature invention generated a green laser line on the football field visible in the stadium to players, fans as well as on television.  TDI represented that use of its technology would decrease the time used by officials to determine first downs, freeing up broadcast time that could then be sold to television advertisers.  The defendants raised approximately $2.4 million through the use of call rooms that targeted more than 200 investors throughout the nation, who were told that an initial public offering (IPO) in TDI was imminent and that their money would be safe and used to develop the ground-breaking technology.  Instead, the indictment alleges that the IPO was not forthcoming as promised and at least 50 percent of the offering proceeds were retained by the defendants or paid to sales agents through undisclosed, exorbitant commissions and fees.  The defendants also lured investors by misrepresenting that TDI’s technology was about to be used by the NFL.  The defendants also neglected to tell investors the TDI laser technology posed a potential risk of blindness to players on the football field.

The indictment alleges that the second fraudulently sold stock, for Virgin Gaming, a subsidiary of Virgin Media Inc., provided a fee-based service that facilitated online tournaments, fantasy sports leagues and competitive online gaming.  The Virgin Gaming scheme took one of two forms.  In some instances, sales agents told investors they would be investing in a company that had obtained the right to purchase shares of Virgin Gaming stock.  The defendants told investors those shares would be converted into shares of Virgin Gaming just prior to an IPO.  However, this was not a true representation as no such option to buy Virgin Gaming stock, in fact existed.  On other occasions, sales agents told investors that they were directly purchasing Virgin Gaming stock when in fact they were not.  The defendants’ sales agents also lied about guaranteed returns on investments and the timing of the purported IPO.  Over the course of the scheme, the defendants caused approximately 35 individuals to purchase the non-existent Virgin Gaming stock and thereby made approximately $325,000 in fraudulent sales.  Nearly all of the monies were misappropriated as undisclosed commissions and fees.

This indictment relates to a case filed a year ago, United States v. Kirschner.  All four defendants in that matter, the leader/organizers of the TDI fraud scheme discussed above, pleaded guilty and have been sentenced.

U.S. Attorney Ferrer commended the investigative efforts of the FBI.  This case is being prosecuted by Assistant U.S. Attorney Roger Cruz and Trial Attorney Kevin B. Hart from the Antitrust Division of the Department of Justice.

An indictment is only an accusation and a defendant is presumed innocent unless and until proven guilty.

A copy of this press release may be found on the website of the U.S. Attorney’s Office for the Southern District of Florida atwww.usdoj.gov/usao/fls.  Related court documents and information may be found on the website of the District Court for the Southern District of Florida at www.flsd.uscourts.gov or on http://pacer.flsd.uscourts.gov.

Justice Department Announces Swiss Bank Program Resolutions with Two More Banks

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The Department of Justice announced today that SB Saanen Bank AG and Privatbank Bellerive AG have reached resolutions under the department’s Swiss Bank Program.

The Swiss Bank Program, which was announced on Aug. 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States.  Swiss banks eligible to enter the program were required to advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts.  Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

Under the program, banks are required to:

  • Make a complete disclosure of their cross-border activities;
  • Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
  • Cooperate in treaty requests for account information;
  • Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
  • Agree to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations; and
  • Pay appropriate penalties.

Swiss banks meeting all of the above requirements are eligible for a non-prosecution agreement.

According to the terms of the non-prosecution agreements signed today, each bank agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay penalties in return for the department’s agreement not to prosecute these banks for tax-related criminal offenses.

SB Saanen Bank AG is headquartered in Saanen, Switzerland.  It was founded in 1874 and has branches in the neighboring villages of Gstaad, Gsteig and Lauenen, as well as a retail office in Schönried.

Prior to Aug. 1, 2008, and thereafter, SB Saanen accepted accounts from U.S. taxpayers, some of whom had undeclared accounts and wished to take advantage of Swiss bank secrecy laws.  SB Saanen offered a variety of traditional Swiss banking services which could and did assist U.S. clients in concealing assets and income from the Internal Revenue Service (IRS), including numbered or pseudonym accounts and holding mail at the bank.  These services helped U.S. clients to eliminate the presence of documents in the United States that associated the U.S. taxpayer’s name with the undeclared assets and income they held at SB Saanen in Switzerland.  In some instances, SB Saanen permitted accounts to be closed with large cash withdrawals, precious metals or transfers of funds to accounts held by non-U.S. persons.  SB Saanen had reason to believe that such an accountholder was taking that action to avoid detection by U.S. tax authorities.

In December 2008, SB Saanen’s board of directors decided that it should continue to manage U.S. clients and open new accounts for U.S. clients on the condition that they had a “link to our region or one of our relationship managers.”  As a result, SB Saanen opened accounts for some U.S. taxpayers who transferred accounts from other Swiss institutions that were closing such accounts.  SB Saanen knew, or had reason to know, that two of those accounts were undeclared.  SB Saanen continued to service U.S. taxpayers even though it had reason to believe that some of them were evading U.S. taxes.

An SB Saanen procedural manual, dated November 2009 and related to the directive, warned its employees to minimize U.S-related contacts with undeclared U.S. clients.  The manual required relationship managers to obtain an IRS Form W-9 for new U.S. clients and stated, with respect to existing U.S. clients, that “clients who do not want disclosure to the IRS (American tax authority) may not be contacted at all in the U.S.A. and/or other countries!  Contact is only permissible within [Switzerland].”

In 2009, SB Saanen implemented a policy with respect to foreign travel by its relationship managers.  Pursuant to that policy, travel was permitted to the United States to meet with U.S. clients so long as it was approved in advance by SB Saanen’s chief executive officer and subject to restrictions.  For example, under the policy, SB Saanen declared that “No files may be taken abroad,” relationship managers must “complete a training course,” relationship managers “may not actively acquire” new customers, there was to be “no signing of business documents” or “accepting of orders” or providing “investment advice,” and bank employees were prohibited from “handing over cash, securities, or objects.”  In 2010 and 2011, SB Saanen’s then-head of private banking, who is no longer employed by the bank, traveled to the United States to entertain U.S. clients at the U.S. Open tennis championship in Flushing Meadows, New York.

Since Aug. 1, 2008, SB Saanen maintained three U.S.-related accounts for individual U.S. taxpayers who opened the account in the name of a non-U.S. entity, such as offshore corporations or trusts.  Those three accounts comprised an aggregate value of approximately $5 million.  SB Saanen was not involved in creating these entities, but it was aware that some U.S. clients created and used such non-U.S. entities to hold Swiss bank accounts to avoid their disclosure to, or otherwise be concealed from, U.S. tax authorities.

The undeclared U.S.-related accounts maintained at SB Saanen include one instance in 2011 where SB Saanen assisted a U.S. taxpayer-client in the transfer of securities from his undeclared account to that of a Jersey company with a non-U.S. person as its beneficial owner.  SB Saanen allowed the transfer of funds even though the Jersey corporation had not completed all required bank documents.  In January and March 2012, the U.S. accountholder closed his account and transferred an additional $4.3 million to an account at SB Saanen held in the name of his wife, who was not a U.S. citizen.

Since Aug. 1, 2008, SB Saanen maintained 110 U.S.-related accounts with a maximum aggregate value of approximately $62 million.  SB Saanen will pay a penalty of $1.365 million.

Privatbank Bellerive AG was founded in 1988, and its sole office is in Zurich.  Bellerive was aware that U.S. taxpayers had a legal duty to report to the IRS and pay taxes on all of their income, including income earned in accounts that these U.S. taxpayers maintained at the bank.  Bellerive knew that it was likely that some of its U.S. customers who maintained accounts at the bank were not complying with their tax and reporting obligations under U.S. law.  In two instances, U.S. accountholders, with the assistance of their external asset managers, created Panamanian corporations and paid a fee to third parties to act as directors.  The companies’ directors were two trust companies based in Panama.  Those third parties, at the direction of the U.S. accountholder, opened a bank account at Bellerive in the name of the entity.  Bellerive made no effort to determine whether such an entity was valid for U.S. tax purposes.  In those circumstances involving a non-U.S. entity, Bellerive was aware that a U.S. person was the true beneficial owner of the account.

Prior to Nov. 1, 2000, Bellerive required individuals subject to federal income tax under the U.S. Internal Revenue Code and who were beneficial owners of accounts to sign a “Form 1,” titled “W-9 Custodian Waiver.”  The “Form 1” contained two statements from which the beneficial owner could choose one option.  The first of the two options stated: “I would like to avoid disclosure of my identity to the U.S. tax authorities under the new tax regulations.  To this end, I declare that I expressly agree that my account shall be frozen for all new investments in U.S. securities as from November 1, 2000.”  Bellerive knew or had reason to know that the four U.S. accountholders who signed this option were engaged in tax evasion.

An internal Bellerive memorandum dated Sept. 16, 2008, from the then-head of Legal Compliance and Risk, stated that “all Swiss banks have set up the following rules for dealing with U.S. clients:

  • Absolutely no contact as long as the client is on U.S. territory, even if the contact has been initiated by the client, including phone calls, e-mails, etc.;
  • The client may only take up contact with the bank, if he is not in the United States;
  • Assets may only be managed via a discretionary mandate, or not at all (cash on current account); and
  • No mail correspondence allowed, hold mail agreements however are permitted.”

Bellerive had hold-mail agreements with its 20 U.S.-related accountholders both before and after the date of the memorandum.

Since Aug. 1, 2008, Bellerive maintained 20 U.S.-related accounts, comprising a total of $68.9 million in assets under management.  Bellerive will pay a penalty of $57,000.

In accordance with the terms of the Swiss Bank Program, each bank mitigated its penalty by encouraging U.S. accountholders to come into compliance with their U.S. tax and disclosure obligations.  While U.S. accountholders at these banks who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, the price of such disclosure has increased.

Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts.  On Aug. 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement.  With today’s announcement of these non-prosecution agreements, noncompliant U.S. accountholders at these banks must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.

Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division thanked the IRS, and in particular, IRS-Criminal Investigation and the IRS Large Business and International Division for their substantial assistance.  Ciraolo also thanked Thomas J. Sawyer and Michael N. Wilcove, who served as counsel on these matters, as well as Senior Litigation Counsel Nanette L. Davis of the Tax Division.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.

Miami-Area Pharmacy Owner Pleads Guilty to Role in $1.8 Million Medicare Fraud Scheme

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A Miami-area pharmacy owner pleaded guilty today for his role in the submission of more than $1.8 million in fraudulent claims to Medicare.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida, Special Agent in Charge George L. Piro of the FBI’s Miami Field Office and Special Agent in Charge Shimon R. Richmond of the U.S. Department of Health and Human Services Office of Inspector General’s (HHS-OIG) Miami Regional Office made the announcement.

Evelio Fernandez Penaranda, 47, of Miami, Florida, pleaded guilty before U.S. Magistrate Judge Chris M. McAliley of the Southern District of Florida to one count of health care fraud.  Sentencing has been scheduled for Oct. 8, 2015.

Penaranda owned Naranja Pharmacy Inc.  In connection with his guilty plea, Penaranda admitted that, between May 2013 and March 2014, Naranja Pharmacy submitted fraudulent claims to Medicare for prescription drugs that were not prescribed by physicians, not medically necessary and not provided to Medicare beneficiaries.  According to admissions made in connection with Penaranda’s guilty plea, Naranja Pharmacy submitted these false claims by obtaining and using the unique identifying information of Medicare beneficiaries and doctors without their consent.

Penaranda admitted that he controlled Naranja Pharmacy’s bank accounts, and that he transferred the payments received from Medicare to himself and his accomplices.  According to admissions made in connection with Penaranda’s plea, during the course of the scheme, Naranja Pharmacy submitted to Medicare over $1.8 million in false claims for prescription drugs, and Medicare paid 100 percent of the claims.

The case is being investigated by the FBI and HHS-OIG, and was brought as part of the Medicare Fraud Strike Force, under the supervision of the Criminal Division’s Fraud Section and the U.S. Attorney’s Office of the Southern District of Florida.  The case is being prosecuted by Trial Attorney Nicholas E. Surmacz of the Criminal Division’s Fraud Section.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged over 2,300 defendants who collectively have billed the Medicare program for over $7 billion.  In addition, the HHS Centers for Medicare & Medicaid Services, working in conjunction with the HHS-OIG, are taking steps to increase accountability and decrease the presence of fraudulent providers.

To learn more about the Health Care Fraud Prevention and Enforcement Team, go to: www.stopmedicarefraud.gov.

Fernandez Penaranda Plea Agreement

After Nearly 20 Years, International Fugitive in Multi-Million Dollar Fraud Scheme Apprehended in Greece and Extradited to United States to Serve Prison Sentence

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WASHINGTON – A former New York businessman, who disappeared the same day a federal jury sitting in the U.S. District Court in Newark, New Jersey, began deliberating in his tax evasion and fraud trial, was caught while in Greece more than 18 years after his conviction, and appeared in federal court in the District of New Jersey on Friday, July 17, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division.

Gideon Misulovin, 58, whose last known address was in New York City, was extradited from Greece to the United States to serve his 10-year prison sentence.  He has been incarcerated in the United States since his return on July 16.

On March 7, 1996, a jury convicted Misulovin of conspiracy to impede and impair the Internal Revenue Service (IRS) in the ascertainment and collection of more than $6.5 million in federal motor fuel excise taxes, wire fraud and money laundering stemming from a scheme to conceal the unpaid diesel fuel excise taxes from state and federal tax authorities.

During trial, Misulovin was free on $500,000 bail and attended each day of the trial.  He failed to appear in court March 4, 1996, for the parties’ closing arguments.  U.S. Senior District Judge Dickinson R. Debevoise of the District of New Jersey in Newark issued a warrant for his arrest.  On June 25, 1997, Judge Debevoise sentenced Misulovin in absentia to serve 10 years in prison and a three-year term of supervised release, and to pay a $150,000 fine.  The court also ordered Misulovin to pay restitution in the amount of $200,000 to the United States and $100,000 to the state of New Jersey.

The evidence at trial established that from 1988 through Jan. 31, 1993, Misulovin and his co-conspirators sold untaxed diesel fuel in a series of paper transactions using wholesale companies.  Some of the companies were shams and called “burn” or “butterfly” companies.  As part of the scheme, the sham company would assume the federal and state tax liability and then vanish, allowing the conspirators to keep the excise taxes they collected from truck stops and service stations.

The case, part of a then-nationwide motor fuel excise tax enforcement effort, was investigated jointly by the Motor Fuel Task Force and the U.S. Attorney’s Office of the District of New Jersey.  In an effort to infiltrate the bootleg gasoline industry, task force agents set up an undercover business called RLJ Management that competed directly with the defendants’ operation.

At the conclusion of the undercover operation, in November 1992, federal agents seized Misulovin’s assets, including approximately $70,000 in cash from his residence and $277,000 from his business bank account.

Misulovin’s co-defendant and co-conspirator, Arnold Zeidenfeld, of Brooklyn, New York, pleaded guilty prior to trial and testified for the government.  Gurmit Singh and Manbir Singh, of Matawan, New Jersey, who operated truck stops in southern New Jersey, also pleaded guilty for their roles in the scheme.

In August 2014, based on an Interpol Red Notice, Misulovin was detained in a Greek airport using an alias and traveling with an Israeli passport.  He was subsequently arrested pursuant to a U.S. request for a provisional arrest, and after contested extradition proceedings, was found extraditable in 2015.

The task force included attorneys from the Tax Division and agents from the IRS Criminal Investigation and Examination Divisions, the FBI, the U.S. Department of Transportation and the New Jersey State Department of Taxation and Finance.  Seth D. Uram, formerly a Trial Attorney in the Tax Division and now an Assistant U.S. Attorney in Portland, Oregon, and Trial Attorney Charles A. O’Reilly of the Tax Division prosecuted the case.

Acting Assistant Attorney General Ciraolo thanked the Department of Justice’s Office of International Affairs, the FBI’s New Jersey Field Office and the Greek Ministry of Justice for their assistance in apprehending and extraditing Misulovin.  Ciraolo also thanked the U.S. Attorney’s Office of the District of New Jersey for their substantial assistance.

Two New York Salesmen Sentenced to Prison in Business Opportunity Fraud Scheme

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Scheme Defrauded More than 330 Victims Across the Country

A federal judge in the Eastern District of New York sentenced two sales representatives to prison today for their roles in a vending machine business opportunity fraud scheme, the Department of Justice announced today.

Howard S. Strauss, 66, of Jericho, New York, was sentenced to serve 28 months in prison by U.S. District Court Judge Joan M. Azrack, who also ordered him to pay $2,291,844 in restitution to 230 victims.  Mark Benowitz, 68, of Midlothian, Virginia, was sentenced to serve 24 months in prison and ordered to pay $997,210 in restitution to 103 victims.

Both Strauss and Benowitz pleaded guilty last year to fraud charges in connection with Multivend LLC, doing business as Vendstar, a company based in Deer Park, New York, that sold vending machine business opportunities to consumers throughout the United States until 2010.  Strauss and Benowitz were Vendstar sales representatives who misrepresented the business opportunity’s likely profits, the amount of money that Vendstar’s prior customers were earning, how quickly customers were likely to recover their investment, the quality of locations that were available for the vending machines, and the level of location assistance that customers would receive from locating companies recommended by Vendstar.  Both Strauss and Benowitz also falsely told potential customers that they operated profitable candy vending machine routes themselves.

“These defendants promised the American dream, but knew that what they in fact were offering was a worthless business opportunity,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “The Department of Justice will continue to prosecute those who seek to scam out of everyday Americans the hard-earned money in their retirement accounts and life savings.”

Twenty-two individuals have been charged with fraud in connection with Vendstar, including Vendstar managers and sales representatives, and the operators of locating companies recommended by Vendstar.  Three of those defendants have now been sentenced; 13 defendants are awaiting sentencing; and six defendants are scheduled to stand trial in September.

Principal Deputy Assistant Attorney General Mizer commended the U.S. Postal Inspection Service for its thorough investigation.  The case is being prosecuted by Trial Attorneys Patrick Jasperse and Alan Phelps of the Civil Division’s Consumer Protection Branch.

Owner of Detroit Home Health Care Companies Sentenced to 80 Months in Prison for Role in $12.6 Million Fraud Scheme

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A Michigan resident was sentenced to 80 months in prison late yesterday for his leading role in a $12.6 million Medicare fraud and tax fraud scheme.  Eleven other individuals have been convicted in this case.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Barbara L. McQuade of the Eastern District of Michigan, Special Agent in Charge Paul M. Abbate of the FBI’s Detroit Field Office, Special Agent in Charge Lamont Pugh III of the U.S. Department of Health and Human Services-Office of Inspector General (HHS-OIG) Chicago Regional Office and Special Agent in Charge Jarod Koopman of the Internal Revenue Service-Criminal Investigation (IRS-CI) Detroit Field Office made the announcement.

Mohammed Sadiq, 67, of Oakland County, Michigan, pleaded guilty on March 13, 2015, to one count of health care fraud and one count of filing a false tax return.  In addition to imposing the prison term, U.S. District Judge Denise Page Hood of the Eastern District of Michigan ordered Sadiq to pay $14.1 million in restitution and entered a forfeiture judgment for the same amount, which represents the proceeds traceable to his criminal conduct.

Sadiq owned and directed operations at two home health care companies in Detroit.  In connection with his guilty plea, Sadiq admitted that, working with co-conspirators, he billed Medicare for home health services that were not provided.  Sadiq also admitted to paying kickbacks to patient recruiters in order to obtain the information of Medicare beneficiaries, which he then used to bill Medicare for services that were not medically necessary or were not provided at all.  Sadiq further admitted that he created fake patient files to fool a Medicare auditor by making it appear as if home health services were provided and medically necessary.  Medicare paid $12.6 million for these services.

In connection with his guilty plea, Sadiq also admitted that he received proceeds of the fraud through bank accounts that he controlled, that he withdrew substantial sums for his personal use and that he failed to report these amounts on his individual federal income tax return in 2008.  In total, Sadiq admitted that he owes approximately $1.5 million in taxes, interest and penalties for tax years 2008 through 2010.

This case was investigated by the FBI, HHS-OIG and IRS-CI, and was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office of the Eastern District of Michigan.  The case is being prosecuted by Trial Attorneys William Kanellis, Christopher Cestaro, Brooke Harper and Elizabeth Young of the Criminal Division’s Fraud Section, as well as Assistant U.S. Attorney Patrick Hurford of the Eastern District of Michigan.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged nearly 2,300 defendants who have collectively billed the Medicare program for more than $7 billion.  In addition, HHS’ Centers for Medicare & Medicaid Services, working in conjunction with HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.

CCC’s: Some Thoughts On Two Recent Cases

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by Robert Connolly

There are two recent cases that got me thinking a bit, and for what its worth, I’ll pass along those thoughts.

7th Circuit Affirms Downward Departure to Sentence of Probation

The first case is a sentencing case in the Seventh Circuit, U.S. v Warner, No. 14-1330 (7th Cir. July 10, 2015). Warner, the billionaire creator of Beanie Babies, evaded $5.6 million in U.S. taxes by hiding assets in a Swiss bank account. He pled guilty to one count of tax evasion, made full restitution, and paid a $53.6 million civil penalty. Warner had a plea agreement with an agreed upon level of 23 with a range of 46-57 months.   Each side was free to argue for an appropriate sentence. The government sought incarceration in excess of a year and a day. But the district court judge gave Warner a more lenient sentence: two years’ probation with community service, plus a fine. The district court found, among other findings, that “Mr. Warner’s private acts of kindness, generosity and benevolence are overwhelming.” Moreover, many of them took place long before Warner knew he was under investigation; the court found they were “motivated by the purest of intentions” and “without a view toward using [them] at sentencing.” The government appealed, arguing the sentence was unreasonable because there was no term of incarceration to reflect the seriousness of the offense and to avoid sentencing disparity.

The Court of Appeals upheld the sentence imposed by the district court finding that the District Court followed the appropriate sentencing procedure and made the required findings. The other question was whether the district court findings were reasonable and supported by the evidence. The Seventh Circuit noted that the advisory guidelines range is but a starting point. The appellate decision is lengthy, discussing at length the requirements of 18 USC Section § 3553(a) factors to be weighed in determining a sentence that is “sufficient but not greater than necessary.” The Court concluded: “District courts enjoy broad discretion to fashion an appropriate, individualized sentence in light of the factors in 18 U.S.C. § 3553(a). The court here did not abuse its discretion. Rather, it fully explained and supported its decision and reached an outcome that is reasonable under the unique circumstances of this case. We therefore affirm Warner’s sentence.”

District courts are often receptive to argument for departure from draconian, mechanical guidelines sentences that take no account of the individuals characteristics of the defendant. I wold file this decision and use as an excellent roadmap to follow for any defense lawyer seeking a below guideline range, particularly if it is a significant departure requesting no incarceration.

The Spiderman Case Discussion of Antitrust Precedent

In Kimble v. Marvel Entertainment the sole question presented was whether the Supreme Court should overrule a patent/royalty precedent. “Adhering to principles of stare decisis, we decline to do so.”  The Court noted that stare decisis would have received less deference had the issue been application of the Sherman Act, noting that Congress “intended [the Sherman Act’s] reference to ‘restraint of trade’ to have ‘changing content,’ and authorized courts to oversee the term’s ‘dynamic potential.’” As a result, the Court has “felt relatively free to revise our legal analysis as economic understanding evolves.” The dissent agreed, saying, “we have been more willing to reexamine antitrust precedents because they have attributes of common-law decisions.” My fellow blogger, Steve Cernak, wrote an article, “Three Antitrust Precedents Ripe for Overturning,” identifying three antitrust precedents that may no longer merit deference: 1) baseball’s antitrust exemption; 2) the per serule as applied to tying cases; and 3) Philadelphia National Bank’s holding that merger is presumptively anticompetitive if it results in an undue share of the market and significant increase in concentration.  Steve has written an interesting article (but subscription required).

The Supreme Court spoke more at length about the antitrust precedent and the per se rule in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), where the Court overturned 100 years of precedent in ruling that vertical price-fixing was to be judged under the rule of reason instead of being condemned as per se illegal. In Leeginthe Court said:

Stare decisis is not as significant in this case, however, because the issue before us is the scope of the Sherman Act. Khan, supra, at 20 (“[T]he general presumption that legislative changes should be left to Congress has less force with respect to the Sherman Act”). From the beginning the Court has treated the Sherman Act as a common-law statute. See National Soc. of Professional Engineers v. United States, 435 U. S. 679, 688 (1978); see also Northwest Airlines, Inc. v. Transport Workers, 451 U. S. 77, 98, n. 42 (1981) (“In antitrust, the federal courts . . . act more as common-law courts than in other areas governed by federal statute”). Just as the common law adapts to modern understanding and greater experience, so too does the Sherman Act’s prohibition on “restraints] of trade” evolve to meet the dynamics of present economic conditions.

How does this relate to cartels?  I’d add one other antitrust precedent that maybe due for a tweaking: the per se rule in criminal antitrust cases. Recently I wrote an article that was published in ANTITRUST magazine titled: Per Se “Plus:” A Proposal to Revise the Per Se Rule in Criminal Antitrust Cases.  (ABA subscription required). The basic theme of the article is that the penalties for a criminal violation of the Sherman Act have escalated so dramatically that the per se rule is no longer a fair standard of culpability. When the per se rule was first articulated inUnited States v. Socony Vacuum, the most severe penalty imposed on any of the individual defendants was a fine of $1,000. The Sherman Act was a misdemeanor (up to 6 months) but until modern times, jail was merely a theoretical possibility. Today, individual defendants are subject to up to ten years in prison (and the Antitrust Division has strongly argued for this sentence in several cases.) Also, indicted foreign defendants are placed on Red Notices and subject to arrest, detention and possible extradition anywhere in the world. There are also severe immigration consequences that limit an international business executives’ ability to remain employed. Despite the severe sanctions, juries are still charged that “good intentions” and even “good results” are irrelevant if the jury finds an agreement to fix prices was reached. Further, ignorance of the law is no defense. In the article I argue that the per se rule should be modified in a criminal case so that the government must prove beyond a reasonable doubt that the defendants in someway deceived or misled customers into believing there was competition when in fact there was an agreement to fix prices. This deception proves a “bad” intent. What makes price-fixing an unreasonable restraint of trade is not the price level, but an agreement that deceives customers (or sellers) into believing market forces set prices, when in fact secret collusion was at work. Price is the “central nervous system” of the economy, and when buyers do not know that the price was set by collusion, the free market is restrained.   (Where buyers know of the restraint i.e. an open joint venture, the agreement may restrain competition, but the agreement is judged under a rule of reason standard.)

It may well be that the per se rule against price-fixing, even in a criminal case, will be the one per se rule endures for as long as the Sherman Act does. But, I think the issue is worth considering. If you don’t subscribe to ANTITRUST and would like a copy of the article, please email me at[email protected], or give me a call at (215) 219-4418. This is an area of continued interest to me and I would greatly appreciate any feedback or other comments.

Thanks for reading.

 

Army Reserve Staff Sergeant Pleads Guilty to Bulk Cash Smuggling and Theft of Government Property While Serving in Afghanistan

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A Fort Buchanan Army Reserve Staff Sergeant pleaded guilty today to bulk cash smuggling of $113,050 and theft of government property worth $6,302 while serving in Afghanistan.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Rose Emilia Rodriguez-Velez of the District of Puerto Rico, Special Agent in Charge Carlos Cases of the FBI’s San Juan Division Field Office, Special Agent in Charge Gary J. Hartwig of U.S. Immigration and Customs Enforcement Homeland Security Investigations (ICE-HSI) Chicago Field Office, Special Inspector General for Afghanistan Reconstruction John F. Sopko, Director Frank Robey of the U.S. Army Criminal Investigation Command’s (CID) Major Procurement Fraud Unit, Acting Special Agent in Charge Paul Sternal of the Defense Criminal Investigative Service’s (DCIS) Mid-Atlantic Field Office and Brigadier General Keith M. Givens, Commander of the Air Force Office of Special Investigations (AFOSI) made the announcement.

Luis Ramon Casellas, 42, of Canovanas, Puerto Rico, pleaded guilty before U.S. Magistrate Judge Camille L. Velez-Rive of the District of Puerto Rico to three counts of bulk cash smuggling and one count of theft of government property.  Sentencing before U.S. District Judge Carmen Consuelo Cerezo of the District of Puerto Rico will be scheduled at a later date.

Since 2009, Casellas has been an Army Reservist Staff Sergeant on active status based at Fort Buchanan in Guaynabo, Puerto Rico.  In April 2013, Casellas was deployed by the Army to Kandahar Airfield in Afghanistan.  As part of his duties, Casellas was responsible for helping to break down smaller bases in preparation for the withdrawal of U.S. military forces from Afghanistan.  These duties included retrieving U.S. government property for future use and selling unsuitable material as scrap to Afghan contractors.

Between June 17 and Aug. 9, 2013, Casellas was the leader of a three-person Army team that went to a Forward Operating Base (FOB) in Afghanistan to help break down that base.  In connection with his plea, Casellas admitted that, while this team was at the FOB, he stole tools and equipment, including laptops, belonging to the U.S. Department of Defense.  Casellas also admitted that, in July 2013, Casellas sent approximately eight boxes from the FOB through the U.S. Postal Service addressed to his wife in Puerto Rico, and that the boxes contained some of the stolen government property and undeclared U.S. currency totaling $50,500.

In addition, in August 2013, Casellas sent two boxes from Kandahar through UPS, again addressed to his wife, that were marked as “gifts for family.”  In connection with his plea, Casellas admitted that, although he declared that the items inside the boxes were valued at $700 and $400, respectively, one box contained some of the stolen government property as well as $41,750 in U.S. currency, and the other box contained $20,800 in U.S. currency.  These boxes were intercepted by U.S. Customs in Louisville, Kentucky.

This case was investigated by the Special Inspector General for Afghanistan Reconstruction, the FBI, ICE-HSI, Army CID, DCIS and AFOSI.  This case is being prosecuted by Trial Attorney Daniel P. Butler of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Julia M. Meconiates of the District of Puerto Rico.

 

Three Owners and CEO of Contracting Company Indicted for Bribing Army National Guard Colonel

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Three owners and the CEO of a government contracting company headquartered in Falls Church, Virginia, all of whom are retired Army National Guard colonels, were indicted today for their alleged participation in a scheme to bribe an active-duty Army National Guard colonel in order to obtain millions of dollars of Army National Guard marketing, retention and recruitment contracts.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Dana J. Boente of the Eastern District of Virginia, Assistant Director in Charge Andrew G. McCabe of the FBI’s Washington, D.C., Field Office, Acting Special Agent in Charge Paul Sternal of the Defense Criminal Investigative Service (DCIS) Mid-Atlantic Field Office and Director Frank Robey of the U.S. Army Criminal Investigative Command’s Major Procurement Fraud Unit (Army-CID) made the announcement.

“As alleged in the indictment, four retired colonels have been charged with using their corporate marketing firm to funnel bribe payments to high-ranking accomplices in the Army National Guard to corruptly obtain lucrative marketing contracts,” said Assistant Attorney General Caldwell.  “This case is emblematic of the Criminal Division’s ongoing efforts to root out corruption wherever it may be found, including at the highest ranks of our armed services.”

“These criminal charges reflect our continued commitment to rooting out public corruption wherever it occurs,” said U.S. Attorney Boente.  “The public contracting process should be one of integrity and fairness, and these cases should send a strong message that public corruption will be vigorously prosecuted in the military as well as other areas of government.”

“The FBI’s top criminal priority is investigating and stopping corrupt officials and the organizations they do business with,” said Assistant Director in Charge McCabe.  “These indictments outline a significant bribery scheme that undermined a fair government contracting process.”

“The actions of the defendants have brought them dishonor and erode confidence in the integrity of a contracting process intended to support their fellow citizen soldiers,” said Acting Special Agent in Charge Sternal.  “The Defense Criminal Investigative Service, alongside its law enforcement partners and the U.S. Attorney’s Office, remain vigilant and committed to bringing individuals who subvert the acquisition system to justice.”

“Today’s indictment illustrates our commitment and cooperation shared between law enforcement agencies investigating this type of corruption and bribery,” said Director Robey.  “It is unconscionable how these former military officers betrayed the offices they once held for monetary gain.”

Edwin Stuart Livingston III, 67, of The Villages, Florida; Ronald Joseph Tipa, 68, of Sunny Isles Beach, Florida; Thomas Edward Taylor, 66, of Alexandria, Virginia; and Ross Bernard DeBlois Sr., 55, of Fairfax Station, Virginia, are each charged by indictment with one count of conspiracy to commit bribery, one count of bribery of a public official, one count of conspiracy to commit honest services fraud and five counts of honest services fraud.

According to the indictment, Livingston, Tipa, Taylor and John Jones, 77, a retired brigadier general from the New York Army National Guard, each owned 25 percent of MPSC and constituted MPSC’s Board of Directors.  DeBlois was the company’s CEO.

The National Guard Bureau (NGB) is a joint activity of the U.S. Department of Defense (DOD), the state units of the Army National Guard and the Departments of the Army and Air Force.  The NGB oversees the distribution of federal funding provided to the Army National Guard and its state units.

The DOD provides millions of dollars in federal funds to the NGB for, among other things, advertising, marketing and sponsorships in order to recruit new Army National Guard members.  The NGB then uses these funds to promote the Army National Guard on a national level by entering into marketing contracts.

According to the allegations in the indictment, in 2010 or 2011, Livingston and Tipa offered Robert Porter, 50, who then was an active-duty colonel in the Army National Guard who held a high-level position at the NGB, a deal in which MPSC would pay Porter 1 percent of the value of all contracts he steered to MPSC.  The indictment alleges that Porter was to receive the bribe payment after he retired from the NGB and began working for MPSC, and that the payment was to be concealed as an “incentive fee” or “bonus” payment in MPSC payroll records.

According to the indictment, during 2011 and 2012, Porter allegedly steered at least three NGB marketing contracts to MPSC, which were worth a total of approximately $5.5 million.  The indictment alleges that, during a July 2014 meeting of MPSC’s board of directors, DeBlois confirmed that three contracts were awarded to MPSC while Porter was “in uniform.”  Thereafter, Livingston, Tipa, Taylor and Jones allegedly unanimously voted to make the promised bribe payment to Porter.  The indictment further alleges that, between July and September 2014, MPSC made three payments to Porter, each for over $10,000.

In September 2014, Porter pleaded guilty to conspiracy to commit bribery and bribery of a public official, and in February 2015, Jones pleaded guilty to conspiracy to commit bribery and bribery of a public official in connection with this scheme.

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

The case was investigated by the FBI’s Washington Field Office, DCIS Mid-Atlantic Field Office and Army-CID’s Major Procurement Fraud Unit.  The case is being prosecuted by Trial Attorney Alison L. Anderson of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Jonathan Fahey of the Eastern District of Virginia.

Individuals with information regarding bribery or corruption within the NGB’s retention and recruitment contracting process or at MPSC should contact the FBI’s Washington Field Office at (202) 278–2000.