Monthly Archives: August 2015

Ambulance Company Owner, Operator and Managers Found Guilty in Medicare Fraud Conspiracy

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A federal jury in Los Angeles late yesterday convicted the former owner, operator and managers of a Southern California ambulance company of health care fraud charges in connection with a Medicare fraud scheme of at least $2.4 million.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Eileen M. Decker of the Central District of California, Acting Special Agent in Charge Steve Ryan of the U.S. Department of Health and Human Services Office of the Inspector General (HHS-OIG) Los Angeles Region and Assistant Director in Charge David Bowdich of the FBI’s Los Angeles Division made the announcement.

Yaroslav Proshak, aka Steven Proshak, 47, of Valley Village, California; Emilia Zverev, 58, of Van Nuys, California; and Sharetta Michelle Wallace, 37, of Inglewood, California, each were convicted of one count of conspiracy to commit health care fraud and five counts of health care fraud following a two-week trial.  Proshak’s sentencing is scheduled for Nov. 24, 2015, and Zverev’s and Wallace’s sentencing is scheduled for Nov. 30, 2015, all before U.S. District Judge S. James Otero of the Central District of California, who presided over the trial.

Proshak owned and operated ProMed Medical Transportation, an ambulance transportation company in the greater Los Angeles area that provided non-emergency ambulance transportation services to Medicare beneficiaries, many of whom were dialysis patients.  Zverev was the billing manager, and Wallace supervised ProMed’s emergency medical technicians (EMTs).

The evidence at trial demonstrated that, between May 2008, and October 2010, the defendants conspired to bill Medicare for ambulance transportation services for individuals whom the defendants knew did not need such services.  In addition, the evidence showed that the defendants instructed EMTs who worked at ProMed to conceal the true medical conditions of patients they were transporting by altering requisite paperwork and creating fraudulent documents to justify the transportation services.

According to evidence admitted at trial, during the course of the conspiracy, ProMed submitted at least $2.4 million in false and fraudulent claims to Medicare for medically unnecessary transportation services.  Medicare paid at least $1.2 million of those claims.

The case 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 for the Central District of California.  The case was investigated by the FBI and HHS-OIG.  The case was prosecuted by Trial Attorneys Blanca Quintero, Fred Medick and Ritesh Srivastava 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 more than 2,300 defendants who have collectively billed the Medicare program for more than $7 billion.  In addition, HHS’s Centers for Medicare & Medicaid Services, working in conjunction with HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.

U.S. CITIZEN SENTENCED IN CONNECTION WITH COSTA RICA-BASED BUSINESS OPPORTUNITY FRAUD VENTURES

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A U.S. citizen charged in connection with the operation of a series of fraudulent business opportunities based in Costa Rica was sentenced to prison today in Miami, the Justice Department announced.

John White, aka Gregory Garrett, was sentenced by U.S. District Court Judge Patricia A. Seitz of the Southern District of Florida to serve 70 months in prison and five years of supervised release.  White was also ordered to pay $6,412,006.19 in restitution.  White is one of 12 defendants charged in connection with a series of business opportunity fraud ventures that operated in Costa Rica.  Nine of those other defendants have been convicted in the United States with sentences ranging from three to 16 years in prison and the two remaining defendants are not yet in the custody of the United States.

“The defendants in this scheme promised victims the American dream while knowing they in fact were being ripped off,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “We will continue to prosecute those who would deprive Americans of their savings just so they can make a quick buck.”

White was indicted by a federal grand jury in Miami on Nov. 29, 2011, arrested in Costa Rica in 2012, extradited to the United States in 2015 and pleaded guilty on April 29, 2015, to one count of conspiracy to commit mail and wire fraud in connection with the business opportunity scheme.

As part of his guilty plea, White admitted that from 2005 to 2008, he and his co-conspirators fraudulently induced individuals in the United States to buy business opportunities in USA Beverages Inc., Twin Peaks Gourmet Coffee Inc., Cards-R-Us Inc., Premier Cards Inc. and The Coffee Man Inc.  White and his co-conspirators claimed that these opportunities would allow purchasers to sell coffee or greeting cards from display racks located at other retail establishments.  The business opportunities cost thousands of dollars each, with most purchasers paying at least $10,000.  Each company operated for several months and after one company closed, the next opened.

White admitted that the conspiracy used various means to make it appear to potential purchasers that the businesses were located entirely in the United States.  The companies used bank accounts, office space and other services in the Southern District of Florida and elsewhere.  In reality, White and his co-conspirators operated out of call centers in Costa Rica.

White admitted that he and his co-conspirators made numerous false statements to potential purchasers of the business opportunities, including that purchasers likely would earn substantial profits; that prior purchasers of the business opportunities were earning substantial profits; that purchasers would sell a guaranteed minimum amount of merchandise, such as greeting cards and beverages; and that the business opportunity worked with locators familiar with the potential purchaser’s area who would secure or had already secured high-traffic locations for the potential purchaser’s merchandise stands.  Potential purchasers also were falsely told that the profits of the companies were based in part on the profits of the business opportunity purchasers, thus creating the false impression that the companies had a stake in the purchasers’ success and in finding good locations.

As alleged in the indictment against White and others, the companies employed various types of sales representatives, including fronters, closers and references.  A fronter spoke to potential purchasers when the prospective purchasers initially contacted the company in response to an advertisement.  A closer subsequently spoke to potential purchasers to close deals and references spoke to potential purchasers about the financial success they had purportedly experienced since purchasing one of the business opportunities.  The companies also employed locators, who were typically characterized by the sales representatives as third parties who worked with the companies to find high-traffic locations for the prospective purchaser’s merchandise display racks.  White admitted that he worked as a fronter and reference using aliases.

“This international and domestic investigation shows the Postal Inspection Service’s resolve to protect Americans from business opportunity scams,” said Postal Inspector in Charge Ronald Verrochio of the U.S. Postal Inspection Service (USPIS) Miami Division.

Principal Deputy Assistant Attorney General Mizer commended the investigative efforts of USPIS.  The case is being prosecuted by Trial Attorney Alan Phelps of the Civil Division’s Consumer Protection Branch.

Former Executive Pleads Guilty to Conspiring to Bribe Panamanian Officials

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A former regional director of SAP International Inc. pleaded guilty today to conspiracy to violate the Foreign Corrupt Practices Act (FCPA) by participating in a scheme to bribe Panamanian officials to secure the award of government technology contracts for SAP.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Melinda Haag of the Northern District of California, Special Agent in Charge George L. Piro of the FBI’s Miami Division and Acting Special Agent in Charge Thomas McMahon of the Internal Revenue Service-Criminal Investigation (IRS-CI) made the announcement.

Vicente Eduardo Garcia, 65, of Miami, pleaded guilty to a one-count information charging him with conspiracy to violate the anti-bribery provisions of the FCPA.  Sentencing before Senior U.S. District Court Judge Charles R. Breyer of the Northern District of California is scheduled for Dec. 16, 2015.

According to plea documents, in late 2009, SAP sought a multi-million dollar contract to provide a Panamanian state agency with a technology upgrade package.  In connection with his guilty plea, Garcia admitted that, to secure the contract, he conspired with others, including advisors and consultants to SAP, to pay bribes to two Panamanian government officials, as well as to the agent of a third government official (with the understanding that at least a portion of the money would be transmitted to the third official).  According to Garcia’s admissions, the conspirators used sham contracts and false invoices to disguise the true nature of the bribes.  Garcia further admitted that he believed paying such bribes was necessary to secure both the initial contract and additional Panamanian government contracts.

Ultimately, SAP’s Panamanian channel partner secured the technology upgrade contract for $14.5 million, which included $2.1 million in SAP software licenses.  Soon thereafter, the Panamanian government awarded SAP’s channel partner additional contracts that included the provision of SAP products.

The investigation is being conducted by FBI and the IRS-CI.  The Criminal Division’s Office of International Affairs and the Securities and Exchange Commission’s Division of Enforcement, which separately announced civil charges against Garcia, provided assistance.  The case is being prosecuted by Trial Attorney Aisling O’Shea of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Adam A. Reeves of the Northern District of California.

Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.

Remarks at a Press Conference Announcing Major Enforcement Charges Involving a Massive Hacking Trading Scheme

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Chair Mary Jo White

Newark, New Jersey

Aug. 11, 2015

Good morning. Thank you, U.S. Attorney Paul Fishman, for inviting me to be here today. I congratulate all of the law enforcement agencies represented for their extraordinary efforts on this groundbreaking case to safeguard the integrity of our markets.

I will just briefly comment on the securities law violations alleged in the SEC’s complaint, which shows how cutting-edge and important this case is. It also illustrates the risks posed for our global markets by today’s sophisticated hackers.

While the SEC has uncovered and successfully litigated hacking and trading schemes in the past, today’s international case is unprecedented in terms of the scope of the hacking at issue; the number of traders involved; the number of securities unlawfully traded; and the amount of profits generated. Over the course of 5 years, the 32 defendants named in this complaint are charged with carrying out a brazen scheme to steal non-public earnings information for hundreds of publicly traded companies, and then placing thousands of trades through a network of U.S. and overseas traders located in the Russian Federation, Ukraine, Malta, Cyprus, France, New York, Pennsylvania and Georgia—geographies electronically connected by this illicit network.

According to the complaint, these traders located across the globe executed thousands of illicit trades on the basis of this material, nonpublic information, concealing their scheme by spreading the transactions across multiple accounts held in the names of many individuals and entities. And, the traders were market savvy, using equities, options and contracts-for-differences to maximize their profits.

Two Ukrainian hackers are charged with spearheading the scheme, Ivan Turchynov and Okelsandr Ieremenko. Along with the 30 other defendants, they are collectively alleged to have made more than $100 million in illegal profits by trading based on pre-release corporate earnings announcements stolen from multiple newswire services. We charged these defendants in a complaint unsealed today with multiple securities fraud violations, seeking disgorgement and penalties, and we obtained an asset freeze against the overseas traders, which secured at least $20 million of the defendants’ ill-gotten gains. And the SEC’s investigation continues.

The complaint charges that Turchynov and Ieremenko used malicious programming code and other deceptive techniques to hack into the computer systems of multiple newswire services that stored unpublished corporate earnings announcements. These announcements were slated for public release at a prescheduled date and time, and the hackers took advantage of the time gap. According to the complaint, the two primary hackers brazenly recruited traders with a video showcasing the hackers’ ability to steal and transmit earnings information before its public release.

This case highlights a number of important points. It demonstrates the enhanced trading surveillance and analysis capabilities that the SEC has developed over the last few years. It also highlights our use of market experts with specialized skills and experience. We now have new technological tools and investigative approaches that allow us not only to pinpoint suspicious trading across multiple securities but also to identify relationships among traders. The SEC’s Enforcement Division sorted through literally millions of trades, thousands of earnings announcements and gigabytes of data on IP addresses in order to identify these defendants who went to great lengths to evade detection, often identifying these traders based on their patterns of trading. With these enhanced capabilities, we are now more capable than ever of rooting out even the most sophisticated of trading schemes. Maintaining the integrity of our high-tech markets requires that kind of regulatory expertise and vigilance to match the sophisticated trading and market manipulation we see in the markets.

Today’s case also serves as a stark reminder to companies that your computer systems are vulnerable targets. Be vigilant in protecting your systems, taking measures to detect and guard against hacking, and working together with law enforcement to uncover the theft and misuse of stolen information.

Today’s case also highlights the SEC’s continued partnership with the criminal authorities in investigating securities law violations, including misconduct that crosses international borders. Each of us brings to bear the unique tools, expertise and remedies that we have and together we are able to bring innovative cases like this one which serve as a stronger deterrent to unlawful conduct.

The work of everyone involved in this investigation, from every agency, has been extraordinary. For the SEC, I want to recognize our Market Abuse Unit, the Complex Financial Instruments Unit, the Home Office staff in D.C., as well as the Denver and Philadelphia regional office staffs, together with the Division of Economic and Risk Analysis and Office of International Affairs, who all worked tirelessly on this matter. The SEC staff’s expertise and unwavering dedication are essential to the protection of our markets and investors. I will end by recognizing and thanking all of our law enforcement partners, as always, for their outstanding work and cooperation in this investigation.

INDIVIDUAL CONVICTED OF CONSPIRACY AND MONEY LAUNDERING FOR ROLE IN COSTA RICAN TELEMARKETING SCHEME

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An Ohio man was convicted yesterday after a two-day jury trial in the Western District of North Carolina for his role in a Costa Rican telemarketing scheme.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and Acting U.S. Attorney Jill Westmoreland Rose of the Western District of North Carolina made the announcement.

Paul Ronald Toth Jr., 40, of Wintersville, Ohio, was convicted of one count of conspiracy to commit money laundering and six counts of international money-laundering concealment.  Sentencing before U.S. District Judge Robert J. Conrad Jr. of the Western District of North Carolina will be scheduled at a later date.

According to the evidence presented at trial, Toth was involved in a telemarketing scheme in which his co-conspirators contacted U.S. residents from call centers in Costa Rica, falsely informing them that they had won substantial cash prizes in “sweepstakes.”  To claim the cash prizes, the victims – many of whom were elderly – were instructed to send a purported “refundable insurance fee.”

The trial evidence showed that, between approximately November 2009 and November 2010, Toth was a United States-based “smasher” who facilitated the laundering of funds received from the elderly victims.  Specifically, according to the evidence presented at trial, Toth and others he recruited and supervised received over $300,000 from victims and, using various individuals as senders and recipients to conceal the fraudulent nature of the transactions, wired over $200,000 of those funds to co-conspirators in Costa Rica.  The evidence further demonstrated that Toth kept the remainder as his profit.

This case is being investigated by the U.S. Postal Inspection Service, the FBI, the Internal Revenue Service, Federal Trade Commission and Department of Homeland Security.  The case is being prosecuted by Senior Litigation Counsel Patrick Donley and Trial Attorneys William Bowne and Anna Kaminska of the Criminal Division’s Fraud Section.

FORMER NATIONAL GEOSPATIAL-INTELLIGENCE AGENCY OFFICIAL PLEADS GUILTY TO MAKING FALSE STATEMENTS

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A former National Geospatial-Intelligence Agency (NGA) official pleaded guilty to making false statements to federal investigators regarding his financial interest in a private company.

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 Inspector General for Investigations Patricia C. Langford of NGA and Acting Special Agent in Charge Paul Sternal of the Defense Criminal Investigative Service (DCIS) Mid-Atlantic Field Office made the announcement.

Brian P. Hearing, 43, of Falls Church, Virginia, pleaded guilty before U.S. District Judge T. S. Ellis III of the Eastern District of Virginia to an information charging him with making material false statements to federal investigators.

According to the statement of facts filed along with his plea agreement, Hearing worked at NGA from 2011 to 2015 in its Innovision Directorate, an applied science and technology research group.  Hearing admitted that, during this time, he also co-founded a private company for the purpose of developing and commercializing a certain type of automated detection system.  Hearing also admitted that he inappropriately used his position with the NGA to promote the company.

In connection with his guilty plea, Hearing also admitted that, when questioned by federal agents about his involvement with the company, he lied to conceal his conflict of interest.  Among other things, Hearing admitted to falsely claiming that another individual was the only founder of the company and to denying having any legal or financial connections to the company when, in fact, he co-founded the company and shared equal ownership of it.

This case was investigated by the NGA-OIG and the DCIS.  The case is being prosecuted by Trial Attorney Heidi Boutros Gesch of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney Paul J. Nathanson of the Eastern District of Virginia.

FORMER DIRECTOR OF VIRGIN ISLANDS PUBLIC FINANCE AUTHORITY AND OTHERS CHARGED WITH CONSPIRACY AND BRIBERY

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Three Virgin Islands men were charged in an indictment unsealed today with various offenses based on their participation in a bribery scheme involving over $17 million in construction contracts awarded by the Virgin Islands Public Finance Authority (VIPFA).

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Ronald W. Sharpe of the District of the Virgin Islands, Special Agent in Charge Carlos Cases of the FBI’s San Juan, Puerto Rico, Division, Virgin Islands Inspector General Steven Van Beverhoudt and Special Agent in Charge Kelly R. Jackson of the Internal Revenue Service-Criminal Investigation (IRS-CI) made the announcement.

Julito Francis, 53, former Director of Finance and Administration for the VIPFA, is charged with 11 counts of conspiracy, bribery, extortion under color of official right, honest services wire fraud and perjury.  Gerard Castor, 69, president and owner of Balbo Construction Corporation, is charged with 10 counts of conspiracy, bribery and honest services wire fraud.  John Woods, 59, co-principal of an architectural company that worked on behalf of the VIPFA, is charged with three counts of conspiracy, bribery and extortion under color of official right.

Francis, Castor and Woods were arrested earlier today and appeared before U.S. Magistrate Judge Ruth Miller of the District of the Virgin Islands.  The defendants were released pending an August 12 arraignment.

According to the indictment, Castor provided more than $400,000 in improvements to Francis’ personal residence, and over $10,000 in improvements to Woods’ personal property.  In    return, Francis and Woods used their official positions to ensure that Balbo Construction was awarded construction contracts by the VIPFA that were worth over $17 million, including a multi-million contract, and supplements thereto, to build the St. Thomas Regional Library.  The indictment further alleges that the defendants attempted to conceal the bribery scheme by creating false documents that suggested Francis and Woods intended to pay Castor for the work performed.

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

This case is being investigated by the FBI’s San Juan Division, St. Thomas Resident Agency, the Virgin Islands Office of the Inspector General and IRS-CI.  This case is being prosecuted by Trial Attorneys Laura Fulton and Justin D. Weitz of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney Nelson Jones of the District of the Virgin Islands.  Deputy Chief Tracee Plowell of the Criminal Division’s Office of Enforcement Operations and Trial Attorney Jennifer Blackwell of the Environment and Natural Resources Division’s Environmental Crimes Section participated in the investigation when they were assigned to the Public Integrity Section.

Four Men Charged with Trafficking in Pet Products with Counterfeit Labels

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An indictment was recently unsealed in Houston charging four men with various offenses based on their roles in smuggling pet products with counterfeit labels into the United States.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Kenneth Magidson of the Southern District of Texas, Special Agent in Charge Catherine A. Hermsen of the Food and Drug Administration – Office of Criminal Investigations (FDA-OCI) Kansas City, Missouri, Field Office and Special Agent in Charge Brian M. Moskowitz of the U.S. Immigration and Customs Enforcement Homeland Security Investigations’ (HSI) Houston Field Office made the announcement.

Iain Nigel MacKellar, 58, of England; Lam Ngoc Tran, aka Mark Tran, 40, of Fountain Valley, California; Allen Smith, 49, of Phoenix; and William Humphreys, 58, of Laguna Hills, California, were indicted on July 9, 2015.  They are charged with conspiracy to commit wire fraud, mail fraud and trafficking in counterfeit labels, and smuggling goods into the United States.  Mackellar and Tran also are charged with additional counts of wire fraud, mail fraud, trafficking in counterfeit labels and smuggling.  The defendants were suspected members of one of the largest known groups of importers of counterfeit packaged pet products.

Smith turned himself in to authorities this morning and made his initial appearance before U.S. Magistrate Judge Mary Milloy.  Humphreys and Tran were taken into custody in Phoenix and in California, respectively.  Tran made his initial appearance in Houston on July 29, while Humphreys is set to appear tomorrow before Judge Milloy.  MacKellar is considered a fugitive and a warrant remains outstanding for his arrest.

The indictment alleges the defendants smuggled veterinary products that were not manufactured for the U.S. market into the United States for distribution under false labels, including Frontline and Frontline Plus pesticides manufactured by Merial Pharmaceutical Company (Merial).  In some cases, the defendants allegedly imported the products into the U.S. under the pretense that the products were destined for use by charitable organizations, but instead distributed the products to large retail outlets for commercial sale, according to the indictment.

Merial did not participate in or authorize the alleged unlawful conduct.  All known counterfeit veterinary products have been removed from store shelves.

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

This case is being investigated by the FDA-OCI, HSI and the Environmental Protection Agency.  The case is being prosecuted by Assistant Deputy Chief John H. Zacharia of the Criminal Division’s Computer Crime and Intellectual Property Section (CCIPS) and Assistant U.S. Attorneys Jennifer Lowery and Kebharu Smith of the Southern District of Texas.  The U.S. Attorney’s Office of the Central District of California and the CCIPS Cybercrime Lab provided significant assistance.

Former Alabama Jail Employee Sentenced for Stealing Identities as Part of Tax Refund Fraud Scheme

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A Troy, Alabama, man was sentenced to prison today in U.S. District Court for the Middle District of Alabama for his involvement in a stolen identity tax refund fraud scheme, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Department of Justice’s Tax Division and U.S. Attorney George L. Beck Jr. of the Middle District of Alabama.

Devon Tucker, 31, a former jailer of the Troy Police Department at the city jail, pleaded guilty earlier this year to one count of conspiracy to defraud the United States and one count of aggravated identity theft.  U.S. District Judge Callie V.S. Granade sentenced Tucker to serve 32 months in prison and three years of supervised release, and ordered him to pay $13,162 in restitution to the Internal Revenue Service (IRS).

According to court documents, from January 2014 to January 2015, Tucker stole the personal identification information of approximately 150 individuals who were processed into the Troy city jail.  Tucker provided those identities to his co-conspirators for the purpose of filing false federal income tax returns claiming fraudulent refunds from the U.S. Treasury.  Tucker was paid in pre-paid debit cards in the names of the identity theft victims for his involvement in the scheme.

“The Tax Division will vigorously pursue and prosecute government employees who abuse their positions by exploiting their access to personal information to victimize members of the community and steal from the U.S. Treasury,” said Acting Assistant Attorney General Ciraolo.

“It is always a sad day when a law enforcement officer sworn to uphold the law, takes advantage of his position for his own personal gain,” stated U.S. Attorney Beck.  “This district will continue to vigorously prosecute those who steal identities and file fraudulent tax returns, regardless of where they are employed or what position they hold.”

Acting Assistant Attorney General Ciraolo and U.S. Attorney Beck commended special agents of IRS-Criminal Investigation, who investigated the case, and Trial Attorneys Gregory P. Bailey and Michael P. Hatzimichalis of the Tax Division and Assistant U. S. Attorney Jonathan Ross of the Middle District of Alabama, who prosecuted this case.

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

Congressman Chaka Fattah and Associates Charged with Participating in Racketeering Conspiracy

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A member of Congress and four of his associates were indicted today for their roles in a racketeering conspiracy involving several schemes that were intended to further the political and financial interests of the defendants and others by, among other tactics, misappropriating hundreds of thousands of dollars of federal, charitable and campaign funds.

Congressman Chaka Fattah Sr., 58, of Philadelphia; lobbyist Herbert Vederman, 69, of Palm Beach, Florida; Fattah’s Congressional District Director Bonnie Bowser, 59, of Philadelphia; and Robert Brand, 69, of Philadelphia; and Karen Nicholas, 57, of Williamstown, New Jersey, were charged today in a 29-count indictment with participating in a racketeering conspiracy and other crimes, including bribery; conspiracy to commit mail, wire and honest services fraud; and multiple counts of mail fraud, falsification of records, bank fraud, making false statements to a financial institution and money laundering.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Zane David Memeger of the Eastern District of Pennsylvania, Special Agent in Charge Edward J. Hanko of the FBI’s Philadelphia Division and Special Agent in Charge Akeia Conner of the Internal Revenue Service-Criminal Investigation (IRS-CI) Philadelphia Field Office made the announcement.

“As charged in the indictment, Congressman Fattah and his associates embarked on a wide-ranging conspiracy involving bribery, concealment of unlawful campaign contributions and theft of charitable and federal funds to advance their own personal interests,” said Assistant Attorney General Caldwell.  “When elected officials betray the trust and confidence placed in them by the public, the department will do everything we can to ensure that they are held accountable.  Public corruption takes a particularly heavy toll on our democracy because it undermines people’s basic belief that our elected leaders are committed to serving the public interest, not to lining their own pockets.”

“The public expects their elected officials to act with honesty and integrity,” said U.S. Attorney Memeger.  “By misusing campaign funds, misappropriating government funds, accepting bribes, and committing bank fraud, as alleged in the Indictment, Congressman Fattah and his co-conspirators have betrayed the public trust and undermined faith in government.”

“These crimes and the subsequent elaborate cover-up constitute an egregious breach of public trust,” said Special Agent in Charge Hanko.  “It is the duty of the FBI, IRS and Department of Justice to investigate and prosecute those who violate this trust and put personal gain above public service.”

“Public corruption by our elected officials and their associates undermines the American public’s confidence in our government,” said Special Agent in Charge Conner.  “When our elected officials and their associates violate the law and create sophisticated financial schemes to enrich themselves, the Internal Revenue Service-Criminal Investigation, will work diligently with our fellow law enforcement partners to restore the public’s trust.”

Specifically, the indictment alleges that, in connection with his failed 2007 campaign to serve as mayor of Philadelphia, Fattah and certain associates borrowed $1 million from a wealthy supporter and disguised the funds as a loan to a consulting company.  After he lost the election, Fattah allegedly returned $400,000 to the donor that the campaign had not used, and arranged for Educational Advancement Alliance (EAA), a non-profit entity that he founded and controlled, to repay the remaining $600,000 using charitable and federal grant funds that passed through two other companies, including one run by Brand.  To conceal the contribution and repayment scheme, the defendants and others allegedly created sham contracts and made false entries in accounting records, tax returns and campaign finance disclosure statements.

In addition, the indictment alleges that after his defeat in the mayoral election, Fattah sought to extinguish approximately $130,000 in campaign debt owed to a political consultant by agreeing to arrange for the award of federal grant funds to the consultant.  According to the allegations in the indictment, Fattah directed the consultant to apply for a $15 million grant, which he did not ultimately receive, on behalf of a then non-existent non-profit entity.  In exchange for Fattah’s efforts to arrange the award of the funds to the non-profit, the consultant allegedly agreed to forgive the debt owed by the campaign.

The indictment further alleges that Fattah misappropriated funds from his mayoral and congressional campaigns to repay his son’s student loan debt.  To execute the scheme, Fattah and Bowser allegedly arranged for his campaigns to make payments to a political consulting company, which the company then used to lessen Fattah’s son’s student loan debt.  According to the allegations in the indictment, between 2007 and 2011, the consultant made 34 successful loan payments on behalf of Fattah’s son, totaling approximately $23,000.

In another alleged scheme, beginning in 2008, Fattah communicated with individuals in the legislative and executive branches in an effort to secure for Vederman an ambassadorship or an appointment to the U.S. Trade Commission.  In exchange, Vederman provided money and other items of value to Fattah.  As part of this scheme, the indictment alleges that the defendants sought to conceal an $18,000 bribe payment from Vederman to Fattah by disguising it as a payment for a car sale that never actually took place.

Finally, the indictment alleges that Nicholas obtained $50,000 in federal grant funds that she claimed would be used by EAA to support a conference on higher education.  The conference never took place.  Instead, Nicholas used the grant funds to pay $20,000 to a political consultant and $10,000 to her attorney, and wrote several checks to herself from EAA’s operating account.

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

The case is being investigated by the FBI and IRS-CI.  Assistance was also provided by the Department of Justice’s Office of the Inspector General, the NASA Office of Inspector General and the Department of Commerce’s Office of Inspector General.  The case is being prosecuted by Trial Attorneys Eric L. Gibson, T. Patrick Martin and Jonathan Kravis of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney Paul L. Gray of the Eastern District of Pennsylvania.  Trial Attorney Bob Dalton of the Criminal Division’s Organized Crime and Gang Section also provided assistance in this case.