Author Archives: Brad Geyer

Wealthy Max Limited Files Motion to Dismiss Civil Forfeiture Case in U.S. District Court in NJ

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NEWARK, N.J., Oct. 20, 2015 /PRNewswire/ — The Wealthy Max Limited legal defense team filed a motion to dismiss the civil forfeiture case brought by the US Attorney for the District of New Jersey. The motion is filed with the US District Court in New Jersey and seeks the immediate release of $2,388,091.18 that the company is owed by the US Treasury for coins submitted to the US Mint’s Mutilated Coin Redemption Program.  The original complaint was filed in March 2015 and claimed that Wealthy Max and its Foshan, China based affiliate that administers its quality assurance program, ( hereinafter “Wealthy Max”), and several other recycling companies, had attempted to pass counterfeit US coins through the US Mint’s program.

The motion to dismiss cites multiple inconsistencies in the original complaint and the fact that there has been no direct proof of counterfeiting, or of a conscious attempt to cheat the US government. The original complaint expressed doubts that Wealthy Max and other recycling companies with links to China could source the number of coins claimed through scrap metal exported from the US to China.  This demonstrates a lack of understanding of the scale and organization of the Chinese metal recycling industry.

“We are filing the motion to dismiss on behalf of Wealthy Max because we believe the complaint brought by the US Attorney’s Office has a number of errors relating both to points of law as well as to misunderstandings about our client’s business,” said Bradford L. Geyer of GeyerGorey LLP.  “In our opinion we do not believe that many of the points in the government’s complaint could be substantiated as they are either speculative or based on incorrect assumptions about the industry in question.  The original complaint and the amended complaint, regrettably, also contain incorrect information.  For instance, the amended complaint in paragraph 35 claims that pennies have never been submitted through the Mutilated Coin Redemption Program and only small parts of shipments have contained nickels.  In actuality, from 2002 through 2006, Wealthy Max submitted to the U.S. Mint, and the U.S. Mint accepted 178 metric tons of pennies and from 2002 through 2009, Wealthy Max submitted to the U.S. Mint, and the U.S. Mint accepted, 31 metric tons of nickels.

“Under the circumstances, I am mystified how allegations in paragraph 35 and other questionable allegations found throughout the complaint could still remain in the government’s pleadings.  The reason the U.S. Mint has seen fewer nickels or no pennies in recent years is because redemption rates do not allow those coins to be redeemed profitably.  This economically rational behavior and many other reasonable actions are presented in the complaint as if they part of some nefarious scheme,” added Geyer.

The scrap reclamation operations in question process millions of tons of non-ferrous scrap metal each year.  The irony is that since this investigation has effectively shut down the Mutilated Coin Redemption Program, hundreds, perhaps thousands of tons of clad U.S. coins have been accumulating at scrap reclamation facilities in China that continue to find coins as a by-product of aluminum scrap reclamation.  According to Geyer, “We have advised scrap reclamation facilities in China to keep the faith and to stockpile and secure their mutilated coins.  We will soon determine whether the United States Department of Justice and the Department of Homeland Security intend to kill the program.  As a practical matter, we probably have a 30-90 day time window before the scrap reclamation companies in China have to give up on the U.S. Mint giving full faith and credit to its coinage, and simply send the coins to local smelters.

“You could never guess from the complaint that Wealthy Max has an unblemished past performance record that spans 13 years with over 150 shipments accepted by the U.S. Mint and converted into coin roll.  What we have as a matter of public record is one alleged non-conforming shipment awash in a 13 year sea of conforming shipments from a responsive government contractor with an unblemished past performance record,” said Geyer.

“The shipment in question was accepted and converted into coin roll by the U.S. Mint in June 2014 and the government provides notice that its payment was confiscated almost 11 months later?  I am not sure how far the government can stretch civil forfeiture rules, but its conduct in this investigation strikes me as unacceptable.  For these and other reasons and, in the interest of fairness, we believe that this case should be dismissed and our client’s funds unfrozen as quickly as possible,” concluded Geyer.

The US Mint’s Mutilated Coin Redemption Program was established in 1911 and allows individuals and organizations to return damaged US coins to the Mint and be paid on the basis of the weight of the coins returned.  The Mint then melts the coins down and uses the resulting metals in the production of new coins.  Americans may be surprised to learn that coins jingling in their pockets today could actually be manufactured from coins minted by the U.S. Mint in prior centuries.

Wealthy Max Limited is a Hong Kong based company.  The company is involved in recovering mutilated coins that are a by-product of the metal recycling business, and its operations in China collect, sort, wash and visually inspect coins it receives from scrap aluminum processors who process millions of tons of aluminum scrap materials.  The aluminum comes from multiple sources including scrapped automobiles and other consumer and industrial goods.  Before being melted down, the scrap metal is hand sorted to remove any non-aluminum items including copper wire, glass, plastic and coins.  This sorting is done by well-trained individuals who further sort the coins by country and denomination.  The exponential growth of the Chinese scrap industry, extensively documented in other forums and contexts, has enabled millions of tons of waste to be sorted in this manner (obviating the need for extensive use of water or electricity and substantially reducing carbon emissions) which results in purer, more efficient smelting.

SOURCE GeyerGorey

 

Further information attached

20151020 Memo of Law in Support of MTD Exhibit A Internal Advice Request – Entry requirements of mutilated coins – FinCen Form 105 Exhibit B 20150821 letter to AUSA’s Wealthy Max (1) WM MTD PROPOSED ORDER WM MTD

SCCE Compliance and Ethics Conference–Las Vegas

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Emtrain

I had a great time at the SCCE Compliance and Ethics Conference in Las Vegas.  I am an Antitrust Expert for Emtrain, a leading producer of online compliance and ethics training material.  Emtrain had a booth in the vendor Exhibit Hall and I was able to spend some time with Janine Yancey and the rest of the Emtrain staff.

I also co-presented a panel with Barbara Sicalides, a partner at Pepper Hamilton.  Barbara and I have known each other for many years.  I was the Chief of the Antitrust Division field office in Philadelphia so I have had a great deal of experience as an antitrust prosecutor.  Ms. Sicalides is leading attorney in defending antitrust cases, providing antitrust counseling and compliance and ethics training to corporations.  Our presentation was titled:  “CEO’s (and salespeople too) Say The Darndest Things: How an Ill- Advised Statement or Email Can Start an Antitrust Investigation or Lawsuit”  The program was a caution that while every CEO and salesperson would like to “crush the competition” and “dominate the market,” it is not always wise to say this publicly or in an email.  We both had numerous examples about how poorly worded statements and emails caused a mountain of litigation.  We also discussed how training can sensitize employees to how certain statements (antitrust buzz words) can be misconstrued.  Barbara and I have an article coming out soon in the SCCE magazine that is basically a recap of the program. The  PowerPoint is also available on the SCCE website, or let me know and I can send you a copy.

This was my second SCCE Compliance and Ethics conference and like the first, it was exciting to meet new people and attend a few programs. It also is a very visual reminder of the enormous resources that companies are putting into their compliance and ethics programs.  Barbara and I both hope to see you in Chicago next year.

Two Former Swisher Hygiene Inc. Executives Indicted on Securities Fraud and Obstruction of Justice Charges

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Former Senior Level Corporate Employee to Plead Guilty to Securities Fraud Conspiracy

A federal grand jury in Charlotte, North Carolina, has indicted two former executives of Swisher Hygiene Inc. (Swisher) on securities fraud and obstruction of justice charges, announced U.S. Attorney Jill Westmoreland Rose of the Western District of North Carolina.  Joining in today’s announcement is Special Agent in Charge John A. Strong of the FBI’s Charlotte Division.

Swisher’s former chief financial officer, Michael Kipp, 61, of Charlotte, and certified public accountant and Swisher’s former director of external reporting, Joanne Viard, 36, of Santa Rosa Beach, Florida, have been charged in connection with a securities fraud conspiracy allegedly carried out at Swisher throughout fiscal year 2011 and a subsequent obstruction of justice scheme in 2012.  The federal indictment was returned late afternoon and Kipp and Viard are scheduled to make their initial appearances in federal court on Tuesday, Oct. 20, 2015.

“My office has a long record of holding corporate executives accountable for their criminal conduct,” said U.S. Attorney Rose.  “Today’s charges continue to make clear that regardless of title or position, my office will prosecute corporate executives who engage in financial fraud schemes that defraud the investing public and undermine the integrity of our financial markets.  We will work diligently to uncover such fraud, no matter how pernicious the cover-up.”

“As alleged in the indictment, these corporate executives were entrusted to fairly and accurately report the earnings of their employer; instead, they manipulated and falsified the numbers putting the hard earned money of shareholders at risk and undermining the laws in place to protect our financial markets,” said Special Agent in Charge Strong.  “The FBI will root out corporate fraud wherever it exists and ensure those who engage in such practices are held accountable.”

Today’s charges follow the Oct.7, 2015, announcement that Swisher had entered into a deferred prosecution agreement with the United States, in which Swisher accepted and acknowledged responsibility for the conduct of its former employees and agreed to pay a $2 million penalty.  Formal charges were also filed on Oct. 7, 2015, against Swisher’s former senior-level accounting employee, John Pierrard, who is scheduled to enter his guilty plea on Tuesday, Oct. 20, 2015, for his role in the alleged accounting fraud conspiracy.

According to allegations contained in the indictment and documents filed in related cases:

Throughout fiscal year 2011, Kipp, Viard and their conspirators engaged in an accounting fraud scheme to ensure that Swisher’s reported earnings had met or exceeded executive management’s forecasts, and to conceal the existence of the fraud from Swisher’s auditors, Wells Fargo, the investing public and others.  Some of the fraudulent methods  Kipp, Viard and their conspirators used to manipulate Swisher’s books and records to fraudulently increase the company’s income included reducing expenses by moving them from the company’s profit and loss statement to its balance sheet as well as engaging in what is commonly referred to as “cookie jar” accounting.

The accounting fraud scheme began to unravel when Swisher’s then-controller pushed back on making a fraudulent entry during the year end close.  The controller wrote in an email, “I’ll run it by BDO [Swisher’s auditors] so we’re on the same page,” to which Kipp responded, “You’ll run it by me since I’m the chief accounting officer. I’m out of patience with this.”  The controller persisted in his refusal to book the fraudulent entry and Kipp fired him.  Swisher’s audit committee learned of the controller’s allegations and promptly commissioned an independent internal investigation.  After the allegations of fraud were reported, Kipp and Viard almost immediately began to engage in misleading conduct to conceal the accounting fraud conspiracy and to obstruct justice by lying to the investigators hired by the audit committee.

Approximately 11 months following the announcement of the investigation, Swisher filed restated financial reports for the first three quarters of 2011 and filed its Form 10-K for the 2011 year.  The restatement reflected, among other things, that Swisher had substantially overstated its earnings and significantly understated its losses during the relevant time period.

The indictment charges Kipp and Viard each with one count of conspiracy to commit securities fraud, to falsify books, records and accounts of Swisher, and to make misleading statements to Swisher’s auditors and accountants; one count of securities fraud; one count of wire fraud; and one count of obstruction of justice.  Kipp is also charged with one count of bank fraud.  The conspiracy charge carries a maximum prison term of five years.  The securities fraud, wire fraud and obstruction offenses each carry a maximum prison term of 20 years.  The bank fraud charge carries a maximum prison term of 30 years.

The details contained in the indictment are allegations.  The defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

U.S. Attorney Rose praised the FBI for its outstanding work in leading the ongoing investigation that resulted in the filing of these charges.  Rose also thanked the U.S. Securities and Exchange Commission for their assistance in the investigation.

Assistant U.S. Attorneys Mark T. Odulio and Maria K. Vento of the U.S. Attorney’s Office in Charlotte are assigned to this case.

Second Former Arrow Trucking Executive Sentenced in Multi-Million Dollar Fraud Scheme

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A Waxahachi, Texas, resident and former chief financial officer (CFO) of Arrow Trucking Company was sentenced today to serve 35 months in prison for conspiracy to commit bank fraud and to defraud the United States, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U. S. Attorney Danny C. Williams Sr. of the Northern District of Oklahoma.

Jonathan Leland Moore, 38, pleaded guilty on Dec. 4, 2014, to an information charging him with one count of a dual-object conspiracy to defraud the United States and to commit bank fraud.  Moore conspired with James Douglas Pielsticker, 47, a resident of Dallas, and former CEO and president of Arrow Trucking Company, to defraud the United States by failing to account for and pay federal withholding taxes on behalf of Arrow Trucking Company and by making payments to Pielsticker outside the payroll system.

Moore cooperated with the criminal investigation, including testifying on behalf of the government during Pielsticker’s sentencing hearing last week.  On Oct. 9, Pielsticker was sentenced to serve seven and one-half years in prison and ordered to pay $21,026,682.03 in restitution for his role in the conspiracy and for attempting to evade his individual income taxes.

Chief U.S. District Court Judge Gregory K. Frizzell of the Northern District of Oklahoma also sentenced Moore to serve three years of supervised release following his prison term and ordered him to pay $21,026,682.03 in restitution to the Internal Revenue Service (IRS) and the Transportation Alliance Bank (TAB).

According to the plea agreement and other court records, in 2009, Moore, Pielsticker and others withheld Arrow Trucking Company employees’ federal income tax withholdings, Medicare and social security taxes, but did not report or pay over these taxes to the IRS, despite knowing that they had a duty to do so.  The conspirators paid for Pielsticker’s personal expenses with money from Arrow Trucking Company and submitted fraudulent invoices to TAB to induce the bank to pay funds to Arrow Trucking Company that were not warranted.  In total, the conspiracy caused a loss to the United States totaling more than $9.562 million.

Acting Assistant Attorney General Ciraolo and U.S. Attorney Williams commended the special agents of the IRS-CI and FBI, who investigated this case, and Assistant U.S. Attorneys Jeffrey A. Gallant and Catherine Depew of the Northern District of Oklahoma and Special Assistant U.S. Attorney and Tax Division Trial Attorney Charles A. O’Reilly, who prosecuted the case on behalf of the United States.

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

Boeing Pays $18 Million to Settle False Claims Act Allegations

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The Boeing Company has paid the United States $18 million to settle allegations that the company submitted false claims for labor charges on maintenance contracts with the U.S. Air Force for the C-17 Globemaster aircraft, the Justice Department announced today.  Boeing, an aerospace and defense industry giant, is headquartered in Chicago.

“Defense contractors are required to obey the rules when billing for work performed on government contracts,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “Today’s settlement demonstrates that the Justice Department will ensure that government contractors meet their obligations and charge the government appropriately.”

The government alleged that Boeing improperly charged labor costs under contracts with the Air Force for the maintenance and repair of C-17 Globemaster aircraft at Boeing’s Long Beach Depot Center in Long Beach, California.  The C-17 Globemaster aircraft, which is both manufactured and maintained by Boeing, is one of the military’s major systems for transporting troops and cargo throughout the world.  The government alleged that the company knowingly charged the United States for time its mechanics spent on extended breaks and lunch hours, and not on maintenance and repair work properly chargeable to the contracts.

The allegations resolved by the settlement announced today were originally brought by former Boeing employee James Thomas Webb under the qui tam, or whistleblower, provisions of the False Claims Act.  The act permits private individuals to sue on behalf of the government those who falsely claim federal funds, and to share in the recovery.  Mr. Webb’s share of the settlement has not yet been determined.

The case was handled by the Civil Division’s Commercial Litigation Branch, the Defense Criminal Investigative Service, the Air Force Office of Special Investigations, the Defense Contract Audit Agency and the Defense Contract Management Agency.

The False Claims Act lawsuit is captioned United States ex rel. Webb v. The Boeing Company, CV13-000694 (C.D. Cal.).  The claims resolved by today’s civil settlement are allegations only; there has been no determination of liability.

CCC’s: Some After Thoughts From An FTAIA Conference

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I went to a very interesting conference on the FTAIA a few weeks ago.  I’ve been a bit busy so haven’t had a chance to post.  But, FTAIA issues aren’t going to be settled anytime soon, so here goes.

On September 27 I was fortunate to be able to attend the conference Extraterritoriality of Antitrust Law in the US and Abroad: A Hot Issue. The conference was sponsored by George Washington Law School and Concurrences.  Application of the Foreign Trade Antitrust Improvement Act (FTAIA) is indeed a hot issue. And with the capacitors investigation being the next big thing in international cartel enforcement, I boldly predict the FTAIA is going to continue to be a hot issue.

There was a number of interesting panels and insightful discussions at the conference.  Judge Dianne P. Wood, Chief Judge of the US Seventh Circuit Court of Appeals was a terrific choice as the keynote speaker. Before the joining the Court of Appeals, Judge Wood was instrumental in many difference roles in promoting competition law internationally and fostering cooperation among the world’s competition law community. I was in the Antitrust Division when Judge Wood was a Deputy Assistant Attorney General overseeing all international matters.  Judge Wood traced the history of international cartel enforcement and cooperation from when the US had a monopoly, then the US and EU had a duopoly, and now there is at least an oligopoly of cartel enforcement with more nations joining as time passes.

Judge Wood also discussed the fact that the FTAIA is not a subject-matter jurisdiction limitation on the power of the federal courts but a component of the merits of a Sherman Act claim involving nonimport trade or commerce with foreign nations.  The first significant difference is that if application of the FTAIA were a jurisdictional issue it could be raised at any time. If brought to the court’s attention that the court does not have jurisdiction to hear a case, the case must be dismissed.  And the court is the fact-finder.  But as a substantive element of a Sherman Act offense, whether complaint satisfies the FTAIA is decided on a Motion to Dismiss with all inferences drawn in favor of the plaintiff.

Judge Wood also noted that the Seventh and Ninth Circuit have different standards for measuring whether anticompetitive conduct abroad has a direct, substantial and reasonably foreseeable effect on commerce in the United States.  The Ninth Circuit has interpreted the FTAIA requirement of “direct” to mean that the effect on U.S. commerce follow as an “immediate consequence” of the defendant’s conduct. U.S. v. Hui Hsuing, 778 F. 3d 738, 758 (9th Cir. 2014). The Seventh and Second Circuits, on the other hand, have construed the term “direct” in the FTAIA to denote a “reasonably proximate causal nexus.” Motorola Mobility LLC v. AU Optronics Corp., 775 F.3d 816, 819 (7th Cir. Nov. 26, 2014), as amended (Jan. 12, 2015); Lotes Co. v. Hon Hai Precision Indus., 753 F.3d 395, 410 (2d Cir. 2014).  In most cases there may not be a difference in the outcome depending upon what standard is used.  In fact, the Supreme Court declined to take cert. in the Motorola and AU Optronics cases (see prior post here).  But Judge Wood noted that a Supreme Court decision on FTAIA issue would be welcome.  

Comity

Comity was a major theme of the conference.  Judge Wood noted that comity is fundamentally an Executive Branch consideration.  If a case is properly before a court, (i.e. the court has jurisdiction), it is generally not the court’s job to dismiss the case on comity grounds.

There was another observation on comity that I found insightful.  Daniel Bitton was a panelist and he offered this caution regarding how the US treats foreign nationals.  Imagine, he said, if other countries had sought to extradite Apple executives for the e-book conspiracy?  The point being the US is not the only jurisdiction with anti-cartel laws, and the US needs to be mindful that how we foreign executives are treated under US law may become the way that US executives are treated by foreign jurisdictions.

Mr. Bitton’s example struck home to me because while the Antitrust Division prosecuted the e-books case civilly, the Division always declared Apple’s conduct to be hard-core price-fixing organized at the highest levels of the company.  The Division’s opening brief reads:

 “Apple conspired with five of the six largest U.S. trade book publishers to raise the prices at which consumers purchase electronic books (“e-books”) and eliminate retail price competition…..Stripped of the glitz surrounding e-books and Apple, this is an unremarkable and obvious price-fixing case appropriate for per se condemnation.”

Based on the DOJ’s charging language, the Apple case could have been brought as a criminal case (see a prior post here).

The executive branch does need to be (and generally is) mindful of “Cartel Karma.”  In an earlier post (here), I quoted Forbes columnist Tim Worstall writing about the US reach in the FCPA arena:

It’s most certainly not good economics that one court jurisdiction gets to fine companies from all over the world on fairly tenuous grounds. Who would really like it if Russia’s legal system extended all the way around the world? Or North Korea’s? And I’m pretty sure that the non-reciprocity isn’t good public policy either. Eventually it’s going to start getting up peoples’ noses and they’ll be looking for ways to punish American companies in their own jurisdictions under their own laws. And there won’t be all that much that the U.S. can honestly do to complain about, given their previous actions.

The degree of comity (or respect) competition agencies show (or don’t show) each other will be increasingly important.  For example, I think it was a good thing that the court rejected the Antitrust Division’s request for ten-year prison sentences for certain AU Optronics individuals who were convicted in the TFT-LCD cartel.  I think even seeking the maximum jail sentence request may chill foreign cooperation (including the willingness to extradite to the US).

Another good tip from one of the panelists.  (Ian Simmons I believe, but pardon me if I’ve got this, or anything else wrong in this post).  Mr. Simmons said anytime he is dealing with a confusing, ambiguous statute [and the FTAIA makes anyone’s top ten list], he likes to refresh himself by re-reading the statute.  So here it is (and with the capacitors investigation heating up, many of us will be re-reading the statute often):

§ 6a. Conduct involving trade or commerce with foreign nations

This Act [15 U.S.C. §§ 1 et seq.] shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless—

(1) such conduct has a direct, substantial, and reasonably foreseeable effect—

(A) on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or

(B) on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States; and

(2) such effect gives rise to a claim under the provisions of this Act, other than this section.

Thanks for reading.

PS.  For those who might be interested,  New York University School of Law and Concurrences Review will host the 2nd Edition of the Conference “Antitrust in Emerging and Developing Economies” at NYU School of Law in New York City on Friday, October 23, 2015. The conference will feature the law, practice and policy in several of the most antitrust-prominent developing nations, including China, India, Brazil, Mexico, and Africa.  More information here.

Former CEO of Marketing Agency Sentenced to Prison for $2 Million Fraud and Kickback Scheme

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The former CEO and president of a pharmaceutical marketing company was sentenced to three and one half years in prison for participating in a scheme to defraud the company in which he obtained more than $2 million in fraud and kickback proceeds, and for willfully failing to report that unlawful income to the Internal Revenue Service (IRS), announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Preet Bharara of the Southern District of New York.

Michael J. Mitrow Jr., 48, of Whitehouse Station, New Jersey, was sentenced to serve 42 months in prison to be followed by three years of supervised release and 200 hours of community service in each of those years.  He was also ordered to pay $83,219 in restitution to the IRS and $1,468,259.43 to Access Communications.  In January 2015, Mitrow pleaded guilty to one count of conspiracy to commit wire fraud and one count of tax evasion before U.S. District Judge Paul A. Engelmayer of the Southern District of New York, who also imposed today’s sentence.

“Corporate officers who engage in fraud and kickback schemes and fail to report their illegal gains are defrauding their employers and cheating honest taxpayers,” said Acting Assistant Attorney General Ciraolo.  “The sentence handed down today sends a strong message that these individuals will be held to account for committing offenses that were made possible by violating their fiduciary obligations.”

“Michael Mitrow defrauded the marketing agency that he led as its CEO out of over $1 million, using it to pay personal expenses including $600,000 to fly in private jets,” said U.S. Attorney Bharara.  “His fraud and his failure to report the proceeds as income resulted in a federal conviction for Mitrow.  At his sentencing today, he learned that the price of his crimes is not only repayment of the ill-gotten money but also the loss of his liberty.”

According to the indictment and superseding information previously filed in Manhattan federal court, other court filings and statements made during the proceedings in this case:

Mitrow was the CEO and president of the company from 1998 through approximately 2009.  From approximately 2008 through 2009, Mitrow defrauded the company by submitting fraudulent invoices for consulting services that were purportedly provided to the company but were, in fact, never provided.  Instead, Mitrow used the proceeds from those invoices to fund more than $600,000 in private jet travel.  Mitrow further defrauded the company by causing it to pay $415,000 in payments by the company to a relative of Mitrow and his co-defendant and brother, Matthew Mitrow, despite the representations made by the Mitrows to a private equity firm that acquired the company that the relative had severed all ties to the company. In addition, Mitrow willfully failed to report to the IRS his income from the fraudulent consulting invoices, which exceeded $600,000; $1.4 million in kickback payments he received from Creative Press and East Coast Vending, printing and direct mail marketing companies owned by co-defendant Robert Madison and located in Phoenix, in order to help grow the business through additional  printing and direct mailing contracts for Creative Press with his company; and more than $200,000 in personal purchases that Mitrow made with his corporate credit card and fraudulently coded as business expenses of the company.

Matthew Mitrow, 42, of Westfield, New Jersey, previously pleaded guilty to one count of filing a false tax return for the 2008 tax year, and was sentenced in July 2015 to serve three months in prison.  As part of his plea agreement with the government, Matthew Mitrow paid $30,822 in restitution to the IRS.

Robert Madison, 44, of Henderson, Nevada, pleaded guilty to one count of conspiracy to commit honest services fraud in the payment of undisclosed kickbacks to the Mitrow brothers, and was sentenced in May 2015 to serve 18 months in prison and 18 months of home confinement.  As part of his plea agreement with the government, Madison will be subject to an order of restitution in an amount to be determined by the court.

Assistant Attorney General Ciraolo and U.S. Attorney Bharara thanked the IRS-Criminal Investigation and the U.S. Postal Inspection Service, who investigated this case, and Assistant U.S. Attorney Andrew Young of the Southern District of New York and Senior Litigation Counsel Nanette L. Davis of the Tax Division, who are prosecuting this case.  The U.S. Attorney’s Office of the Southern District of New York’s Complex Frauds and Cybercrime Unit is handling this case.

Owner and Operator of Miami-Based Mental Health Centers Pleads Guilty in $70 Million Health Care Fraud Scheme

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An owner, a clinical director, and a therapist pleaded guilty today for their roles in a health care fraud scheme involving three Miami-based mental health centers.

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 Division and Special Agent in Charge Shimon Richmond of the U.S. Department of Health and Human Services Office of Inspector General’s (HHS-OIG) Miami Regional Office made the announcement.

Santiago Borges, 51, Erik Alonso, 45, and Cristina Alonso, 43, all of Miami, pleaded guilty before U.S. District Judge Ursula Ungaro of the Southern District of Florida.  Borges pleaded guilty to conspiracy to commit health care fraud and conspiracy to defraud the United States and pay health care kickbacks.  Erik Alonso pleaded guilty to conspiracy to commit health care fraud and conspiracy to make false statements relating to health care matters.  Cristina Alonso pleaded guilty to conspiracy to commit health care fraud and conspiracy to make false statements relating to health care matters.

Borges owned the now-defunct mental health centers R&S Community Mental Health Inc. (R&S) and St. Theresa Community Mental Health Center Inc. (St. Theresa), and was an investor in New Day Community Mental Health Center LLC (New Day).  Erik Alonso was the clinical director of all three centers.  Cristina Alonso was a therapist at R&S.

R&S, St. Theresa and New Day were community mental health clinics that purported to provide intensive mental health services to Medicare beneficiaries in Miami.  In connection with their guilty pleas, the defendants admitted that, from 2008 through 2010, the clinics billed Medicare for costly partial hospitalization program (PHP) services that were not medically necessary or not provided to patients.  Borges admitted that he paid kickbacks to patient recruiters who, in exchange, referred beneficiaries to the centers.  Erik Alonso admitted that he oversaw the preparation of false patient records.  Cristina Alonso admitted that she fabricated patient records, including group therapy session notes that were used to support claims for reimbursement from Medicare.

According Borges’ plea agreement, between January 2008 and December 2010, the centers submitted more than $70 million in false and fraudulent claims to Medicare.  Medicare paid approximately $28 million on those claims.

The case is being investigated by the FBI 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.  This case is being prosecuted by Trial Attorney A. Brendan Stewart 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 Action Team (HEAT), go to: www.stopmedicarefraud.gov.

Colorado Man Sentenced to Life in Prison for Kidnapping a Toddler and Producing Child Pornography

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A Colorado man was sentenced today to life in prison for kidnapping a toddler and producing child pornography, announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Benjamin B. Wagner of the Eastern District of California and Special Agent in Charge Ryan L. Spradlin of ICE-HSI San Francisco Office.

Shawn McCormack, 31, of Colorado Springs, Colorado, was found guilty in April 2015 by a federal jury of four counts of sexual exploitation of a child and two counts of kidnapping.  Senior U.S. District Judge Anthony W. Ishii of the Eastern District of California presided over the trial and imposed the sentence.

“McCormack’s depraved actions in this case are the stuff of nightmares.  While posing as a trusted friend and house guest, McCormack kidnapped his hosts’ toddler child and sexually abused the child in local motels and parked cars,” said Assistant Attorney General Caldwell.  “Through tireless efforts, law enforcement was able to rescue the victim from further abuse and ensure that McCormack never again will victimize another child.”

“McCormack’s acts were both vile and heart-breaking, and they may have continued undetected for years but for the imaginative, dogged, and painstaking work of the investigators who brought him to justice,” said U.S. Attorney Wagner.  “We are gratified by the sentence McCormack received today, which is both severe and just, and while the harm that he inflicted cannot be undone, we can be assured that he will not be able to inflict further harm upon our most vulnerable.”

“The sexual exploitation of children is a heinous crime that leaves lifelong emotional scars on young victims,” said Special Agent in Charge Spradlin.  “It is our duty to protect those who cannot protect themselves.  Together with our law enforcement partners, we will continue to pursue child predators and make them accountable for their dark and monstrous deeds.”

According to evidence presented at trial, McCormack, feigning to be a friend, traveled to a couple’s residence in Bakersfield, California, and stayed as an overnight guest on multiple occasions.  During several of the overnight stays, in the middle of the night, McCormack removed the couple’s toddler from the house and sexually abused the toddler in nearby motels and other locations, and then returned the toddler to the house before the parents awoke.  The evidence demonstrated that McCormack photographed and recorded the sexual abuse and distributed the images and videos to others online, including to an undercover officer with the Toronto Police Services.  McCormack also recorded his sexual abuse of a second toddler and distributed those images as well.

The trial evidence showed that, in 2010, during forensic analysis of the computer of another individual, Homeland Security Investigations (HSI) agents in Boston, discovered images and recordings distributed by McCormack.  After the agents identified the date, time and motel room in which one of the videos had been produced, they learned that McCormack had rented that motel room on the night when the recording was created.

This case is part of an ongoing HSI-led investigation being conducted by U.S. Immigration and Customs Enforcement’s Field Offices in Bakersfield, California; Colorado Springs, Colorado; and Boston, Massachusetts; the Bakersfield Police Department; the Colorado Springs Police Department; Toronto Police Services and the FBI.  This case was prosecuted by Trial Attorney Maureen C. Cain of the Criminal Division’s Child Exploitation and Obscenity Section (CEOS) and Assistant U.S. Attorneys Patrick R. Delahunty and Megan A.S. Richards of the Eastern District of California.

This case was brought as part of Project Safe Childhood, a nationwide initiative to combat the growing epidemic of child sexual exploitation and abuse launched in May 2006 by the Department of Justice.  Led by U.S. Attorneys’ Offices and CEOS, Project Safe Childhood marshals federal, state and local resources to better locate, apprehend and prosecute individuals who exploit children via the Internet, as well as to identify and rescue victims.  For more information about Project Safe Childhood, please visit www.justice.gov/psc.

Three Japanese Auto Parts Executives Indicted for Bid-Rigging Conspiracy Involving Body Sealing Products Installed in U.S. Cars

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A federal grand jury in Covington, Kentucky, returned an indictment against one former and two current Japanese automotive executives for their alleged participation in a conspiracy to fix prices and rig bids for the sale of automotive body sealing products sold in the United States.

The indictment, filed today in the U.S. District Court of the Eastern District of Kentucky, charges Keiji Kyomoto, Mikio Katsumaru and Yuji Kuroda – all Japanese nationals – with conspiring to rig bids for and fix the prices of body sealing products sold to Honda Motor Company Ltd., Toyota Motor Corp. and certain of their subsidiaries and affiliates for installation in vehicles manufactured and sold in the United States and elsewhere.  Automotive body sealing products consist of body-side opening seals, door-side weather-stripping, glass-run channels, trunk lids and other smaller seals, which are installed in automobiles to keep the interior dry from rain and free from wind and exterior noises.

“These executives conspired for years with their competitors to fix the prices of body sealing products sold to Honda and Toyota and installed in U.S. cars,” said Deputy Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division.  “Today’s indictment is another reminder that antitrust violations are not just corporate offenses but also crimes by individuals.  The Antitrust Division will continue to vigorously prosecute executives who orchestrate their companies’ efforts to break the law.”

“The FBI is committed to aggressively investigating individuals who engage in criminal conduct that corrupts the global marketplace,” said Special Agent in Charge Howard S. Marshall of the FBI’s Louisville Division.  “We will continue our work with the Department of Justice Antitrust Division to uncover schemes aimed at creating an unfair competitive advantage by way of price fixing, bid rigging or other illegal means.”

The indictment alleges that Kyomoto, Katsumaru and Kuroda participated in the conspiracy from at least as early as September 2003 until at least October 2011.  For most of this period, Kyomoto resided in the United States and served as President of an unnamed joint venture with offices in Indiana and Michigan, which manufactured and sold automotive body sealing products.

Katsumaru, who resided in Japan, served in multiple managerial positions during the conspiracy period, including Manager of the Sales and Marketing Division, for an unnamed company based in Hiroshima, Japan, that partially owned the joint venture and also manufactured and sold automotive body sealing products.  Kuroda, who resided in Japan, served as a sales branch manager at the same Hiroshima-based company for the entirety of the charged period.

According to the indictment, Kyomoto, Katsumaru and Kuroda each instructed subordinates at their respective companies to communicate with co-conspirators at other companies in order to allocate sales of, rig bids for and fix the prices of automotive body sealing products; were aware that employees under their supervision were engaging in such communications; and condoned such communications.  The indictment further alleges that Kyomoto attended meetings in the United States with co-conspirators during which Kyomoto and the co-conspirators reached agreements regarding sales of automotive body sealing products to Honda and Toyota.  The indictment also alleges that Katsumaru and Kuroda instructed and encouraged certain employees at their company to destroy evidence of the conspiracy.  Each individual faces a maximum penalty to 10 years in prison and a $1 million criminal fine if convicted.

Today’s charge is the result of an ongoing federal antitrust investigation into price fixing, bid rigging and other anticompetitive conduct in the automotive parts industry, which is being conducted by the Antitrust Division’s criminal enforcement sections and the FBI.  A total of 58 individuals and 37 companies have been charged and have agreed to pay more than $2.6 billion in criminal fines.  This indictment was brought by the Antitrust Division’s Chicago Office and the FBI’s Louisville Field Office, Covington Resident Agency, with the assistance of the FBI’s International Corruption Unit and the U.S. Attorney’s Office of the Eastern District of Kentucky.  Anyone with information about anticompetitive conduct in the automotive parts industry should contact the Antitrust Division’s Citizen Complaint Center at 888-647-3258, visit www.justice.gov/atr/contact/newcase.html or call the FBI’s Louisville Field Office at 502-263-6000.