Category Archives: FBI

Former Charity Executive Pleads Guilty to Bribery and Embezzlement Scheme

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June 7, 2018

A former executive of a Springfield, Missouri charity, who was also an Arkansas lobbyist, pleaded guilty in federal court today to bribing Arkansas elected officials in a multi-million-dollar scheme, and then along with other charity executives, embezzling millions of dollars from the Springfield health care organization.

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division and U.S. Attorney Timothy A. Garrison for the Western District of Missouri made the announcement.

Milton Russell Cranford, aka “Rusty,” 57, of Rogers, Arkansas, pleaded guilty before U.S. Magistrate Judge David P. Rush to one count of federal program bribery.  Cranford was an executive at Preferred Family Healthcare Inc. (formerly known as Alternative Opportunities Inc.), a nonprofit corporation headquartered in Springfield, and oversaw the charity’s operations and lobbying efforts in the state of Arkansas. Cranford also operated three lobbying firms: The Cranford Coalition, The Capital Hill Coalition and Outcomes of Arkansas.

By pleading guilty today, Cranford admitted that he and other Preferred Family Healthcare executives paid bribes to Arkansas State Senator Jonathan Woods, Arkansas State legislator Henry Wilkins IV, a person identified in court documents as “Arkansas Senator A,” and others, to provide favorable legislative action for Cranford, his clients, and Preferred Family Healthcare. In exchange for the bribes paid by Cranford, the officials identified in the Information steered Arkansas General Improvement Fund (GIF) money to Preferred Family Healthcare and other Cranford clients; held up agency budgets; requested legislative audits; and sponsored, filed and voted for legislative bills that favored the charity and Cranford clients.

The additional income gained by Preferred Family Healthcare from Cranford’s bribes enabled Cranford and other executives of the charity to engage in multiple schemes to embezzle, steal, and unjustly enrich themselves at the expense of the charity, including, but not limited to, diverting charity funds to for-profit companies owned by the executives, causing the charity to make rental payments to properties owned by Cranford and the executives; paying for their personal expenses using corporate credit cards; and causing the charity to lend significant funds to Cranford personally, and to for-profit companies owned by other charity executives.  The executives also caused the charity to misapply its funds for unlawful contributions to the campaigns of elected public officials and causing the charity to spend substantial amounts of funds on lobbying and political advocacy.

In addition, Cranford entered into an illegal kickback scheme whereby Cranford paid over $600,000 in illegal kickbacks to a charity executive in exchange for more than $3.5 million in payments made to The Cranford Coalition.  Cranford also acknowledged his role in a second illegal kickback scheme involving the charity’s contract with Philadelphia, Pennsylvania-based political operative Donald Andrew Jones, also known as “D.A.” Jones, and another charity employee, former Arkansas State Representative Eddie Wayne Cooper.  In exchange for Cranford’s role in facilitating the charity’s contract with Jones for lobbying and political advocacy, under which the charity paid Jones almost $1 million, Cranford received kickbacks totaling $219,000 from Jones, $18,000 of which Cranford provided to Cooper, and Cooper received another $45,000 directly from Jones.  In separate but related cases, both Jones and Cooper previously entered guilty pleas acknowledging their roles in that kickback scheme.

A sentencing hearing will be scheduled after the completion of a presentence investigation by the U.S. Probation Office.

The case was investigated by IRS-Criminal Investigation, the FBI and the Offices of the Inspectors General from the Departments of Labor, Health and Human Services, Housing and Urban Development, Veterans Affairs, and the Federal Deposit Insurance Corporation. This is a combined investigation with the Western District of Arkansas, the Eastern District of Arkansas, and the Eastern District of Pennsylvania.  This case is being prosecuted by Assistant U.S. Attorney Steven M. Mohlhenrich of the Western District of Missouri and Trial Attorneys Marco A. Palmieri and Sean F. Mulryne of the Criminal Division’s Public Integrity Section.

Mississippi Physician Sentenced to Over Three Years in Prison for Role in $3 Million Compounding Pharmacy Fraud Scheme

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June 7, 2018

A Biloxi, Mississippi physician was sentenced today to 42 months in prison for his involvement in a $3 million compounding pharmacy fraud scheme.

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division; U.S. Attorney D. Michael Hurst Jr. of the Southern District of Mississippi; Special Agent in Charge Christopher Freeze of the FBI’s Jackson, Mississippi Field Division; Acting Special Agent in Charge Thomas J. Holloman III of IRS Criminal Investigation’s (IRS-CI) New Orleans Field Office and Special Agent in Charge John F. Khin of the Defense Criminal Investigative Service’s (DCIS) Southeast Field Office made the announcement.

Albert Diaz, M.D., was sentenced by U.S. District Judge Keith Starrett of the Southern District of Mississippi.  Restitution to TRICARE and other insurance companies will be determined at a later date. On March 2 after a five-day jury trial, Diaz was convicted of one count of conspiracy to commit health care fraud and wire fraud, four counts of wire fraud, one count of conspiracy to distribute and dispense a controlled substance, four counts of distributing and dispensing a controlled substance, one count of conspiracy to falsify records in a federal investigation and five counts of falsification of records in a federal investigation.

According to evidence presented at trial, between 2014 and 2015, Diaz participated in a scheme to defraud TRICARE and other insurance companies by prescribing medically unnecessary compounded medications, some of which included ketamine, a controlled substance, to individuals he had not examined.  The evidence further demonstrated that, based on the prescriptions signed by Diaz, Advantage Pharmacy in Hattiesburg, Mississippi, dispensed these medically unnecessary compounded medications and sought and received reimbursement from TRICARE and other insurance companies totaling more than $3 million. The trial evidence further demonstrated that in response to a TRICARE audit, Diaz falsified patient records to make it appear as though he had examined patients before prescribing the medications.

The FBI, IRS-CI, the Defense Criminal Investigative Service, the U.S. Department of Health and Human Services Office of Inspector General, the Mississippi Bureau of Narcotics and other government agencies investigated the case.  Trial Attorneys Kate Payerle and Jared Hasten of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Mary Helen Wall of the Southern District of Mississippi are prosecuting the case.

The Fraud Section leads the Medicare Fraud Strike Force, which is part of a joint initiative between the Department of Justice and HHS to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country.  The Medicare Fraud Strike Force operates in nine locations nationwide.  Since its inception in March 2007, the Medicare Fraud Strike Force has charged over 3,500 defendants who collectively have falsely billed the Medicare program for over $12.5 billion.

Jury Convicts Former CIA Officer of Espionage

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June 8, 2018

Today, a federal jury convicted Kevin Patrick Mallory, 61, a former Central Intelligence Agency case officer of Leesburg, Virginia, on espionage charges related to his transmission of classified documents to an agent of the People’s Republic of China.

Assistant Attorney General for National Security John C. Demers, U.S. Attorney G. Zachary Terwilliger for the Eastern District of Virginia and Assistant Director in Charge Nancy McNamara of the FBI’s Washington Field Office made the announcement after Senior U.S. District Judge T.S. Ellis III accepted the verdict.

“It is a sad day when an American citizen is convicted of spying on behalf of a foreign power,” said Assistant Attorney General Demers.  “This act of espionage was no isolated incident.  The People’s Republic of China has made a sophisticated and concerted effort to steal our nation’s secrets.  Today’s conviction demonstrates that we remain vigilant against this threat and hold accountable all those who put the United States at risk through espionage.”

“There are few crimes in this country more serious than espionage,” said U.S. Attorney Terwilliger.  “This office has a long history of holding those accountable who betray their country and try and profit off of classified information. This case should send a message to anyone considering violating the public’s trust and compromising our national security by disclosing classified information. We will remain steadfast and dogged in pursuit of these challenging but critical national security cases.”

“This trial highlights a serious threat to U.S. national security,” said Assistant Director in Charge McNamara.  “Foreign intelligence agents are targeting former U.S. Government security clearance holders in order to recruit them and steal our secrets. This case should send a message to foreign intelligence services and those caught up in their web: we are watching and we will investigate and prosecute those who willfully violate their obligations to protect national security secrets. I want to start by thanking the prosecutors of the U.S. Attorney’s Office, the trial attorneys of the Justice Department and particularly the special agents, analysts and professional staff of the FBI’s Washington Field Office for their hard work.”

According to court records and evidence presented at trial, in March and April 2017, Mallory travelled to Shanghai and met with an individual, Michael Yang, whom he quickly concluded was working for the People’s Republic of China Intelligence Service (PRCIS).  During a voluntary interview with FBI agents on May 24, 2007, Mallory stated that Yang represented himself as working for a People’s Republic of China think tank, however Mallory stated that he assessed Yang to be a Chinese Intelligence Officer.

Mallory, a U.S. citizen who speaks fluent Mandarin Chinese, told FBI agents he travelled to Shanghai in March and April to meet with Yang and Yang’s boss.  After Mallory consented to a review of a covert communications (covcom) device he had been given by Yang in order to communicate covertly with Yang, FBI agents viewed a message from Mallory to Yang in which Mallory stated that he could come in the middle of June and he could bring the remainder of the documents with him at that time.  Analysis of the device, which was a Samsung Galaxy smartphone, also revealed a handwritten index describing eight different documents later determined to be classified.  Four of the eight documents listed in the index were found stored on the device, with three being confirmed as containing classified information pertaining to the same U.S. government agency.  One of those documents was classified TOP SECRET, while the remaining two documents were classified SECRET.  FBI analysts were able to determine that Mallory had completed all of the steps necessary to securely transmit at least four documents via the covcom device, one of which contained unique identifiers for human sources who had helped the U.S. government.

Evidence presented at trial included surveillance video from a FedEx store in Leesburg where Mallory could be seen scanning the eight classified documents and a handwritten table of contents onto a micro SD card.  Though Mallory shredded the paper copies of the eight documents, an SD card containing those documents and table of contents was later found carefully concealed in his house when it was searched on June 22, 2017, the date of his arrest.  A recording was played at trial from June 24, 2017, where Mallory could be heard on a call from the jail calling his family to ask them to search for the SD card.

Mallory has held numerous positions with various government agencies and several defense contractors, including working as a covert case officer for the CIA and an intelligence officer for the Defense Intelligence Agency.  As required for his various government positions, Mallory obtained a Top Secret security clearance, which was active during various assignments during his career.  Mallory’s security clearance was terminated in October 2012 when he left government service.

Mallory was convicted of conspiracy to deliver, attempted delivery, delivery of defense information to aid a foreign government, and making material false statements.  He faces a maximum penalty of life in prison when sentenced on Sept. 21.  The statutory maximum penalty is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Assistant U.S. Attorneys John T. Gibbs and Colleen E. Garcia of the Eastern District of Virginia, and Trial Attorney Jennifer Kennedy Gellie of the National Security Division’s Counterintelligence and Export Control Section are prosecuting the case.

Mississippi Real Estate Investors Plead Guilty to Conspiring to Rig Bids at Public Foreclosure Auctions

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April 10, 2018

Real estate investors Kevin Moore, Chad Nichols, and Terry Tolar pleaded guilty today for their roles in a conspiracy to rig bids at public real estate foreclosure auctions in Mississippi, the Department of Justice announced.

Including Moore, Nichols, and Tolar, five real estate investors have pleaded guilty in this conspiracy. Separate felony charges against Moore, Nichols, and Tolar were filed on April 3, 2018, in the U.S. District Court for the Southern District of Mississippi.

“Today’s guilty pleas send a strong signal that the Division will prosecute and hold accountable those who conspire to corrupt the competitive process and harm the American consumer,” said Assistant Attorney General Makan Delrahim of the Department of Justice’s Antitrust Division. “We extend our thanks to our law enforcement partners, with whom we will continue to investigate bid-rigging crimes in Mississippi—and throughout the United States.”

“Individuals who harm homeowners and defraud companies by cheating our foreclosure system to enrich themselves will face swift and certain criminal prosecution in Mississippi,” said United States Attorney D. Michael Hurst, Jr. for the Southern District of Mississippi. “I applaud the FBI and the Antitrust Division for their tenacity and perseverance in pursuing these criminal actions and shutting this illegal scheme down.”

“Violations of the Sherman Act not only impact America’s financial institutions and distressed homeowners but also damage our free market society as a whole,” said Special Agent in Charge Christopher Freeze of the FBI in Mississippi. “We hope that others participating in this type of corruption understand that the FBI and Department of Justice will continue to protect Americans from price fixing and bid rigging that harm our economy.”

According to court documents, from at least as early as January 12, 2012, through at least as late as April 19, 2017, Moore conspired with others to rig bids, designating a winning bidder to obtain selected properties at public real estate foreclosure auctions in the Southern District of Mississippi. Nichols participated in the conspiracy from as early as April 14, 2010, through as late as February 25, 2015, and Tolar’s participation began as early as January 12, 2012, through as late as March 31, 2017. Co-conspirators made and received payoffs in exchange for their agreement not to bid.

The Department said that the primary purpose of the conspiracy was to suppress and restrain competition in order to obtain selected real estate offered at public foreclosure auctions at non-competitive prices. When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with any remaining proceeds paid to the homeowner. According to court documents, these conspirators paid and received money in connection with their agreement to suppress competition, which artificially lowered the price paid at auction for such homes.

A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for a Sherman Act charge may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime if either amount is greater than the statutory maximum fine.

The investigation is being conducted by the Antitrust Division’s Washington Criminal II Section and the FBI’s Gulfport Resident Agency, with the assistance of the U.S. Attorney’s Office for the Southern District of Mississippi. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact Antitrust Division prosecutors in the Washington Criminal II Section at 202-598-4000, or visit https://www.justice.gov/atr/report-violations.