Category Archives: Financial Fraud, Procurement Fraud and Grant Fraud Trends by Bradford L. Geyer, Joan E. Marshall and Phillip Zane

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

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

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

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

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

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

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

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

U.S. Seeks to Recover $12.5 Million Obtained from High-Level Corruption in the Philippines

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The Department of Justice filed a civil forfeiture complaint today seeking to recover approximately $12.5 million in assets found in the United States that derive from bribery and kickback schemes in the Philippines spanning nearly a decade.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and Assistant Director in Charge David Bowdich of the FBI’s Los Angeles Field Office made the announcement.

“Over nearly a decade, Janet Napoles allegedly stole millions of dollars in funds entrusted to her for development assistance and disaster relief for the people of the Philippines,” said Assistant Attorney General Caldwell.  “In an effort to disguise and enjoy her ill-gotten gains, Napoles purchased properties and other assets in the United States for herself and her family members, including a condominium at the Ritz and a Porsche.  The Justice Department will not allow the United States to become a playground for the corrupt or a place to hide and invest stolen riches.”

“The FBI is committed to ensuring that the U.S. financial system is not used to launder the proceeds of foreign bribery schemes,” said Assistant Director in Charge Bowdich.  “Nor is the United States a safe haven for the fruits of corruption.”

As alleged in the complaint, from approximately 2004 to 2012, Philippine businesswoman Janet Napoles, 51, paid tens of millions of dollars in bribes and kickbacks to Philippine politicians and other government officials in exchange for over $200 million in funding for purported development assistance and disaster relief.  Napoles’ non-governmental organizations (NGOs), however, then either failed to provide, or under-delivered on, the promised support.  The complaint further alleges that Napoles also diverted NGO funds for her own personal use and benefit, often draining accounts within days of government disbursements.  For this conduct, the Philippines’ Office of the Ombudsman has charged Napoles, two of her children and numerous current and former Philippine politicians and other government officials in connection with what has been nicknamed the “pork barrel scam.”

The complaint alleges that Napoles transferred over $12 million in Philippine government-awarded funds to bank accounts in the United States in the names of, or controlled by, her family members.  According the complaint, Napoles used the money to purchase numerous assets, including a condominium at the Ritz-Carlton in Los Angeles for her 21-year-old daughter.  The complaint seeks to forfeit the proceeds from the sale of the Los Angeles condominium, along with several other assets, including a motel near Disneyland in Anaheim, California; properties in Covina and Irvine, California; a 19 percent stake in a California-based consulting company; and a Porsche Boxster that was purchased for another daughter.

Napoles is currently serving a sentence of life in prison in the Philippines for her role in the kidnapping and detention of her cousin, Benhur Luy, who served as Napoles’s finance officer and tracked her schemes.

The complaint was brought under the Kleptocracy Asset Recovery Initiative, in which a team of dedicated prosecutors in the Criminal Division’s Asset Forfeiture and Money Laundering Section work in partnership with federal law enforcement agencies to forfeit the proceeds of foreign official corruption and, where appropriate, return those proceeds to benefit the people harmed by these acts of corruption and abuse of office.  Individuals with information about possible proceeds of foreign corruption located in or laundered through the United States should contact federal law enforcement or send an email to [email protected]

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The investigation was conducted by the FBI’s Los Angeles Field Office.  The case is being handled by Trial Attorney Alexis J. Loeb of the Criminal Division’s Asset Forfeiture and Money Laundering Section, with substantial support from the U.S. Attorney’s Office of the Central District of California, the U.S. Marshals Service and the Criminal Division’s Office of International Affairs.  The Justice Department also thanks the Philippines’ Office of the Ombudsman, Anti-Money Laundering Council, National Bureau of Investigation and Department of Justice for their cooperation in this matter.

 

Six Nigerian Nationals Extradited from South Africa to Mississippi to Face Fraud Charges

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Six Nigerian nationals were extradited from South Africa to Gulfport, Mississippi, to face a nine-count federal indictment in the Southern District of Mississippi alleging various Internet fraud schemes.  A total of 20 defendants are charged in this case.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney Gregory K. Davis of the Southern District of Mississippi made the announcement.

Oladimeji Seun Ayelotan, 30; Rasaq Aderoju Raheem, 31; Olusegun Seyi Shonekan, 33; Taofeeq Olamilekan Oyelade, 30; Olufemi Obaro Omoraka, 26; and Anuoluwapo Segun Adegbemigun, 39, are charged along with 15 others in an Oct. 7, 2014, indictment with conspiracy to commit mail fraud, wire fraud, bank fraud, conspiracy to commit identity theft, use of unauthorized account access devices, theft of U.S. government funds and conspiracy to commit money laundering.  The charges stem from the defendants alleged participation in numerous Internet-based complex financial fraud schemes, including romance scams, re-shipping scams, fraudulent check scams and work-at-home scams, as well as bank, financial and credit card account takeovers.

According to the allegations in the indictment, from as early as 2001, the defendants identified and solicited potential victims through online dating websites and work-at-home opportunities.  In some instances, the defendants allegedly carried on fictitious online romantic relationships with victims for the purpose of using the victims to further certain objectives of the conspiracy.  For example, the indictment alleges that the defendants convinced victims to ship and receive merchandise purchased with stolen personal identifying information (PII) and compromised credit card and banking information, to deposit counterfeit checks, and to transfer proceeds of the conspiracy via wire, U.S. mail or express delivery services.

To date, defendants Teslim Olarewaju Kiriji, 30; Olutoyin Ogunlade, 41; and Dennis Brian Ladden, 75, have been convicted of offenses relating to their roles in the schemes.  Defendants Susan Anne Villeneuve, 49; and Genoveva Farfan, 45; Sesan Olumide Farin, 40; Femi Alexander Mewase, 44; Rhulane Fionah Hlungwane, 24; and Adekunle Adefila, 40, are awaiting trial.  The United States is seeking extradition from Nigeria of defendants Kayode Bamidele, Ajayi Oluwaseyi Stephen and Emmanuel Adeniyi Osokomaiya.  Defendants Gabriel Oludare Adeniran and Oduntan Sikiru Lawani remain fugitives.

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

This case is being investigated by Homeland Security Investigations (HSI) and the U.S. Postal Inspection Service.  Significant assistance was also provided by the Criminal Division’s Office of International Affairs, the HSI Cyber Crimes Center, HSI Attachés in Pretoria and Dakar, U.S. Marshals Service’s International Investigations Branch and the Southern District of Mississippi, the South African Police Service (SAPS) Directorate of Priority Crimes Investigation (DPCI) Electronic Crimes Unit, the SAPS Interpol Extradition Unit, the South African National Prosecution Authority, and the South African Department of Justice and Constitutional Development.  The case is being prosecuted by Trial Attorney Robert Tully of the Criminal Division’s Organized Crime Gang Section and Assistant U.S. Attorneys Annette Williams and Scott Gilbert of the Southern District of Mississippi.

 

Investment Company Executives Indicted for $1.5 Billion Ponzi Scheme

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The president and chief executive officer and two former Asia-based executives of a Las Vegas investment company were indicted today for their roles in an alleged $1.5 billion Ponzi scheme.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Daniel G. Bogden of the District of Nevada and Special Agent in Charge Laura A. Bucheit of the FBI’s Las Vegas Division made the announcement.

“The defendants allegedly preyed on thousands of unsuspecting Japanese victims to enrich themselves by operating a billion-plus dollar Ponzi scheme,” said Assistant Attorney General Caldwell.  “This prosecution shows that the Criminal Division will pursue not only those who victimize American citizens, but also those who use the U.S. as a home base to defraud victims abroad.”

“Investment fraud and other financial fraud cases are a high priority for the U.S. Attorney’s Office in Nevada,” said U.S. Attorney Bogden.  “These defendants are accused of using a Nevada corporation to conduct their $1.5 billion fraud scheme and falsely telling thousands of overseas victims that their investments would be safely held and managed by an independent, third-party escrow agent in Nevada.  Fraudulent ruses and schemes perpetrated by Nevadans using Nevada corporations and entities will continue to be addressed by this office.”

“These indictments are a reminder of the FBI’s determination to identify, investigate and bring to justice those who are committing financial crimes against innocent consumers,” said Special Agent in Charge Bucheit.  “We are appreciative of the continued support we receive from our international, federal, state and local law enforcement partners.”

Edwin Fujinaga, 68, of Las Vegas; Junzo Suzuki, 66, of Tokyo; and Paul Suzuki, 36, of Tokyo, were charged in an indictment with eight counts of mail fraud and nine counts of wire fraud.  Fujinaga also is charged with three counts of money laundering.  The indictment seeks from all three defendants forfeiture of the proceeds from the alleged crimes.

Fujinaga was the president and CEO of Las Vegas-based MRI International Inc. (MRI).  Junzo Suzuki previously was MRI’s executive vice president for Asia Pacific, and Paul Suzuki previously was the company’s general manager for Japan operations.  MRI purportedly specialized in “factoring,” whereby the company purchased accounts receivable from medical providers at a discount, and then attempted to recover the entire amount, or at least more than the discounted amount, from the debtor.

According to allegations in the indictment, from at least 2009 to 2013, Fujinaga and the Suzukis fraudulently solicited investments from thousands of Japanese residents, and MRI currently owes investors over $1.5 billion.  Specifically, the indictment alleges that Fujinaga and the Suzukis promised investors a series of interest payments that would accrue over the life of the investment and that would be paid out along with the face value of the investment at the conclusion of the investments’ duration.  The defendants allegedly solicited investments by, among other things, promising investors that their investments would be used only for the purchase of medical accounts receivable (MARS) and by representing that investors funds would be managed and safeguarded by an independent third-party escrow company.

The indictment further alleges that MRI operated as a Ponzi scheme, wherein the defendants used new investors’ money to pay prior investors’ maturing investments.  According to the indictment, the defendants also allegedly used investors’ funds for purposes other than the purchase of MARS, including paying themselves sales commissions, subsidizing gambling habits, funding personal travel by private jet, and other personal expenses.

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

This case is being investigated by the FBI’s Las Vegas Division.  Significant assistance was provided by the U.S. Securities and Exchange Commission, the Criminal Division’s Office of International Affairs and Japanese authorities.  This case is being prosecuted by Assistant Chief Albert B. Stieglitz Jr. and Trial Attorney Melissa Aoyagi of the Criminal Division’s Fraud Section and First Assistant U.S. Attorney Steven W. Myhre of the District of Nevada.

If you believe you are a victim of this offense, please click on the following link for more information: justice.gov/usao-nv/united-states-v-edwin-fujinaga-junzo-suzuki-and-paul-suzuki-mri.

 

3C’s: Thomas Farmer Acquitted in Puerto Rico Shipping Price Fixing Trial

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After a three-week trial, Thomas Farmer, a former Crowley Liner Services Vice-President was acquitted of price-fixing and bid rigging charges by a jury in Puerto Rico. The trial was before Federal District Court Judge Daniel Dominguez. The jury was composed of six men and six women. They deliberated for three hours before returning their verdict. Framer had been indicted on March 21, 2013 on a charge of conspiracy to fix and rig Puerto Rico freight surcharges with counterparts from Horizon Lines and Sea Star Line in the U.S. mainland-Puerto Rico trade.

The acquittal marks the end of the Antitrust Division’s otherwise successful investigation into price-fixing on ocean shipping route between Puerto Rico and the United States. Farmer was the second executive to go to trial. Frank Peake, the former President of Sea Star, was convicted in 2013 on a similar charge (here). Peake’s case was noteworthy in that he was sentenced to five years in prison, a record sentence for a Sherman Act conviction (here). The Peake trial came after subordinates of his and co-conspirators from other companies had pled guilty and cooperated with the government. Peak’s direct subordinate at Sea Star, Peter Baci, was sentenced to 48 months in prison and fined $20,000. Peake’s counterpart at Horizon, Gabriel Serra, was sentenced to 34 months in prison. Other executives at Sea Star and Horizon had pled guilty, and received prison terms ranging from seven months to 29 months. Three companies have paid more than $46 million in fines for their involvement in a conspiracy that included setting rates, bid rigging and other practices.

Farmer faced a maximum sentence of ten years in prison. Farmer was represented by Joseph C. Laws, Melanie Matos Gilroy Cardona and Terrance Reed.  Farmer was facing a maximum of ten years in prison if convicted and his legal team deserves great credit for the best outcome Farmer could have hoped for.  But, there are great difficulties that the Antitrust Division faces in a “last man standing trial.”  I am not familiar with the specifics of the Farmer trial but some of these inherent difficulties are:

  • Staleness:  Farmer was indicted in March 2013.  The indictment charged a conspiracy: “From at least as early as mid-2005, to in or about April 2008.”  So, Farmer was indicted just before the five-year statute of limitations expired.  His trial did not begin until more than two years after indictment.  Farmer was tried in 2015 for conduct that ended in early 2008.  Antitrust violations do not “shock the conscience” the way a crime of violence might, and the long delay between conduct and trial can diminish whatever “jury appeal” a price-fixing case might have had.
  • Witness Fatigue:  When a witness signs a cooperation agreement with the Antitrust Division, he usually doesn’t realize that his cooperation may last longer than many marriages.  It can be difficult to work with a witness who has long since (hoped) he had put this chapter of his life behind him.  Witness prep so many years after the alleged conduct occured can involve an increasing frequency of “I’m not sure.  That was a really long time ago.”  And, in this case it was.
  • Prior Statements:  As I said, I have not read the record in the Farmer case so I do not know who the witnesses were.  But, there is a good chance some of the witnesses previously testified in the Peake trial.  So besides witness fatigue and faded recollections, defense attorneys have prior statements to work with on cross-examination.
  • The Weak Cases Are The Ones That Go To Trial:  It used to be fair to say that the Antitrust Division got plea agreements from those who they had the strongest cases against, but often found itself trying weaker cases, sometimes against senior managers that had insulated themselves from most of the illegal conduct.  But, my opinion is that today cases go to trial because the sentencing guidelines are so severe (based on volume of commerce) that the “last man standing,” who can’t get a 5K cooperation agreement/downward departure, has little to lose by going to trial.  Mr. Farmer went to trial because he declared he was innocent and a jury did in fact acquit him.  But, even a guilty party might go to trial because: (a) he has at least a chance at acquittal; (b) even if convicted at trial, he will likely be sentenced to less time than he could have negotiated with the Antitrust Division pursuant to a recommended guidelines plea agreement; and (c) in any event he can appeal and hope to get a conviction reversed on appeal.  In essence, the trial is an extended sentencing hearing, with a chance of acquittal, and even if convicted, a hope the conviction can be overturned.  I co-authored an article “A Peek Behind the Record Peake Sentence” (here) that explored some of these ideas.

Congratulations to Farmer’s defense team and also to the Antitrust Division for an otherwise very successful investigation.

Thanks for reading.

United Parcel Service Agrees to Settle Alleged Civil False Claims Act Violations

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United Parcel Service Inc. (UPS) has agreed to pay $25 million to resolve allegations that it submitted false claims to the federal government in connection with its delivery of Next Day Air overnight packages, the Justice Department announced today.  UPS is a package delivery company based in Atlanta.

“Protecting the federal procurement process from false claims is central to the mission of the Department of Justice,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.  “We will continue to ensure that when federal monies are used to purchase commercial services the government receives the prices and services to which it is entitled.”

“This conduct affected numerous federal agencies,” said U.S. Attorney Dana J. Boente of the Eastern District of Virginia.  “We place high importance on the integrity of companies that provide services to the government.  Combating all manners of fraud on the government is a high priority in the Eastern District of Virginia.”

UPS provides delivery services to hundreds of federal agencies through contracts with the U.S. General Services Administration (GSA) and U.S. Transportation Command, which provides support to Department of Defense agencies.  Under these contracts, UPS guaranteed delivery of packages by certain specified times the following day.  The settlement announced today resolves allegations that from 2004 to 2014, UPS engaged in practices that concealed its failure to comply with its delivery guarantees, thereby depriving federal customers of the ability to request refunds for the late delivery of packages.  In particular, the government alleged that UPS knowingly recorded inaccurate delivery times on packages to make it appear that the packages were delivered on time, applied inapplicable “exception codes” to excuse late delivery  (such as “security delay,” “customer not in,” or “business closed”), and provided inaccurate “on-time” performance data under the federal contracts.

“The United States should get what it pays for, nothing less,” said Acting Inspector General Robert C. Erickson of the GSA.

The civil settlement resolves a lawsuit filed under the whistleblower provision of the False Claims Act, which permits private parties to file suit on behalf of the United States for false claims and obtain a portion of the government’s recovery.  The civil lawsuit was filed in the Eastern District of Virginia by Robert K. Fulk, a former employee of UPS, who will receive $3.75 million.

The resolution in this matter was the result of a coordinated effort between the U.S. Attorney’s Office of the Eastern District of Virginia, the GSA Office of Inspector General (OIG), the Federal Deposit Insurance Corporation OIG, the Defense Criminal Investigative Service, and the Treasury Inspector General for Tax Administration and the Department of Treasury OIG, with assistance from the Department of Veterans Affairs OIG.

The lawsuit is captioned United States ex rel. Fulk v. United Parcel Service, Inc., et al., No. 1:11cv890 (E.D. Va.).  The claims resolved by this settlement are allegations only, and there has been no determination of liability.

Thomas Farmer Acquitted Puerto Rico Shipping Price Fixing Trial

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After a three-week trial, Thomas Farmer, a former Crowley Liner Services Vice-President was acquitted of price-fixing and bid rigging charges by a jury in Puerto Rico. The trial was before Federal District Court Judge Daniel Dominguez. The jury was composed of six men and six women. They deliberated for three hours before returning their verdict. Framer had been indicted on March 21, 2013 on a charge of conspiracy to fix and rig Puerto Rico freight surcharges with counterparts from Horizon Lines and Sea Star Line in the U.S. mainland-Puerto Rico trade.

The acquittal marks the end of the Antitrust Division’s otherwise successful investigation into price-fixing on ocean shipping route between Puerto Rico and the United States. Farmer was the second executive to go to trial. Frank Peake, the former President of Sea Star, was convicted in 2013 on a similar charge (here). Peake’s case was noteworthy in that he was sentenced to five years in prison, a record sentence for a Sherman Act conviction (here). The Peake trial came after subordinates of his and co-conspirators from other companies had pled guilty and cooperated with the government. Peak’s direct subordinate at Sea Star, Peter Baci, was sentenced to 48 months in prison and fined $20,000. Peake’s counterpart at Horizon, Gabriel Serra, was sentenced to 34 months in prison. Other executives at Sea Star and Horizon had pled guilty, and received prison terms ranging from seven months to 29 months. Three companies have paid more than $46 million in fines for their involvement in a conspiracy that included setting rates, bid rigging and other practices.

Farmer faced a maximum sentence of ten years in prison. Farmer was represented by Joseph C. Laws, Melanie Matos Gilroy Cardona and Terrance Reed.  Farmer was facing a maximum of ten years in prison if convicted and his legal team deserves great credit for the best outcome Farmer could have hoped for.  But, there are great difficulties that the Antitrust Division faces in a “last man standing trial.”  I am not familiar with the specifics of the Farmer trial but some of these inherent difficulties are:

  • Staleness:  Farmer was indicted in March 2013.  The indictment charged a conspiracy: “From at least as early as mid-2005, to in or about April 2008.”  So, Farmer was indicted just before the five-year statute of limitations expired.  His trial did not begin until more than two years after indictment.  Farmer was tried in 2015 for conduct that ended in early 2008.  Antitrust violations do not “shock the conscience” the way a crime of violence might, and the long delay between conduct and trial can diminish whatever “jury appeal” a price-fixing case might have had.
  • Witness Fatigue:  When a witness signs a cooperation agreement with the Antitrust Division, he usually doesn’t realize that his cooperation may last longer than many marriages.  It can be difficult to work with a witness who has long since (hoped) he had put this chapter of his life behind him.  Witness prep so many years after the alleged conduct occured can involve an increasing frequency of “I’m not sure.  That was a really long time ago.”  And, in this case it was.
  • Prior Statements:  As I said, I have not read the record in the Farmer case so I do not know who the witnesses were.  But, there is a good chance some of the witnesses previously testified in the Peake trial.  So besides witness fatigue and faded recollections, defense attorneys have prior statements to work with on cross-examination.
  • The Weak Cases Are The Ones That Go To Trial:  It used to be fair to say that the Antitrust Division got plea agreements from those who they had the strongest cases against, but often found itself trying weaker cases, sometimes against senior managers that had insulated themselves from most of the illegal conduct.  But, my opinion is that today cases go to trial because the sentencing guidelines are so severe (based on volume of commerce) that the “last man standing,” who can’t get a 5K cooperation agreement/downward departure, has little to lose by going to trial.  Mr. Farmer went to trial because he declared he was innocent and a jury did in fact acquit him.  But, even a guilty party might go to trial because: (a) he has at least a chance at acquittal; (b) even if convicted at trial, he will likely be sentenced to less time than he could have negotiated with the Antitrust Division pursuant to a recommended guidelines plea agreement; and (c) in any event he can appeal and hope to get a conviction reversed on appeal.  In essence, the trial is an extended sentencing hearing, with a chance of acquittal, and even if convicted, a hope the conviction can be overturned.  I co-authored an article “A Peek Behind the Record Peake Sentence” (here) that explored some of these ideas.

Congratulations to Farmer’s defense team and also to the Antitrust Division for an otherwise very successful investigation.

Thanks for reading.

Thirty-Three Defendants Charged in Massive Criminal Conspiracies Including Allegations of Fraud, Prescription Drug Diversion, and Money Laundering

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FOR IMMEDIATE RELEASE
Thursday, May 7, 2015

Thirty-two people were arrested yesterday after being charged variously with racketeering conspiracy, conspiracy to commit identity theft, conspiracy to commit access device fraud, conspiracy to commit mail, wire and bank fraud, conspiracy to commit money laundering, conspiracy to use a facility of interstate commerce to commit murder-for-hire and conspiracy to engage in the unlicensed wholesale distribution of drugs, announced U.S. Attorney Melinda Haag of the Northern District of California, Special Agent in Charge David J. Johnson of the Federal Bureau of Investigation, and Special Agent in Charge José M. Martinez of Internal Revenue Service (IRS) Criminal Investigation.  A thirty-third defendant remains at large and is subject to an active arrest warrant.

According to an indictment that was unsealed yesterday, Ara Karapedyan, 45, Mihran Stepanyan, 29, and Artur Stepanyan, 38, were at the center of a nationwide conspiracy—with at least 18 other person—to conduct the affairs of a wide-ranging criminal enterprise through a pattern of racketeering.  This enterprise was fueled by a broad range of criminal activity including unlicensed wholesale drug distribution, money laundering and fraud.  The indictment names 33 defendants in all and describes an enterprise that spanned throughout California as well as in Minnesota, Ohio and Puerto Rico.

One key aspect of the alleged criminal activity described in the indictment was a multi-million dollar prescription drug diversion scheme.  Members and associates of the enterprise are alleged to have procured prescription drugs from unlicensed sources and to have resold the drugs to unknowing customers.  A central figure to these allegations is David Miller, 50.  Miller is alleged to be the owner and operator of a drug wholesaler called Minnesota Independent Cooperative (MIC) that, between 2010 and 2014, bought approximately $157 million of drugs from Mihran Stepanyan and Artur Stepanyan.  Miller and his employees allegedly knew the Stepanyans were not licensed to sell drugs and knew the Stepanyans procured their drugs through unlicensed sources.  Miller and his employees nevertheless purchased the drugs from the Stepanyans’ various companies, including Panda Capital Group, Red Rock Capital, Trans Atlantic Capital, GC National Wholesale, Sky Atlantic Capital and Nationwide Payment Solutions and resold the drugs as legitimate products.

A separate investigation has resulted in another indictment in the Southern District of Ohio charging David Miller, Mihran Stepanyan, Artur Stepanyan and MIC with various crimes arising from their sale of millions of dollars of illicitly-procured drugs.

The indictment also charges Karapedyan and his associates with engaging in the fraudulent unlicensed distribution of drugs.  For instance, from 2013 through 2015, Karapedyan, either personally or through an associate, sold several hundred thousand dollars’ worth of drugs such as Abilify, Liboderm, Cymbalta and Namenda, as well as HIV drugs such as Atripla, Truvada and Isentress and the cancer drug Gleevec.  Likewise, from roughly the latter part of 2014 through early 2015, Karapdyan and his racketeer co-conspirator Maxwell Starsky, 36, sold to another complicit wholesaler more than $1 million in illicitly procured drugs.  Karapedyan also supplied the Stepanyans with drugs.

Hugo Marquez, 41, Eric Figueroa, 29, Arman Zagaryan, 32, and their associates are likewise charged with procuring drugs from unlicensed sources and distributing the drugs to buyers.  According to the indictment, Alexander Soliman, 46, was one of their principal customers.  Between roughly 2012 and 2014, Soliman, through his companies Apex Pharmaceuticals and Maroon Pharma, knowingly purchased illicitly-procured drugs from Marquez, Figueroa and Zagaryan and then re-sold them as legitimate drugs.  During this time period, Marquez, Figueroa, Zargaryan and Soliman engaged in the distribution of more than $20 million worth of drugs.

Another aspect of the alleged criminal activity is a massive check and bank fraud operation.  As part of the enterprise, Karapedyan and his associates, including Asatour Magzanyan, 53, Tigran Sarkisyan, 38, and Hripsime Khachtryan, 41, allegedly used fraudulent identification information to prepare fraudulent tax returns, which were then filed with the government in order to induce the U.S. Treasury to issue tax refund checks.  Karapedyan associate Khachig Geuydjian, 74, allegedly used his unlicensed mail-box business to provide addresses for these fraudulent tax filings.  They and other members and associates of the enterprise then negotiated the tax refund checks using fraudulent identities or through a complicit check cashing business operated by Jean Dukmajian, 61, Karine Dukmajian, 33, and Angela Dukmajian, 26.  In addition to the tax refund scheme, members and associates of the enterprise also engaged in negotiating counterfeit and stolen checks.  In all, from roughly late 2012 to late 2014, Karapedyan and his associates negotiated more than 500 fraudulent checks worth more than $5 million.

In addition to the fraudulent unlicensed distribution of drugs and negotiating fraudulent checks, Karapedyan, the Stepanyans, Miller and others are charged with conspiring to launder money in an effort to promote their criminal activities and to conceal proceeds collected from their criminal activities.  For example, a description of Miller’s activity between 2012 through 2014, wherein he attempted to hide the fact he was paying the Stepanyans for drugs is alleged in the indictment.  The indictment further alleges Miller made the payments to the Stepanyans’ company GC National Wholesale through companies in Puerto Rico he controlled, such as B&Y Wholesalers and FMC Distributors.  The payments were for sales of drugs that the Stepanyans actually delivered to Miller’s company MIC.  Similarly, the indictment includes allegations Karapedyan and Starsky also arranged payments for more than $1 million of illicitly-procured drugs through a shell company.  In addition, Karapedyan also allegedly laundered money for the Stepanyans.  According to the indictment, in 2013, the Stepanyans transferred more than $1 million in proceeds derived from MIC to Karapedyan, who caused the money to be withdrawn as cash.

Furthermore, in addition to the foregoing, defendants Karapedyan and Gevork Ter-Mkrtchyan are charged with conspiring to use a facility of interstate commerce to commit murder-for-hire.  According to the indictment, these defendants made several attempts to find a person who would be willing to kill someone who had angered Ter-Mkrtchyan.  Although the defendants paid $1,500 for the hit, it was never carried out.

According to the indictment, a significant portion of the criminal activity took place in the Northern District of California.  For example, one delivery of drugs took place in the Northern District of California and many of the checks were negotiated in the Northern District as well.  In addition, much of the proceeds from the check and the drug schemes were laundered through the Northern District of California, where Karapedyan and his associates regularly picked up large amounts of cash.  In addition, Miller’s company, MIC, posted fraudulent information relating to the origins of the drugs he sold via a website.  The website was maintained by an Internet service provider in the Northern District of California.  Furthermore, Karapedyan made numerous calls to the Northern District of California in order to find individuals willing to perform the hit he sought.

An indictment merely alleges that crimes have been committed, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt.   All the defendants except Miller were arrested yesterday.  Miller remains at large and is the subject of an active arrest warrant.

In sum, the indictment includes seven counts as follows: count One, RICO conspiracy, in violation of 18 U.S.C. § 1962(d) (maximum term of imprisonment, life or 20 years); Count Two, conspiracy to commit identity theft, in violation of 18 U.S.C. §  1028(f) (maximum term of imprisonment, 15 years); Count Three, conspiracy to commit access device fraud, 18 U.S.C. § 1029(b)(2) (maximum term of imprisonment, 5 years); Count Four, conspiracy to commit mail, wire, and bank fraud, in violation of 18 U.S.C. § 1349; Count Five, conspiracy to commit money laundering, in violation of 18 U.S.C. § 1956(h) (maximum term of imprisonment, 20 years); Count Six, conspiracy to use interstate facility to commit murder-for-hire, in violation of 18 U.S.C. § 1958); Count Seven, conspiracy to engage in unlicensed wholesale distribution of drugs, in violation of 18 U.S.C. § 371 (maximum term of imprisonment, 5 years).

The following charges apply as against the following defendants are: Ara Karapedyan on Counts one through seven, Mihran Stepanyan on counts one through five and seven, Artur Stepanyan on counts one through five and seven, Gevork Ter-Mkrtchyan on counts 1-7, Khachig Geuydjian on counts one through five, Arman Petrosyan on counts one through five, Lanna Karapedyan on counts one through five, Maxwell Starsky on counts one through five and seven, Sevak Gharghani on counts one through five and seven, Jean Dukmajian, on counts one through five, Karine Dukmajian on counts one through five, Angela Dukmajian on counts one through five, Arman Danielian count one, four, five and seven, Asatour Magzanyan conts one through five, Tigran Sarkisyan counts one through five, Hripsime Khachtryan counts one through five, Loui Artin on counts one through five, Hugo Marquez on counts one through five and seven, Arman Zargaryan on counts one through five and seven, Dmitriy Kustov on counts two through four, Michael Inman on counts two through four, Araxia Nazaryian on counts two five and seven, Alexander Soliman on counts four, five and seven, Cheryl Barndt on counts four, five and seven, Eric Figueroa on counts four, five and seven, Marc Asheghian on counts four, five and seven, Michael Asheghian on counts four, five and seven, David Milleron cunts one through five and seven, James Russoon on counts four, five and seven, Jeannette Couch counts four, five and seven, Marie Polichetti counts four, five and seven, Bernardo Guillen counts four, five and seven, Javier Ramirez on counts four and seven.

Additional periods of supervised release, fines and special assessments also could be imposed.  Any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

Thirty-one defendants appeared before the Honorable Victor B. Kenton and Michael R. Wilner in the Central District of California on Wednesday, May 6, 2015, to be advised of the charges against them and to determine conditions of release.  Some of those hearings have been continued at the request of the defendants.  Specifically, the bail hearing for Eric Figueroa has been continued to Friday, May 8, 2015, and the hearings for Hugo Marquez and Michael Inman have been continued to Monday, May 11, 2015, before the Honorable Michael R. Wilner.  In addition, Karapedyan will appear on Friday, May 8, 2015, before the Honorable Victor B. Kenton.

Further, Ter-Mkrtchyan has requested a hearing in which the government will be required to prove his identity, i.e., that he is the individual named in the indictment.  That hearing will occur on Friday, May 8, 2015, before the Honorable Victor B. Kenton.

The remaining 26 defendants have been ordered to appear before the Honorable Jacqueline Scott Corley in the Northern District of California. Alexander Soliman, Araxia Nazaryian and Asatour Magzanyan will appear on May 12, 2015.  Cheryl Barndt, Marc Asheghian, Michael Asheghian, Hripsime Khachtryan, Bernardo Guillen, Javier Ramirez, Jean Dukmajian, Karine Dukmajian, Angela Dukmajian, Khachig Geuydjian and Arman Zargaryan will appear on May 20, 2015.  Jeannette Couch, Loui Artin, Dmitriy Kustov, Marie Polichetti, Arman Danielian, Lanna Karapedyan, Sevak Gharghani, Arman Petrosyan and Maxwell Starsky will appear on May 22, 2015.

Mihran Stepanyan, Artur Stepanyan and Tigran Sarkisyan are being transported to the Northern District of California by the U.S. Marshal Service and will make court appearances after their arrival.

Assistant U.S. Attorneys Damali A. Taylor, David Countryman and W.S. Wilson Leung are prosecuting the case with the assistance of Lance Libatique, Ponly Tu, Daniel Charlier-Smith.  The prosecution is the result of an investigation by the Federal Bureau of Investigation and the Internal Revenue Service.

US Lender Pays $3.8 Million to Resolve Liability Relating to ExIm Bank Loans

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The Justice Department announced today that Hencorp Becstone Capital L.C. (Hencorp) has agreed to pay $3.8 million to resolve allegations under the False Claims Act that it made false statements and claims to the Export-Import Bank of the United States (Ex-Im Bank) in order to obtain loan guarantees.  Hencorp is a Miami-based lender and financial services company that provides financing and other financial services to Latin American businesses.

“The Ex-Im Bank provides vital support for U.S. manufacturing by enabling foreign businesses to obtain financing to purchase U.S.-made goods and equipment,” said Acting Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.  “The Justice Department will continue to vigorously pursue those who attempt to take advantage of this important program.”

The Ex-Im Bank guarantees loans made by approved lenders to foreign businesses for the purchase of American-made products.  The lender is responsible for performing a credit review of the transaction to ensure that it meets applicable criteria.  The government alleged that Ricardo Maza, a Peruvian-based former Hencorp business agent, created false documentation to obtain Ex-Im Bank guarantees on fictitious transactions on which no products were sold or exported, and that Hencorp acted recklessly by outsourcing key credit review functions to Maza without adequate supervision or oversight.  The government alleged that Maza then diverted the proceeds of the loans to himself and to his friends and business associates in Peru, and that the transactions resulted in losses to the Ex-Im Bank when the loans were not repaid.  In 2012, Mario Mimbella, 64, of Miami, Florida, the purported U.S.-based exporter on three of the fraudulent transactions, pled guilty to making false records for his participation in the scheme and was later sentenced to prison.

“Lenders that use Ex-Im programs have an obligation to prevent and detect fraud,” said Acting Inspector General Michael T. McCarthy for the Ex-Im Bank.  “The Office of Inspector General will pursue accountability for all participants involved in schemes that defraud the Ex-Im Bank.”

This settlement resolves allegations made in a whistleblower lawsuit filed under the False Claims Act by Genaro Benites Caballero, the former owner of one of the purported purchasers who stated that he had no part in the scheme and that his signature was forged on key documents without his knowledge, and Patricia Doris Lee Dominguez, a former attorney for the purported purchaser.  Under the False Claims Act, private citizens can sue on behalf of the government and share in any recovery.  The whistleblowers will receive $608,000 of the settlement.

This case was handled by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the District of Columbia and the Office of Inspector General for the Ex-Im Bank.

The lawsuit is captioned United States ex rel. Benites Caballero, et al. v. Hencorp Becstone Capital, L.C., et al., cv-13-168 (D.D.C.).  The claims resolved by the settlement are allegations only, and there has been no determination of liability with respect to Hencorp.

Medtronic to Pay $4.41 Million in USDOJ-CIV Case

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The Justice Department announced today that Medtronic plc and affiliated Medtronic companies, Medtronic Inc., Medtronic USA Inc., and Medtronic Sofamor Danek USA Inc., have agreed to pay $4.41 million to the United States to resolve allegations that they violated the False Claims Act by making false statements to the U.S. Department of Veterans Affairs (VA) and the U.S. Department of Defense (DoD) regarding the country of origin of certain Medtronic products sold to the United States.

“Today’s settlement demonstrates our commitment to ensure that our service members and our veterans receive medical products that are manufactured in the United States and other countries that trade fairly with us,” said Acting Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.  “The Justice Department will take action to hold medical device companies to the terms of their government contracts.”

“Domestic manufacture is a required component of many military and Veterans Administration contracts,” said U.S. Attorney Andrew M. Luger of the District of Minnesota.  “Congress has mandated that the United States use its purchasing power to buy goods made in the United States or in designated countries.  We take that mandate seriously and will not hesitate to take appropriate legal action to ensure compliance.”

According to the settlement agreement, between 2007 and 2014, Medtronic sold to the VA and DoD products it certified would be made in the United States or other designated countries.  The Trade Agreements Act of 1979 (TAA) generally requires companies selling products to the United States to manufacture them in the United States or in another designated country.  The United States alleged that Medtronic sold to the United States products manufactured in China and Malaysia, which are prohibited countries under the TAA.

The specific Medtronic products at issue included anchoring sleeves sold with cardiac leads and used to secure the leads to patients, certain instruments and devices used in spine surgeries, and a handheld patient assistant used with a wireless cardiac device.  The agreement covers the period from Jan. 1, 2007, to Dec. 31, 2013, and for one device (the handheld patient assistant), the period from Jan. 1, 2014, to Sept. 30, 2014.

The settlement resolves allegations originally brought in a lawsuit filed by three whistleblowers under the qui tam provisions of the False Claims Act, which allow private parties to bring suit on behalf of the government and share in any recovery. The relators will receive a total of $749,700 of the recovered funds.

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $23.9 billion through False Claims Act cases, with more than $15.2 billion of that amount recovered in cases involving fraud against federal health care programs.

The case was handled by the U.S. Attorney’s Office of the District of Minnesota with assistance from the Civil Division, DoD, Defense Logistics Agency and Defense Criminal Investigative Service and the VA’s Office of General Counsel.

The underlying case is United States of America ex rel. Samuel Adam Cox, III, Meayna Phanthavong, and Sonia Adams v. Medtronic, Inc., Medtronic USA, Inc., and Medtronic Sofamor Danek USA, Inc., Civil No. 12-cv-2562 (PAM/JSM).

The claims resolved by the settlement are allegations only; there has been no determination of liability.