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

Former Trader Pleads Guilty for Scheme to Falsify Records

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A former trader at ConvergEx Global Markets Limited (CGM Limited) pleaded guilty this morning in federal court in New Jersey for his role in a scheme to falsify the books and records of a registered U.S. broker-dealer.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Paul J. Fishman of the District of New Jersey, Assistant Director in Charge Andrew G. McCabe of the FBI’s Washington Field Office and Inspector in Charge Philip R. Bartlett of the U.S. Postal Inspection Service (USPIS) made the announcement.

Michael Craig Marshall, 47, of Bermuda, pleaded guilty before U.S. District Judge Jose L. Linares of the District of New Jersey, to one count of conspiracy to falsify the books and records of a broker-dealer.

According to court documents, CGM Limited and G-Trade Services, LLC (G-Trade) were both wholly owned subsidiaries of ConvergEx Group LLC (ConvergEx Group).  G-Trade was a registered U.S. broker-dealer.  As part of his plea today, Marshall admitted that clients placed orders to buy or sell securities with G-Trade, and G-Trade then routed the orders to CGM Limited.  Marshall further admitted that traders at CGM Limited regularly added a mark-up (an additional amount paid for the purchase of a security) or mark-down (a reduction of the amount received for the sale of a security) when executing the orders.  Employees of CGM Limited, G-Trade and other ConvergEx Group entities referred to mark-ups and mark-downs as “spread,” “trading profits” or “TP.”

At his plea hearing today, Marshall admitted that he and the other coconspirators falsified G-Trade’s books and records.  In particular, Marshall admitted that he reviewed falsified transaction reports for two trades executed in August 2009 to verify that the falsified data regarding the quantities, prices and times of the purchases reflected on the report matched actual trades that had been executed on the market on Aug. 7, 2009, by both G-Trade’s client and other market participants.  The reports hid the fact that spread had been taken on the brokerage orders, Marshall admitted.  These reports were later provided to G-Trade’s client.

On Dec. 18, 2013, Jonathan Daspin, the head trader at CGM Limited, Thomas Lekargeren, a sales trader at a different ConvergEx subsidiary, and CGM Limited each pleaded guilty to conspiracy to commit securities and wire fraud.  On the same day, ConvergEx Group entered into a deferred prosecution agreement.  Collectively, the two ConvergEx entities paid $43.8 million in criminal penalties and restitution.

The case is being investigated by the FBI’s Washington Field Office and the USPIS offices in Washington, D.C. and New York.  The case is being prosecuted by Senior Trial Attorneys Jason Linder and Patrick Pericak of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Leslie Schwartz of the District of New Jersey.  Fraud Section Assistant Chief Robert Zink and Trial Attorney Justin Goodyear also assisted with the investigation.  The Department appreciates the substantial assistance of the Securities and Exchange Commission.

Mexican Businessman Arrested

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WASHINGTON, Feb. 3, 2015 /PRNewswire-USNewswire/ — The Office of Inspector General (OIG) for the Export-Import Bank of the United States (Ex-Im Bank) announced today that Fernando Pascual-Jimenez, age 44, was arrested on January 30, 2015, on charges that he conspired to commit wire fraud in connection with Ex-Im Bank loans resulting in loan defaults and claims paid by ExIm Bank of approximately $5 million.

On January 30, 2015, U.S. Customs and Border Protection and Homeland Security Investigations (HSI) agents in Las Vegas, Nevada, arrested Pascual as he arrived on an international flight from Mexico. Pascual was arrested based on an indictment and arrest warrant obtained by Special Agents from the Ex-Im Bank OIG charging him with violations of 18 U.S.C. § 1349 (conspiracy to commit wire fraud).

According to the indictment, Pascual owned and operated CEMEC Commercial, S.A. de C.V. (CEMEC), a company located inQueretaro, Mexico. According to the allegations in the indictment, from in or around July 2005 through July 2010, Pascual conspired with others to obtain an Ex-Im Bank guaranteed loan for exporting U.S. goods overseas. The indictment alleges that Pascual and others conspired to create false documents and did not use the loan proceeds for the purchase and shipment of the goods guaranteed by Ex-Im Bank.

This case is being prosecuted by the U.S. Attorney’s Office, Southern District of Florida. The case is being investigated by Ex-Im Bank OIG, Homeland Security Investigations – El Paso, TX; and the FBI – Washington, D.C.

An arrest based on an indictment is merely a charge and should not be considered as evidence of guilt. The defendant is presumed innocent until proven guilty in a court of law.

Ex-Im Bank is an independent federal agency that helps create and maintain U.S. jobs by filling gaps in private export financing. Ex-Im Bank provides a variety of financing mechanisms to help foreign buyers purchase U.S. goods and services.

Ex-Im Bank OIG is an independent office within Ex-Im Bank. The OIG receives and investigates complaints and information concerning violations of law, rules or regulations, fraud against Ex-Im Bank, mismanagement, waste of funds, and abuse of authority connected with Ex-Im Bank’s programs and operations. Additional information about the OIG can be found at www.exim.gov/oig. Complaints and reports of waste, fraud, and abuse related to Ex-Im Bank programs and operations can be reported to the OIG hotline at 888-OIG-EXIM (888-644-3946) or via email at [email protected].

SOURCE Office of Inspector General for the Export-Import Bank of the United States

New Grant Fraud Case Filed (Americorps)

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Maricopa County Community College District Agrees to Pay $4 Million for Alleged False Claims Related to Award of AmeriCorps Education Awards

Maricopa County Community College District (MCCCD) has agreed to pay $4.08 million to resolve allegations under the False Claims Act that it submitted false claims to the Corporation for National and Community Service (CNCS) concerning AmeriCorps state and national grants, the Justice Department announced today.  MCCCD is the entity responsible for operating community colleges in Maricopa County, Arizona, and is based in Phoenix.

“Those who receive federal funds must deal with the government openly and honestly,” said Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division.  “The Department of Justice will ensure that financial assistance provided by the Corporation for National and Community Service is received only by eligible individuals who satisfy CNCS’s mission of promoting service and education.”

CNCS is an independent federal agency that administers AmeriCorps, among other national service programs.  MCCCD obtained AmeriCorps funding for Project Ayuda, a program that proposed to engage students in national service.  In order to receive an AmeriCorps education award, a student had to meet certain service-hour requirements.  MCCCD allegedly improperly certified that students had completed the required number of service hours so that they would earn an education award.  This resulted in CNCS providing education awards to these students.  MCCCD also allegedly improperly received grant funds from CNCS to administer the project.

“Our internal process uncovered MCCCD’s mismanagement, and we worked with the Justice Department to ensure that taxpayer dollars were recovered,” said CNCS’s General Counsel Valerie Green.  “This is an example of how interagency collaboration works.”

“Taxpayers are justifiably outraged when a community fails to receive promised services because national service funds were misused,” said CNCS’s Inspector General Deborah J. Jeffrey.  “We hope that this settlement will deter other grantees from similar misconduct.”

The allegations resolved by this settlement arose from a whistleblower lawsuit filed under the False Claims Act by Christine Hunt, an MCCCD employee.  Under the False Claims Act, private citizens can sue on behalf of the government and share in any recovery.  Hunt’s share of the settlement is $775,827.

This case was handled by the Commercial Litigation Branch of the Civil Division and CNCS’s Office of Inspector General and Office of General Counsel.

The lawsuit is captioned United States ex rel. Hunt v. Maricopa County Community College District; Paula and Richard Vaughn, No. 11-cv-2241 (D. Ariz.).  The claims resolved by the settlement are allegations only, and there has been no determination of liability.

Army Sergeant Pleads Guilty for Scheme to Defraud the Military

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An Army sergeant pleaded guilty today to bribery and conspiracy to defraud the government for his role in a scheme to steal more than one million gallons of fuel from the U.S. military for resale on the black market in Afghanistan.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Thomas G. Walker of the Eastern District of North Carolina, Special Agent in Charge John F. Khin of the Defense Criminal Investigative Service (DCIS) Southeast Field Office, Special Agent in Charge John A. Strong of the FBI’s Charlotte Division, Director Frank Robey of the U.S. Army Criminal Investigation Command (CID) Major Procurement Fraud Unit (MPFU) and Special Inspector General for Afghanistan Reconstruction John F. Sopko made the announcement.

Christopher Ciampa, 32, of Lillington, North Carolina, entered his guilty plea before U.S. District Court Judge Terrence W. Boyle of the Eastern District of North Carolina.  The sentencing hearing was scheduled for the week of December 15, 2014.

“Sergeant Ciampa took bribes to help steal millions of dollars’ worth of fuel meant to support U.S. military operations in Afghanistan,” said Assistant Attorney General Caldwell.  “His greed put his fellow soldiers at greater risk, and his actions stand in stark contrast to the integrity and sacrifice demonstrated every day by the men and women of our Armed Forces.”

“The DCIS, with our investigative partners, continues to aggressively pursue those who deprive the Department of Defense of much needed resources, such as fuel, critical to accomplishing its global missions,” said DCIS Special Agent in Charge Khin.  “Corruption and theft in a combat environment, especially on such a large scale, degrade the effectiveness of the U.S. armed forces, and increases the danger to our warfighters by diverting those resources to our enemies

“Sergeant Christopher Ciampa betrayed his unit and nation for personal profit by entering into illegal relationships in order to personally profit from the sale and transport of fuel valued at millions of dollars,” said FBI Special Agent in Charge Strong.  “These actions, especially in a wartime environment, damage the reputation of all soldiers and impede the success of coalition war efforts.  Those who put the reputation and lives of their fellow servicemen and women at risk will be aggressively pursued by the FBI and our military partners dedicated to upholding justice.”

“Our highly-trained special agents are experts in fraud investigations and untangling webs of lies and deceit,” said CID MPFU Director Robey.  “Whether an individual is in or out of uniform, it makes no difference, we will do everything in our investigative power to see those who defraud the Army brought to justice.”

“The crimes alleged in this case are serious and describe actions that undermine our mission in Afghanistan,” said Special Inspector General Sopko.  “SIGAR will continue to work tirelessly to protect the American taxpayers’ hard earned money and bring the full weight of the justice system to bear on anyone who seeks to rob the U.S. government.”

According to his plea agreement, Ciampa was deployed to Afghanistan with the 3rd Special Forces Group Service Detachment and was assigned to Camp Brown at Kandahar Air Field between February 2011 and January 2012.  During the deployment, one of Ciampa’s chief responsibilities was management of the Transportation Movement Requests (TMRs) for fuel and other items in support of military units in Afghanistan paid for by the U.S. government.

Over the course of the conspiracy, Ciampa and others created and submitted false TMRs for the purchase of thousands of gallons of fuel that were neither necessary nor used by military units.  Instead, Ciampa and his co-conspirators stole the fuel and resold it on the black market in neighboring towns.  Between February 2011 and December 2011, they created false TMRs for 114 large fuel tanker trucks, which could each carry approximately 10,000 gallons of fuel.  All of the TMRs were awarded to a single Afghan trucking company, despite significantly higher rates charged by this company.

As a result of the criminal conduct, the United States suffered a total loss of $10,812,000.  The loss resulted from stolen fuel and payments on the fraudulent TMRs in the following amounts: $9,120,000 in lost fuel and $1,692,000 in fraudulent TMRs for the 114 large tanker trucks.

Ciampa admitted that he and his co-conspirators sent some of the illicit proceeds back to the United States via wire transfer and carried some of the cash in their luggage, and Ciampa hid $180,000 of stolen funds inside stereo equipment that he shipped back to North Carolina with his unit’s gear.  He used his share of the proceeds from the scheme to purchase a truck and other personal items.

The case was investigated by DCIS, FBI, CID MPFU and the Special Inspector General for Afghanistan Reconstruction (SIGAR).  The case is being prosecuted by Trial Attorney Wade Weems on detail to the Criminal Division’s Fraud Section from SIGAR and Assistant U.S. Attorney Banumathi Rangarajan of the Eastern District of North Carolina.

Former U.S. Navy Military Sealift Command Manager Sentenced for Receiving Bribes

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Kenny E. Toy, 54, the former Afloat Programs Manager at the United States Navy Military Sealift Command, was sentenced today to serve 96 months in prison for receiving bribes.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, United States Attorney Dana J. Boente of the Eastern District of Virginia, Special Agent in Charge Robert Craig of the Defense Criminal Investigative Service (DCIS) Mid-Atlantic Field Office, Acting Executive Assistant Director Charles T. May Jr. of the Naval Criminal Investigative Service (NCIS) Atlantic Operations and Special Agent in Charge Royce E. Curtin of the FBI’s Norfolk Field Office made the announcement today after sentencing by United States Chief Judge Rebecca Beach Smith of the Eastern District of Virginia.

On Feb. 12, 2014, Toy pleaded guilty to a criminal information charging him with one count of bribery.   According to the statement of facts filed with Toy’s plea agreement, Toy was employed as the Afloat Programs Manager in the N6 Command, Control, Communication, and Computer Systems Directorate at the Military Sealift Command, which is the leading provider of transportation for the United States Navy.  In approximately November 2004, Toy joined an extensive bribery conspiracy that spanned five years, involved multiple co-conspirators, including two different companies, and resulted in the payment of more than $265,000 in cash bribes, among other things of value, to Toy and to Scott B. Miserendino Sr., a former government contractor who performed work for the Military Sealift Command.

At his plea hearing, Toy admitted that he accepted monthly cash bribes of approximately $3,000, as well as a flat screen television and a paid vacation to the Outer Banks in North Carolina, from co-conspirators Dwayne A. Hardman, Roderic J. Smith, Michael P. McPhail and Adam C. White, all of whom were employed at a government contracting company referred to as Company A in court documents.  Toy also admitted that he accepted a $50,000 cash bribe in May 2009 from Hardman and another co-conspirator, Timothy S. Miller, both of whom were employed at a government contracting company referred to as Company B in court documents.  In exchange for the bribes, Toy provided favorable treatment to Company A and Company B in connection with Military Sealift Command related business.

As part of his guilty plea, Toy also admitted to engaging in a scheme to conceal his criminal activity.  Toy admitted to causing more than $88,000 to be paid to Hardman in an attempt to prevent Hardman from reporting the bribery scheme to law enforcement authorities.

Toy was also ordered to serve a supervised release term of three years following his prison sentence, and ordered to forfeit $100,000.

Earlier this year, four other individuals pleaded guilty in connection with the bribery scheme.  On Feb. 18, 2014, Hardman, the co-founder of Company A and Company B, pleaded guilty to providing bribes to Toy and Miserendino.   On Feb. 19, 2014, McPhail, a former employee at Company A, pleaded guilty to conspiracy to commit bribery.   On April 4, 2014, White, a former vice president at Company A, pleaded guilty to conspiracy to commit bribery.   On March 5, 2014, Smith, the former president of Company A, pleaded guilty to conspiracy to bribe public officials.   On June 23, 2014, United States District Judge Henry Coke Morgan sentenced Smith to serve 48 months in prison followed by one year of supervised release and ordered him to forfeit $175,000.

On May 23, 2014, a grand jury in the Eastern District of Virginia indicted Miserendino and Timothy S. Miller, a businessman whose company sought contracting business from the Military Sealift Command.   The indictment charges Miserendino with one count of conspiracy to commit bribery, one count of bribery, one count of conspiracy to commit obstruction of criminal investigations and to commit tampering with a witness, and one count of obstruction of criminal investigations.   The indictment charges Miller with one count of conspiracy to commit bribery and two counts of bribery.   Trial is set for Sept. 30, 2014, before Chief Judge Rebecca Beach Smith.

Charges contained in an indictment are merely allegations, and a defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

The case was investigated by the FBI, NCIS and DCIS.   The case was prosecuted by Trial Attorney Emily Rae Woods of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney Stephen W. Haynie of the Eastern District of Virginia.

CCC’s: Current Status of the Antitrust Division’s Real Estate Foreclosure Auction Bid Rigging Cases and Some Suggestions Moving Forward

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Current Status of the Antitrust Division’s Real Estate Foreclosure Auction Bid Rigging Cases and Some Suggestions Moving Forward

by Robert Connolly

Earlier this year, the Division had its first trial in its ongoing real estate foreclosure auction bid rigging investigation. Three defendants, two real estate investors and an auctioneer, were indicted for bid rigging and mail fraud. The trial lasted four weeks. The auctioneer was acquitted. The other two defendants were acquitted of the fraud charges, but convicted of the Sherman Act violation. The jury also convicted one defendant, Andrew Katakis, of obstruction of justice.   Katakis was charged with destroying electronic records (emails) related to the conspiracy. The trial judge, however, overturned the obstruction conviction for lack of evidence.

On June 6, 2014, the government filed a notice of appeal from the court’s acquittal order regarding the obstruction count. In view of that appeal, the court ordered, “all proceedings in this action are hereby stayed pending receipt of an order of remand from the Court of Appeals.” The government asked the trial court to lift the stay explaining: “If all proceedings in this Court remain stayed pending resolution of the government’s appeal, Katakis and Parker face a long wait for a ruling on their new trial motions and, depending on those rulings, for a new trial or sentencing Lifting the stay also avoids unnecessary delays in the sentencings of the other defendants in this case, none of whom were charged with obstruction. Some of them pleaded guilty long before trial and have cooperated with the government for years.”  Individuals who have pleaded guilty so far, beginning in 2011, are cooperating in the ongoing investigation and the Division has requested successfully that their sentencing be delayed until after their cooperation has been substantially complete. Accordingly, there have been no sentencings yet, and with this recent development, it appears sentencing could be delayed into at least 2015.

The Division to date has charged approximately 60 individuals in its California real estate foreclosure auction cases. (A similar far-reaching real estate auction collusion investigation is taking place in the Atlanta region) …*   *   *   *

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Lloyds Banking Group Admits Wrongdoing In LIBOR Investigation,  Agrees To Pay $86 Million Criminal Penalty

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WASHINGTON — Lloyds Banking Group plc has entered into an agreement with the Department of Justice to pay an $86 million penalty for manipulation of submissions for the London InterBank Offered Rate (LIBOR), a leading global benchmark interest rate.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Deputy Assistant Attorney General Brent Snyder of the Antitrust Division, and Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office made the announcement.

A criminal information will be filed today in U.S. District Court for the District of Connecticut that charges Lloyds as part of a deferred prosecution agreement (DPA).  The information charges Lloyds with wire fraud for its role in manipulating LIBOR.  In addition to the $86 million penalty, the DPA requires the bank to admit and accept responsibility for its misconduct as described in an extensive statement of facts.  Lloyds has agreed to continue cooperating with the Justice Department in its ongoing investigation of the manipulation of benchmark interest rates by other financial institutions and individuals.

“For more than three years, traders at Lloyds manipulated the bank’s LIBOR submissions for three currencies to benefit the trading positions of themselves and their friends, to the detriment of the parties on the other side of the trades,” said Assistant Attorney General Caldwell.  “Because investors and consumers rely on LIBOR’s integrity, rate-rigging fundamentally undermines confidence in financial markets.  Lloyds is the fifth major financial institution that has admitted LIBOR manipulation and paid a criminal penalty, and nine individuals have been criminally charged by the Justice Department.  Our active investigation continues, as we work to restore trust in the markets.”

“Lloyds manipulated benchmark rates, allowing its traders to increase their profits unfairly and fraudulently,” said Deputy Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division.  “Lloyds’s conduct undermined financial markets domestically and abroad, and today’s charges send a clear message that we will continue to bring those responsible to justice.”

“Manipulating financial trading markets to create an unfair advantage is against the law,” said Assistant Director in Charge Parlave. “Today’s agreement further underscores the FBI’s ability to investigate complex international financial crimes and bring the perpetrators to justice. The Washington Field Office has committed significant time and resources including the expertise of Special Agents, forensic accountants and analysts to investigate this case along with our Department of Justice colleagues. Their efforts send a clear message to anyone contemplating financial crimes: think twice or you will face the consequences.”

Together with approximately $283 million in criminal and regulatory penalties imposed by other agencies in actions arising out of the same conduct – $105 million by the Commodity Futures Trading Commission (CFTC), and approximately $178 million by the U.K. Financial Conduct Authority (FCA) – the Justice Department’s $86 million criminal penalty brings the total amount to be paid by Lloyds to almost $370 million.

According to signed documents, LIBOR is an average interest rate, calculated based upon submissions from leading banks around the world and reflecting the rates those banks believe they would be charged if borrowing from other banks.  LIBOR serves as the primary benchmark for short-term interest rates globally and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products.  The Bank of International Settlements estimated that as of the second half of 2009, outstanding interest rate contracts were valued at approximately $450 trillion.

At the time relevant to the conduct in the criminal information, LIBOR was published by the British Bankers’ Association (BBA), a trade association based in London.  LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year.  The LIBOR for a given currency at a specific maturity was the result of a calculation based upon submissions from a panel of banks for that currency (the Contributor Panel) selected by the BBA.  From at least 2006 through the present, Lloyds (through its subsidiaries) has been a member of the Contributor Panel for a number of currencies, including United States Dollar LIBOR, Pound Sterling LIBOR, and Yen LIBOR.

According to the statement of facts accompanying the agreement, between at least as early as 2006 and at least as late as July 2009, Lloyds’s LIBOR submitters for Dollar LIBOR, Yen LIBOR, and Pound Sterling LIBOR submitted LIBOR contributions intended to benefit their own trading positions or the trading positions of others, rather than rates that complied with the definition of LIBOR.  When Lloyds LIBOR submitters contributed LIBOR submissions to benefit trading positions, the manipulation of the submissions affected the fixed rates on occasion.

According to signed documents, on May 19, 2009, a money markets trader who was a former Dollar LIBOR submitter at a subsidiary of Lloyds wrote to the then-current Dollar LIBOR submitter: “have 5 yard [billion] 3 month liability rolls today so would be advantageous to have lower 3month libor setting if doesn’t conflict with any of your fix’s.”  Later that day, the Dollar LIBOR submitter told the money markets trader in a phone call: “obviously we got the Libors down for you.”

In another example, on March 6, 2009, a money markets trader who was a former Pound Sterling LIBOR submitter for a subsidiary of Lloyds told the then-current Pound Sterling LIBOR submitter: “Um, I’m paying on 12 yards [billions] of 1s today, . . . so if there is any way of making 1s relatively low it would just be helpful for us all.”  That day, the Pound Sterling LIBOR submitter contributed a rate that was ten basis points lower than the previous day’s submission.

Also according to the statement of facts, a Yen LIBOR submitter and a former submitter at Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) who traded money-markets and derivatives products had an agreement to submit Yen LIBOR contributions that benefitted their respective trading positions, rather than submissions that complied with the definition of LIBOR.

For example, on July 28, 2006, the Rabobank submitter wrote to the Yen LIBOR submitter: “morning skipper…..will be setting an obscenely high 1m again today…poss 38 just fyi.”  The Yen LIBOR submitter responded: “(K)…oh dear..my poor customers….hehehe!! manual input libors again today then!!!!”  Both banks’ submissions on July 28 moved up one basis point, from 0.37 to 0.38.

This ongoing investigation is being conducted by special agents, forensic accountants, and intelligence analysts of the FBI’s Washington Field Office. The prosecution of Lloyds is being handled by Trial Attorney Patrick Pericak of the Criminal Division’s Fraud Section and Trial Attorney Michael T. Koenig of the Antitrust Division. Assistant U.S. Attorneys Chris Mattei and Michael McGarry of the U.S. Attorney’s Office for the District of Connecticut, along with the Criminal Division’s Office of International Affairs, have provided valuable assistance in this matter.

The investigation leading to these cases has required, and has greatly benefited from, a diligent and wide-ranging cooperative effort among various enforcement agencies both in the United States and abroad. The Justice Department acknowledges and expresses its deep appreciation for this assistance. In particular, the CFTC’s Division of Enforcement referred this matter to the department and, along with the FCA, has played a major role in the investigation. Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the department is grateful for their cooperation and assistance. In particular, the Securities and Exchange Commission has played a significant role in the LIBOR investigation, and the department expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation.

This prosecution is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets and recover proceeds for victims of financial crimes.

Connolly’s Cartel Capers: Fugitive’s Return to U.S. Upon Indictment Admissible to Show “Consciousness of Innocence”

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Fugitive’s Return to U.S. Upon Indictment Admissible to Show “Consciousness of Innocence”
Cartel Capers
Robert E. Connolly

We are all familiar with the doctrine of “consciousness of guilt” wherein the prosecutor may introduce evidence such as flight or cover-up that permits an inference that the defendant believed he was guilty. But, there is also a less well-known and less widely accepted doctrine of “consciousness of innocence.”

I wanted to report on a pretrial victory by Daniel M. Gitner of Lankler Siffert & Wohl LLP related to “consciousness of innocence” evidence. Mr. Gitner represents Rengan Rajaratnam, the younger brother of Raj Rajaratnam, who was indicted on charges of insider trading and is awaiting trial. US. v. Rengan Rajaratnam, No. 1-13-cr-00211 (S.D.N.Y June 6, 2014). In a pretrial motion, U.S. District Judge Naomi Reice Buchwald ruled that she would allow Rajaratnam to introduce “consciousness of innocence” evidence during his upcoming trial. The judge will allow jurors to hear about Rengan’s decision to fly from Brazil to the U.S. shortly after being indicted in March 2013. The defense argues that this evidence shows Rengan knew he was innocent.

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U.S. Navy Petty Officer Based in Japan Pleads Guilty in International Bribery Scandal

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U.S. Navy Petty Officer First Class Daniel Layug pleaded guilty in the Southern District of California today to accepting more than $10,000 in cash, consumer electronics and travel expenses from a foreign defense contractor in exchange for classified and internal Navy information.
Acting Assistant Attorney General David A. O’Neil of the Justice Department’s Criminal Division, U.S. Attorney Laura Duffy of the Southern District of California, Director Andrew Traver of the Naval Criminal Investigative Service (NCIS) and Deputy Inspector General for Investigations James B. Burch of the U.S. Department of Defense Office of the Inspector General made the announcement.

Layug, 27, entered his plea before U.S. Magistrate Judge Karen S. Crawford to one count of conspiracy to commit bribery.  He is the sixth defendant charged – and the third to plead guilty – in the alleged bribery scheme involving Singapore-based defense contractor Glenn Defense Marine Asia (GDMA), which provided port services to U.S. Navy ships in the Asia Pacific region.

“Today, U.S. Navy Petty Officer First Class Dan Layug admitted that he swapped classified U.S. Navy information for cash, luxury travel perks and electronic gadgets from a defense contractor,” said Acting Assistant Attorney General O’Neil.  “In taking these under-the-table bribes, Layug put his own financial interests above those of the Navy and the country he vowed to serve.  The Criminal Division, with our law enforcement partners, is committed to holding responsible those who were part of this massive fraud and bribery scheme that cost the U.S. Navy more than $20 million.”

“Every service member is entrusted with the enormous responsibility of protecting this country at all costs,” said U.S. Attorney Duffy.  “Because of greed, Daniel Layug fell woefully short of that high calling, and this guilty plea holds him accountable for a painful betrayal.”

“The guilty plea of U.S. Navy Petty Officer First Class Dan Layug is part of an ongoing effort by the Defense Criminal Investigative Service and its law enforcement partners to bring to justice individuals who seek to enrich themselves at the expense of U.S. taxpayers,” said Deputy Inspector General Burch.  “While the conduct of the vast majority of service members is beyond reproach, Defense Criminal Investigative Service will vigorously pursue individuals who betray the trust bestowed upon them.”

“Petty Officer Layug sold sensitive Navy information for monetary gain,” said NCIS Director Traver.  “In doing so, he compromised the integrity of his position and the safety of his shipmates. NCIS will continue to work with DCIS and the U.S. Attorney’s Office in investigating and prosecuting these crimes to the fullest extent possible.”

According to allegations in court documents, GDMA owner and CEO Leonard Glenn Francis and his cousin, GDMA executive Alex Wisidigama, enlisted the clandestine assistance of Navy personnel – including Layug, Commander Michael Vannak Khem Misiewicz, Commander Jose Luis Sanchez, and Naval Criminal Investigative Service Special Agent John Beliveau – to provide classified ship schedules and other sensitive U.S. Navy information in exchange for cash, travel expenses, and consumer electronics.   GDMA allegedly overcharged the Navy under its contracts and submitted bogus invoices for more than $20 million in port services.

Court records state that Layug worked secretly on behalf of GDMA, using his position as a logistics specialist at a U.S. Navy facility in Yokosuka, Japan, to gain access to classified U.S. Navy ship schedules and then provided this information to GDMA’s vice president of global operations.  Layug admitted he also provided pricing information from one of GDMA’s competitors.

In return, according to the plea agreement, GDMA gave Layug envelopes of cash on a regular basis.  Layug admitted that he accepted a $1,000 monthly allowance from GDMA.   On May 21, 2012, GDMA’s vice president of global operations instructed a GDMA accountant that “at the end of each month, we will be providing an allowance to Mr. Dan Layug. Total of US $1,000. You may pay him the equivalent in Yen.  He will come by the office at the end of each month to see you.”    Layug also admitted that he received luxury hotel stays for himself and others in Malaysia, Singapore, Indonesia, Hong Kong and Thailand.

Further according to the plea agreement, Layug asked GDMA for consumer electronics.  In an email on March 9, 2012, Layug asked the vice president of global operations, “What are the chances of getting the new iPad 3? Please let me know.”  In the plea agreement, Layug admitted that GDMA then provided him with an iPad 3.

In another email exchange on May 28, 2013, Layug asked the vice president of global operations for a “bucket list” of items including a high end camera, an iPhone5 cellular phone, a Samsung S4 cellular phone, and an iPad Mini.  Shortly after sending his “bucket list” to the vice president of global operations, Layug stated in an email that “the camera is awesome bro! Thanks a lot! Been a while since I had a new gadget!”

Francis was previously charged with conspiring to bribe U.S. Navy officials.  Wisidagama pleaded guilty on March 18, 2014, to defrauding the U.S. Navy.

Two other senior Navy officials – Commander Michael Vannak Khem Misiewicz, 46, and Commander Jose Luis Sanchez, 41 – have been charged separately with bribery conspiracies involving GDMA.  On Dec. 17, 2013, NCIS Supervisory Special Agent John Bertrand Beliveau II, 44, pleaded guilty to conspiracy and bribery charges for regularly tipping off Francis to the status of the government’s investigation into GDMA.

The ongoing investigation is being conducted by NCIS, the Defense Criminal Investigative Service and the Defense Contract Audit Agency.

The case is being prosecuted by Director of Procurement Fraud Catherine Votaw and Trial Attorneys Brian Young and Wade Weems of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Mark W. Pletcher and Robert Huie of the Southern District of California.

Antitrust Division Increasing Procurement Fraud Footprint Once Again

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The Antitrust Division announced that a former owner and operator of a Florida-based airline fuel supply service company was sentenced today to serve 50 months in prison for participating in a scheme to defraud Illinois-based Ryan International Airlines, the Department of Justice announced.

This is a legacy case reassigned from the shuttered Atlanta Field Office suggesting a successful and a smooth transition of its assignment to the Washington 1 Criminal Office (formerly the National Criminal Enforcement Section).    For any tea leaf readers, AAG Bill Baer’s comments in this press release (reprinted below) suggest renewed focus by the Antitrust Division into procurement fraud and an increasing willingness to open, investigate and charge matters that involve non Title 15 U.S.C Section 1 offenses in all types of procurements.  The “tell” here is subtle, but it is very significant.

 Baer’s quote today:

 “Awarding government contracts in exchange for payoffs is a crime the Antitrust Division takes seriously,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.  “Today’s sentence reaffirms the division’s commitment to vigorously prosecute individuals who engage in this behavior.”

If you know the history of Title 18 procurement prosecutions, Baer’s commitment to bringing future procurement fraud cases is significant.  The Antitrust Division was a significant player during the Bush years’ National Procurement Fraud Task Force.  Besides domestic kickback and other Title 18 cases, the Division brought many overseas contingency operations (then “WarZone”) prosecutions for bidding corruption and grant fraud.  In fact, the Division had wide berth to investigate and prosecute cases that involved “corruption of the bidding or award process.”  This was a wider mandate than simply bringing cases of horizontal collusion among competitors.  The National Procurement Fraud Task Force was incorporated into the Financial Fraud Enforcement Task Force early in the Obama administration and resources were reallocated to new enforcement priorities in the wake of the financial crisis in 2008.  As everyone viewed their new enforcement mission through a financial crimes prism, the focus of the Antitrust Division returned to a more restrictive view of its mission, i.e., bringing Sherman Act cases under 15 U.S.C. Section 1.  At the height of this limitation, for an investigation to receive authority to be opened, it had to include evidence that on its face could be construed classic horizontal bid rigging conduct. 

It is beyond the scope of this blog entry, but there is much that goes into the press release process that provides insights into enforcement agency gestalt, resource allocation, drive to open cases, and willingness to keep cases open and to charge cases, particularly marginal ones.  A press release also can provide insight into the AAG’s mindset and, sometimes, even more importantly from an agency effectiveness perspective, what people reporting to the AAG think his mindset is.

Today’s quote from AAG Baer is instructive.  It is in an active, broad and forceful voice. In a sweeping statement it links “kickbacks” and “the Antitrust Division” in the same sentence and suggests direct Antitrust Division intervention.  Most importantly, it suggests an interest in crimes involving the payment of kickbacks to award contracts (a Title 18 offense where a Section 1 agreement between competitors is usually not present).  It then states that when offenses like these are committed they will be “tak[en] seriously…[and will be vigorously prosecut[ed]” by the Antitrust Division.

Contrast this with Baer’s statement in September 2013 regarding another case on the same investigation:

“Today’s sentence should serve as a stiff deterrent to executives who might be tempted to solicit a kickback from their supplies in exchange for their honest services,” said Bill Baer, Assistant Attorney General in charge of the Antitrust Division. “The Antitrust Division is committed to ensuring that contracts are won based on competition and not collusion.”

The 2013 AAG quote literally suggests that deterrence is provided by the length of this sentence rather than by any threat of immediate action by the Antitrust Division.  It then links to a general principle that references the blanket requirement imposed earlier in the Administration that a horizontal agreement between competitors had to be present to justify resources.  It also should be recognized that “collusion” is a primarily a term of art within the Antitrust Division directed at collusion among competitors rather than collusion with a contract officer. 

Baer’s current statement is forward-looking and reaffirms that procurement fraud as a Division priority.   For all intents and purposes, AAG Baer has indicated to line attorneys and the outside world (most importantly, investigative agencies) that the Antitrust Division is again open for cases of “corruption of the bidding or award process.”   This strongly suggests a move away from an exclusive focus on Invitation for Bids (IFB) contracting to the massively larger pie of “everything else” including cost plus contracts, prime vendor contracts, sole source contracts and even the issuance of grants.

To advise clients regarding risk analysis, GeyerGorey LLP has been tracking this progression because in many hidden, but key areas, the Antitrust Division provides disproportionate value to the government’s procurement fraud mission by supporting the agency mission, helping resource investigations and by providing continuity to long investigations and program management.  This message has been received loud and clear by Antitrust Division rank and file and it is in the process of being received by the FBI, IRS-CID and 38 Inspectors General who immediately recognize that they can bring cases to Antitrust that require extensive resourcing or which have been declined.   With history as a guide, we expect procurement fraud investigation openings to increase substantially and we expect current investigations to be prolonged or rekindled as resources are reallocated with Antitrust Division resources.  


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Former airline fuel owner sentenced in fraud scheme

Executive Sentenced to Serve 50 Months in Prison

A former owner and operator of a Florida-based airline fuel supply service company was sentenced today to serve 50 months in prison for participating in a scheme to defraud Illinois-based Ryan International Airlines, the Department of Justice announced.

Sean E. Wagner, the former owner and operator of Aviation Fuel International Inc. (AFI), was sentenced in the U.S. District Court for the Southern District of Florida in West Palm Beach to serve 50 months in prison and to pay $202,856 in restitution.  On Aug. 13, 2013, a grand jury returned an indictment against Wagner and AFI, charging them for their roles in a conspiracy to defraud Ryan. On March 6, 2014, Wagner pleaded guilty to one count of conspiracy to commit honest services wire fraud.   According to court documents, from at least as early as December 2005 through at least August 2009, Wagner and others at AFI made kickback payments to Wayne Kepple, a former vice president of ground operations for Ryan, totaling more than $200,000 in the form of checks, wire transfers, cash and gift cards in exchange for awarding business to AFI.  The charges against AFI were dismissed on Feb. 21, 2014.

Ryan provided air passenger and cargo services for corporations, private individuals and the U.S. government – including the U.S. Department of Defense and the U.S. Department of Homeland Security.

“Awarding government contracts in exchange for payoffs is a crime the Antitrust Division takes seriously,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.  “Today’s sentence reaffirms the division’s commitment to vigorously prosecute individuals who engage in this behavior.”

“This sentencing highlights the continuing commitment of the DCIS to thoroughly investigate and bring to justice any companies or individuals who engage in fraudulent and corrupt practices that undermine the integrity of Department of Defense procurement programs,” said John F. Khin, Special Agent in Charge of the Defense Criminal Investigative Service Southeast Field Office.

As a result of the ongoing investigation, five individuals, including Wagner, have pleaded guilty and have been ordered to serve sentences ranging from 16 to 87 months in prison and to pay more than $780,000 in restitution.  An additional individual has pleaded guilty to obstructing the investigation and is currently awaiting sentencing.

The investigation is being conducted by the Antitrust Division’s Washington Criminal I office and the U.S. Department of Defense’s Office of Inspector General’s Defense Criminal Investigative Service, with assistance from the U.S. Attorney’s Office for the Southern District of Florida.