Category Archives: Fraud

CCC: Recommended Blog: “Grand Jury Target”

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Recommended Blog: “Grand Jury Target”

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I’ve been following a blog for a while that I find informative and interesting: Grand Jury Target: Tracking Federal Prosecutions of Corporate Executives.  The blog is by Sara Kropf, a trial lawyer in Washington, D.C.  A March 8th post was titled:  “Why Are we Falling for the Department of Justice’s Sales Pitch?  The blog recounted Ms. Kropf’s experience at the recent White Collar Crime seminar, including the constant pitches by DOJ officials to rush in to confess.

This approach—to quickly rush to DOJ to win cooperation credit—seems to be the sad reality of current white collar practice when you represent large companies. (Don’t even get me started in the antitrust amnesty program and the problematic incentives that program creates.)

Check out the blog.  I think you’ll be well rewarded for your time.

Thanks for reading this one too!

American Metals Market Report on Hong Kong Unsealing by FormerFedsGroup of 13 Metric Tons of Mutilated Clad Coins Processed by Wealthy Max

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2015-05-29 11.34.57

The country’s oldest and most respected metals market trade publication, AMM, attended the Hong Kong unsealing of 13 metric tons of US clad coins on February 23rd that were processed in Foshan, China by the Wealthy Max quality assurance line in September, 2014, immediately following its processing of four shipments of mutilated clad coins that were seized by the government as being counterfeit.  Now, the US Attorney’s Office of the Eastern District of Pennsylvania, which played no role in creating this mess, has, sensibly, reasonably and in good faith, has started referring to the coins as not meeting Mint specifications rather than in the preposterous terms used by the US Attorney’s Office of New Jersey and the Department of Homeland Security who, preposterously, continue to allege counterfeiting in one of the most slipshod, ramshackle and careless investigations in recent memory.  Linked here is the carefully researched article.

PTC Inc. Subsidiaries Agree to Pay More Than $14 Million to Resolve Foreign Bribery Charges

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Two subsidiaries of Massachusetts software company PTC Inc. entered into a non-prosecution agreement and agreed to pay a $14.54 million penalty today to resolve the government’s investigation into whether the companies improperly provided recreational travel to Chinese government officials in violation of the Foreign Corrupt Practices Act (FCPA), announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division.

According to admissions made in the resolution documents, Parametric Technology (Shanghai) Software Company Ltd. and Parametric Technology (Hong Kong) Ltd. (collectively, PTC China), through local business partners, arranged and paid for employees of various Chinese state-owned enterprises to travel to the United States, ostensibly for training at PTC Inc.’s headquarters in Massachusetts, but primarily for recreational travel to other parts of the United States, including New York, Los Angeles, Las Vegas and Hawaii.  PTC China paid a total of more than $1 million through its business partners to fund these trips, while during the same time period, PTC China entered into more than $13 million in contracts with the Chinese state-owned entities.  Company employees typically accompanied the Chinese officials on these trips.  PTC China admitted that the cost of these recreational trips was routinely hidden within the price of PTC China’s software sales to the Chinese state-owned entities whose employees went on the trips.

As part of the non-prosecution agreement, PTC China agreed to pay the criminal penalty, to continue to cooperate with the department, to enhance its compliance program and to periodically report to the department on the implementation of its enhanced compliance program.  The department reached this resolution based on a number of factors.  Among other factors, PTC China did not receive voluntary disclosure credit or full cooperation credit because, at the time of its initial disclosure, it failed to disclose relevant facts that it had learned in connection with a prior internal investigation and did not disclose those facts until the department uncovered additional information independently and brought them to PTC China’s attention.  By the conclusion of the investigation, however, the companies had provided to the department all relevant facts known to them, including information about individuals involved in the FCPA misconduct.

In a related matter, PTC Inc. reached a settlement today with the U.S. Securities and Exchange Commission (SEC) under which it agreed to pay $11,858,000 in disgorgement plus $1.764 million in prejudgment interest.  Thus, the approximately $28 million in combined penalty and disgorgement far exceeds the $13 million in contracts associated with the improper payments.

The FBI’s Boston Field Office investigated the case.  Trial Attorney Aisling O’Shea of the Criminal Division’s Fraud Section prosecuted the case.  The U.S. Attorney’s Office of the District of Massachusetts and the SEC also provided assistance during the investigation.

MCC Construction Company Agrees to Pay Nearly $1.8 Million for Conspiring to Illegally Obtain Federal Contracts Meant for Small, Disadvantaged Businesses

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The Justice Department announced today that MCC Construction Company (MCC) has agreed to pay $1,769,294 in criminal penalties and forfeiture for conspiring to commit fraud on the United States by illegally obtaining government contracts that were intended for small, disadvantaged businesses.

The court agreement was announced today by Assistant Attorney General William J. Baer of the Justice Department’s Antitrust Division, U.S. Attorney Channing D. Phillips of the District of Columbia, Assistant Director in Charge Paul M. Abbate of the FBI’s Washington Field Office, Inspector General Peggy E. Gustafson of the Small Business Administration (SBA), Inspector General Carol Fortine Ochoa of the U.S. General Services Administration (GSA), Special Agent in Charge Brian J. Reihms of the Defense Criminal Investigative Service’s (DCIS) Central Field Office and Director Frank Robey of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit (MPFU).

“This conspiracy defrauded the government and denied small, disadvantaged businesses the opportunity to compete to do business with the United States,” said Assistant Attorney General Baer.  “We will continue to work with U.S. Attorney Phillips and his talented colleagues to protect the integrity of the government contracting process.”

“This prosecution shows that there will be consequences for companies that violate federal contracting rules meant to assist small, disadvantaged businesses,” said U.S. Attorney Phillips.  “MCC Construction Company secured millions of dollars in contracts by hiding behind two small businesses that did not perform labor on the projects.  Its conduct took away opportunities that could have gone to companies that truly are socially and economically disadvantaged and deserving of the work.”

“An uneven marketplace is created when businesses engage in illegal backroom deals to fraudulently obtain government contracts, placing competitors at an unfair disadvantage,” said Assistant Director in Charge Abbate.  “In this case, the FBI and our partners moved to protect the American taxpayer and ensure the integrity of the process.  Together, we will continue to work to protect federal contract opportunities for socially and economically disadvantaged businesses within our communities from unlawful conduct.”

“Fraudulently passing work through eligible small businesses to a large business does not provide taxpayers the best value and certainly does not support the role of small businesses as engines of economic development and job creation,” said Inspector General Gustafson.  “In fact, it subverts the purpose of SBA’s preferential contracting programs and harms the small businesses the programs are designed to assist.  I want to thank the U.S. Attorney’s Office and our law enforcement partners for their leadership and dedication to serving justice.”

“We will continue our work on behalf of taxpayers and legitimate small business owners to expose and punish nationwide small business fraud schemes such as this,” said Inspector General Ochoa.

“The Defense Criminal Investigative Service is committed to working with our partner agencies to combat fraud impacting the Department of Defense’s vital programs and operations and maintain the integrity of the procurement system,” said Special Agent in Charge Reihms.

“This settlement is a testament to our steadfast and continued commitment to working closely with our law enforcement partners in rooting out this type of activity,” said Director Robey.

MCC was a construction management company and general contractor headquartered in Colorado.

A criminal information was filed last month in the U.S. District Court for the District of Columbia charging MCC with one count of knowingly and willfully conspiring to commit major fraud on the United States.  MCC waived the requirement of being charged by way of federal indictment, agreed to the filing of the information and accepted responsibility for its criminal conduct and that of its employees.  U.S. District Judge Ketanji B. Jackson accepted the company’s guilty plea today.  The plea agreement is subject to the court’s approval at a sentencing hearing scheduled for March 15, 2016.

According to court documents, MCC conspired with two companies that were eligible to receive federal government contracts set aside for small, disadvantaged businesses with the understanding that MCC would, illegally, perform all of the work.  In so doing, MCC was able to win 27 government contracts worth over $70 million from 2008 to 2011.  The scope and duration of the scheme resulted in a significant number of opportunities lost to legitimate small and disadvantaged businesses.

Under the illegal agreement, the companies awarded these government contracts were allowed to keep 3 percent of the value of the contracts for allowing MCC to use the companies small business status to win the contracts.

Court documents state that MCC violated the provisions of the SBA 8(a) program.  The SBA 8(a) development program is designed to award contracts to businesses that are owned by “one or more socially and economically disadvantaged individuals.”  To qualify for the 8(a) program, a business must be at least 51 percent owned and controlled by a U.S. citizen (or citizens) of good character who meet the SBA’s definition of socially and economically disadvantaged.  The firm must also be a small business (as defined by the SBA) and show a reasonable potential for success.  Participants in the 8(a) program are subject to regulatory and contractual limits.  Also, under the program, the disadvantaged business is required to perform a certain percentage of the work.  For the types of contracts under investigation here, the SBA 8(a)-certified companies were required to perform 15 percent or more of the work with its own employees.

MCC, along with the two 8(a) companies used to illegally obtain the contracts, engaged in and executed a scheme to defraud the SBA by, among other things:

  • Allowing the two 8(a) companies to retain a guaranteed percentage of each contract for simply obtaining the contracts for MCC;
  • Allowing the two 8(a) companies to perform no labor on these projects;
  • Performing the accounting and government reporting for the two 8(a) companies on certain projects;
  • Falsely representing to the government that MCC employees were in fact employees of the 8(a) companies;
  • Obtaining certain contracts on behalf of the 8(a) companies without first informing those 8(a) companies prior to bidding; and
  • Conspiring with the 8(a) companies to hire straw employees for the 8(a) companies whose labor and salaries were paid for by MCC.

For the contracts obtained through this scheme on which MCC made a profit, MCC’s profit was at least $1,269,294.  The criminal penalty in this case includes a $500,000 fine and a forfeiture money judgment of $1,269,294.

The investigation is being conducted by the FBI’s Washington Field Office, the Inspector General for the SBA, the Inspector General of the U.S. GSA, the DCIS’ Central Field Office, and the MPFU.

Former Idaho Construction Company President Sentenced to Prison for Fraud Scheme

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The former president and majority stockholder of a construction company was sentenced to five years in prison today following her plea of guilty to filing a false tax return and her conviction by a jury of conspiracy to defraud the United States, wire fraud, mail fraud, false statements, interstate transportation of property taken by fraud, conspiracy to obstruct justice and obstruction of justice, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Wendy J. Olson for the District of Idaho.

Elaine Martin, 69, of Meridian, Idaho, was the president of MarCon Inc., a construction company based in Meridian.  In September 2013, after a 26-day jury trial, Martin was convicted of tax and fraud charges and sentenced to 84 months in prison.  In August 2015, the U.S. Court of Appeals for the Ninth Circuit vacated Martin’s sentence and her tax conviction and remanded for resentencing and further proceedings on the tax charge.  Today, Martin pleaded guilty to filing a false tax return and U.S. District Judge B. Lynn Winmill of the District of Idaho sentenced her to 60 months in prison on both the tax and fraud charges.  In addition to the prison term, Judge Winmill ordered Martin to pay restitution to the Internal Revenue Service (IRS) and Idaho Department of Transportation in the amount of $131,400.48, costs of prosecution in the amount of $22,859.60 and a forfeiture money judgment of $3,084,038.05, amounts Martin previously paid.

In the plea agreement, Martin admitted that she willfully signed false and fraudulent corporate income tax returns for Marcon Inc. for tax years 2005 and 2006.  Martin also admitted that she caused these tax returns to be false and fraudulent by keeping the unreported income off of the books and that she falsely told an IRS revenue agent, who was conducting a civil audit of Marcon, that all of Marcon’s gross receipts were deposited into its Wells Fargo operating account, when in fact, Martin was diverting and depositing gross receipts into Marcon’s Bank of Cascades account.  Martin withheld the records for Marcon’s Bank of Cascades from the individual who prepared her and Marcon’s tax returns for tax years 2005 and 2006.  Martin admitted that the total tax loss was $73,678.

Martin also admitted to conspiring to defraud the SBA 8(a) Program and the U.S. Department of Transportation, Disadvantaged Business Enterprise (DBE) Program, by submitting fraudulent tax returns and making false statements concerning her finances that caused Marcon to qualify and/or remain eligible for these programs.  Martin further admitted that her behavior affected the award of contracts pursuant to the 8(a) Program and DBE Programs.  For example, Marcon’s status as an Idaho DBE affected how and what DBE goals were set for particular construction projects and helped Marcon maintain a virtual monopoly in its geographic region between 2000 and 2006.  Marcon participated in the SBA 8(a) Program pursuant to direct negotiations with the awarding agency, rather than through fair and open competition.  Martin admitted that during the relevant time period, she would not have been awarded the 33 contracts at issue in the case but for the fraud.

As part of the plea agreement that Martin entered into today, she waived her right to further appeal.

Assistant Attorney General Ciraolo and U.S. Attorney Olson thanked special agents of IRS-Criminal Investigation, the FBI, the Office of Inspector General for the U.S. Small Business Administration and the Office of Inspector General for the U.S. Department of Transportation, who investigated the case and Trial Attorney Gregory Bernstein and former Trial Attorney Katherine Wong of the Tax Division and Assistant U.S. Attorney Raymond Patrico of the District of Idaho, who prosecuted the case.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations.  Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants.  For more information on the task force, visit www.stopfraud.gov.

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

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

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

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

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

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

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

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

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

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

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida, Special Agent in Charge George L. Piro of the FBI’s Miami Division and Special Agent in Charge Shimon Richmond of the U.S. Department of Health and Human Services Office of Inspector General’s (HHS-OIG) Miami Regional Office made the announcement.

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

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

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

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

The case is being investigated by the FBI and was brought as part of the Medicare Fraud Strike Force, under the supervision of the Criminal Division’s Fraud Section and the U.S. Attorney’s Office of the Southern District of Florida.  This case is being prosecuted by Trial Attorney A. Brendan Stewart of the Criminal Division’s Fraud Section.

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

To learn more about the Health Care Fraud Prevention and Enforcement Action Team (HEAT), go to: www.stopmedicarefraud.gov.

Real Estate Investor Pleads Guilty to Bid Rigging and Fraud Conspiracies at Georgia Public Foreclosure Auctions

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A Georgia real estate investor pleaded guilty today for his role in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Fulton and DeKalb counties, Georgia.

Morris Podber admitted that he conspired with others not to bid against one another at public real estate foreclosure auctions on selected properties.  After the public foreclosure auctions, Podber admitted that he and his co-conspirators would divvy up the targeted properties in private side auctions, open only to the conspirators.  Podber admitted to conspiring to use the mail to carry out their fraud, which included making and receiving payoffs and diverting money to co-conspirators that should have gone to the mortgage holders and others.

“This is the ninth real estate investor held accountable for bid rigging at public foreclosure auctions in Georgia,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division.  “We will continue to root out anticompetitive conduct at foreclosure auctions and obtain justice for homeowners and lenders.”

According to documents filed with the court, the purpose of the conspiracies was to suppress and restrain competition and divert money to the conspirators that otherwise would have gone to pay off the mortgage and other holders of debt secured by the properties, and, in some cases, the defaulting homeowner.  Podber admitted to participating in a conspiracy in Fulton County from July 2005 until August 2010; and to participating in a conspiracy in DeKalb County from October 2006 to August 2011.

“Incidents of bid rigging at public real estate auctions continue to be an issue in Georgia and elsewhere in the United States, and the FBI would like to remind the public that such matters are violations of federal law,” said Special Agent in Charge J. Britt Johnson of the FBI’s Atlanta Field Office.  “The FBI will continue to work with the U.S. Department of Justice’s Antitrust Division in identifying, investigating and prosecuting those individuals engaged in such activities.”

The ongoing investigation is being conducted by the Antitrust Division’s Washington Criminal II Section, the FBI’s Atlanta Division and the U.S. Attorney’s Office of the Northern District of Georgia.  Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Washington Criminal II Section of the Antitrust Division at 202-598-4000, call the Antitrust Division’s Citizen Complaint Center at 888-647-3258 or visit www.justice.gov/atr/contact/newcase.htm.

The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. Attorneys’ Offices and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.  Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.  For more information about the task force, please visit www.StopFraud.gov.

Medical Biller Sentenced to 45 Months in Prison for Role in $4 Million Health Care Fraud Scheme

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The medical biller of a Chicago-area visiting physician practice was sentenced today to 45 months in prison for her role in a $4 million health care fraud scheme.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Zachary T. Fardon of the Northern District of Illinois, Special Agent in Charge Lamont Pugh III of the U.S. Department of Health and Human Services-Office of Inspector General (HHS-OIG) in Chicago and Acting Special Agent in Charge John A. Brown of the FBI’s Chicago Division made the announcement.

Mary Talaga, 54, of Elmwood Park, Illinois, was convicted in May 2015 following a jury trial of one count of conspiracy to commit health care fraud, six counts of health care fraud and three counts of false statements relating to a health care matter.  In addition to imposing the prison term, U.S. District Judge Gary Feinerman of the Northern District of Illinois ordered Talaga to pay approximately $1 million in restitution.

From 2007 to 2011, Talaga was the primary medical biller at Medicall Physicians Group Ltd., a physician practice that visited patients in their homes and prescribed home health care.  The evidence at trial showed that Talaga and her co-conspirators routinely billed Medicare for overseeing patient care plans (a service known as “care plan oversight” or CPO) when, in fact, the doctors at Medicall rarely provided the service.  The evidence at trial also showed that Talaga and her co-conspirators billed Medicare for other services that were never provided, including services rendered to patients who were deceased, services purportedly provided by medical professionals no longer employed by Medicall, and services purportedly provided by medical professionals who, based on billing records, worked over 24 hours per day.

According to the evidence presented at trial, during the five-year conspiracy, Medicall submitted bills to Medicare for more than $4 million in services that were never provided.  Medicare paid more than $1 million on those claims.

Rick Brown, 58, of Rockford, Illinois, and Roger A. Lucero, 64, of Elmhurst, Illinois, were also convicted of offenses based on their roles in the scheme.  Brown was convicted along with Talaga at trial and was previously sentenced to serve more than seven years in prison.  Lucero, Medicall’s Medical Director, pleaded guilty and will be sentenced at a later date.

The case was investigated jointly by HHS-OIG and the FBI, and was brought as part of the Medicare Fraud Strike Force, under the supervision of the Criminal Division’s Fraud Section and the U.S. Attorney’s Office of the Northern District of Illinois.  This case was prosecuted by Trial Attorney Brooke Harper and Senior Trial Attorney Jon Juenger of the Criminal Division’s Fraud Section.

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

SEC Charges Three RMBS Traders With Defrauding Investors

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FOR IMMEDIATE RELEASE

2015-181

Washington D.C., Sept. 8, 2015 —The Securities and Exchange Commission today announced fraud charges against three traders accused of repeatedly lying to customers relying on them for honest and accurate pricing information about residential mortgage-backed securities (RMBS).

The SEC alleges that Ross Shapiro, Michael Gramins, and Tyler Peters defrauded customers to illicitly generate millions of dollars in additional revenue for Nomura Securities International, the New York-based brokerage firm where they worked.  They misrepresented the bids and offers being provided to Nomura for RMBS as well as the prices at which Nomura bought and sold RMBS and the spreads the firm earned intermediating RMBS trades.  They also trained, coached, and directed junior traders at the firm to engage in the same misconduct.

In a parallel action, the U.S. Attorney’s Office for the District of Connecticut announced criminal charges against Shapiro, Gramins, and Peters, who no longer work at Nomura.

“The alleged misconduct reflects a callous disregard for the integrity and obligations expected of registered securities professionals,” said Andrew Ceresney, Director of the SEC’s Enforcement Division. “Not only did these traders lie to their customers, but they created a corrupt culture on Nomura’s trading desk by coaching more junior traders to employ the same deceptive and dishonest trading practices we allege in our complaint.”

According to the SEC’s complaint filed in federal court in Manhattan:

  • The lies and omissions to customers by Shapiro, Gramins, and Peters generated at least $5 million in additional revenue for Nomura, and lies and omissions by the subordinates they trained and coached generated at least $2 million in additional profits for the firm.
  • Nomura determined bonuses for Shapiro, Gramins, and Peters based on several factors including revenue generation.  Nomura paid total compensation of $13.3 million to Shapiro, $5.8 million to Gramins, and $2.9 million to Peters during the years this misconduct was occurring.
  • Customers sought and relied on market price information from these traders because the market for this type of RMBS is opaque and accurate price information is difficult for a customer to determine.  Therefore it was particularly important for the traders to provide honest and accurate information.
  • Shapiro, Gramins, and Peters went so far as to invent phantom third-party sellers and fictional offers when Nomura already owned the bonds the traders were pretending to obtain for potential buyers.

The SEC’s complaint charges Shapiro, Gramins, and Peters with violating Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 as well as Section 17(a) of the Securities Act of 1933.

The SEC separately entered into deferred prosecution agreements (DPAs) with three other individuals who have extensively cooperated with the SEC’s investigation and provided enforcement staff with access to critical evidence that otherwise would not have been available.

“The SEC is open to deferring charges based on certain factors, including when cooperators come forward with timely and credible information while candidly acknowledging their own misconduct,” said Michael Osnato, Chief of the SEC’s Complex Financial Instruments Unit.  “The decision to defer charges in this matter reflects the early and sustained assistance provided by these individuals.”

The SEC’s continuing investigation is being conducted by James R. Drabick, Susan Curtin, Rua Kelly, and Celia Moore.  The SEC’s litigation will be led by Ms. Kelly.