Category Archives: IRS CID

Seven Defendants in Mortgage Origination Fraud Scheme Indicted for Bank Fraud Conspiracy Along with Other Charges

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The Justice Department announced that seven defendants were arrested and arraigned today for their roles in a mortgage fraud conspiracy that operated in Detroit.

A federal grand jury in the Eastern District Court of Michigan indicted Peter Allen, Suhail Hallak, Al Karana, Joey Murad, Jason Najor, Jeffrey Najor and Wasseem Shamoun with conspiracy to commit bank fraud, numerous counts of bank fraud and other fraud charges.

The indictment alleges that from approximately January 2006 to December 2008, the defendants conspired to defraud lending institutions by obtaining mortgage loans using fraudulent information.  According to the indictment, the defendants devised a scheme wherein they purchased property for approximately $5,000 to $40,000 per home, then recruited straw buyers to submit fraudulent loan applications for home mortgages in exchange for a fee. According to the indictment, the scheme caused financial institutions to pay approximately $10 million in fraudulent mortgage loan funds.

In addition to the conspiracy charge, Hallak, Karana, Jason Najor, Jeffrey Najor, and Shamoun are charged with 20 counts of bank fraud, Murad is charged with seven counts of bank fraud and Allen is charged with two counts of bank fraud.  Jeffrey Najor is also charged with two counts of assisting in the filing of false tax returns, in connection with his filings on behalf of J.A. Najor Corporation.  Jeffrey Najor is also charged with one count of bankruptcy fraud.

An indictment is not a finding of guilt. Individuals charged in indictments are presumed innocent until proven guilty.  If convicted of the conspiracy charge, the defendants face up to 30 years in prison and a $1 million fine.  Each count of bank fraud carries a maximum penalty of 30 years in prison and $1 million fine.   Assisting in the filing of a false return is punishable by up to three years in prison and a fine of $250,000.  The bankruptcy fraud charge has a maximum penalty of five years in prison and a fine of $250,000.

This case was investigated by Internal Revenue Service – Criminal Investigation, the Drug Enforcement Administration and the FBI and is being prosecuted by Senior Litigation Counsel Corey Smith and Trial Attorney Mark McDonald of the Justice Department’s Tax Division.

Former Enron CEO Jeffrey Skilling Resentenced to 168 Months for Fraud, Conspiracy Charges

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Former Enron Chief Executive Officer Jeffrey K. Skilling has been resentenced to 168 months in prison on conspiracy, securities fraud, and other charges related to the collapse of Enron Corporation. In addition to the prison sentence, Skilling, 59, was ordered to forfeit approximately $42 million to be applied toward restitution for the victims of the fraud at Enron.

Acting Assistant Attorney General Mythili Raman of the Criminal Division made the announcement after Skilling was resentenced before U.S. District Judge Sim Lake at the U.S. District Court in Houston.

“The sentence handed down today ends years of litigation, imposes significant punishment upon the defendant and precludes him from ever challenging his conviction or sentence,” said Acting Assistant Attorney General Raman. “With today’s court action, victims of Skilling’s crimes will finally receive more than $40 million that he owes them.  We appreciate the hard work and dedication of all the prosecutors and agents who have handled this important case from the initial investigation to today’s successful conclusion.”

A federal jury found Skilling guilty in Houston on May 25, 2006, of one count of conspiracy, 12 counts of securities fraud, one count of insider trading, and five counts of making false statements to auditors.  Judge Lake initially sentenced Skilling to serve 292 months of imprisonment on Oct. 23, 2006.  On Jan. 6, 2009, the United States Court of Appeals for the Fifth Circuit affirmed Skilling’s convictions but vacated his sentence and remanded for a new sentencing hearing.  The court of appeals concluded that the district court erred by increasing Skilling’s sentence for having substantially jeopardized the safety and soundness of a financial institution – that is, Enron’s pension plan.  As a result, the court of appeals effectively reduced Skilling’s guidelines range of imprisonment by approximately nine years.

In May 2013, the government and Skilling entered into an agreement to recommend jointly to the district court a sentence between 168 months and 210 months of imprisonment, a limited reduction in Skilling’s guidelines range of imprisonment in exchange for Skilling agreeing, among other things, not to contest the original forfeiture and restitution order and to waive all appeals and other litigation.  As court documents make clear, the government entered into this agreement, in part, to bring finality to Skilling’s convictions and thereby allow the government to promptly seek the distribution of approximately $42 million to victims of Skilling’s crimes.

Skilling’s convictions stemmed from a scheme to deceive the investing public, the U.S. Securities and Exchange Commission, and others about the true performance of Enron’s businesses. The scheme was designed to make it appear that Enron was growing at a healthy and predictable rate, consistent with analysts’ published expectations, that Enron did not have significant write-offs or debt and was worthy of an investment-grade credit rating, that Enron was comprised of a number of successful business units, and that the company had an appropriate cash flow. This scheme had the effect of artificially inflating Enron’s stock price, which increased from approximately $30 per share in early 1998 to over $80 per share in January 2001, and artificially stemming the decline of the stock during the first three quarters of 2001.

The fraud scheme eventually unraveled and Enron filed for bankruptcy in December 2001, making its stock virtually worthless.

The investigation into Enron’s collapse was conducted by the Enron Task Force, a team of federal prosecutors supervised by the Justice Department’s Criminal Division, and Special Agents from the FBI and IRS Criminal Investigation. The Task Force received considerable assistance from the Securities and Exchange Commission. The resentencing hearing was handled by Patrick Stokes, Albert Stieglitz and Robert Heberle of the Criminal Division’s Fraud Section.

Axius CEO Roland Kaufmann Sentenced for Conspiracy to Pay Bribes in Stock Sales

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Roland Kaufmann, CEO of Axius Inc., was sentenced today to serve 16 months in prison for his role in a conspiracy to bribe purported stock brokers and manipulate the stock of a company he controlled, announced Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division and U.S. Attorney for the Eastern District of New York Loretta Lynch.

Kaufmann, 60, a Swiss citizen, was sentenced today by U.S. District Judge John Gleeson in the Eastern District of New York.  In addition to his prison term, Kaufmann was sentenced to serve three years of supervised release and ordered to pay a fine of $450,000.

Kaufmann pleaded guilty in January 2013 to one count of conspiracy to violate the Travel Act in connection with a scheme to bribe stock brokers to purchase the common stock of a company he controlled and to manipulate its stock price.  As part of his plea agreement, Kaufmann forfeited $298,740 gained through this crime.

According to court documents, Kaufmann controlled Axius, Inc., a purported holding company and business incubator located in Dubai.  As part of the scheme, the defendant and his co-conspirator, Jean Pierre Neuhaus, enlisted the assistance of an individual who they believed had access to a group of corrupt stock brokers, but who was, in fact, an undercover law enforcement agent.  Court documents reveal that they instructed the undercover agent to direct brokers to purchase Axius shares in return for a secret kickback of approximately 26 to 28 percent of the share price.  Kaufman and Neuhaus also instructed the undercover agent as to the price the brokers should pay for the stock and that the brokers were to refrain from selling the Axius shares they purchased on behalf of their clients for a one-year period.  By preventing sales of Axius stock, Kaufmann and Neuhaus intended to maintain the fraudulently inflated share price for Axius stock.

Jean Pierre Neuhaus has pleaded guilty and been sentenced for his role in the scheme.

The case is being prosecuted by Trial Attorney Justin Goodyear of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Ilene Jaroslaw, with assistance from Fraud Section Trial Attorney Nathan Dimock.  The case was investigated by the FBI New York Field Office and the Internal Revenue Service New York Field Office.  The Department also recognizes the substantial assistance of the U.S. Securities and Exchange Commission.

This prosecution was the result of efforts 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.

Former Corporate Officers of China-Based Oil and Gas Company Charged with Fraud and False Statements

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WASHINGTON – The former president and CEO, and the former vice president of corporate finance of China North East Petroleum Holdings Limited (CNEP), an oil and gas company whose stock is traded in the United States, have been charged with defrauding investors in connection with public offerings of stock.

Acting Assistant Attorney General Mythili Raman of the Criminal Division; U.S. Attorney for the District of Columbia Ronald C. Machen Jr.; Assistant Director in Charge George Venizelos of the FBI’s New York Field Office; and Chief Richard Weber of the Internal Revenue Service’s Criminal Investigation (IRS-CI), made the announcement.

Wang Hongjun, 41, and Chao Jiang, 32, both Chinese citizens residing in California and New York, respectively, were indicted on May 23, 2013, with one count of conspiracy to commit wire and securities fraud and four counts of securities fraud, which each carry a maximum penalty of 25 years in prison. Jiang is also charged with two counts of false statements to the U.S. Securities and Exchange Commission (SEC) during sworn testimony, which each carry a maximum penalty of five years in prison. The indictment was made public today.

According to the indictment, Hongjun served as the president and CEO of CNEP from 2009 to 2010, and as the chairman of the Board of Directors beginning in 2010.  Jiang served as the vice president of corporate finance and corporate secretary of CNEP from 2008 until approximately 2011.  The charges allege that in June of 2009, CNEP registered a shelf offering with the SEC proposing to sell up to $40 million of CNEP common stock in the United States on the New York Stock Exchange.  In September and December of 2009, CNEP made two separate offerings pursuant to the June registration.  In documents filed with the SEC related to the offerings, and in other public statements to investors, Hongjun and Jiang informed investors that CNEP intended to use the funds raised from the securities offerings for general corporate purposes and to repay a prior corporate debt.

The indictment alleges that, instead of using the offering proceeds as represented to CNEP’s investors, Hongjun and Jiang misappropriated approximately $1,265,000 of the proceeds by wiring the money to bank accounts in the name of their family members – approximately $965,000 to Jiang’s father and approximately $300,000 to Hongjun’s wife – which was used, in part, to purchase a home in California, jewelry and a Mercedes-Benz.

In addition, the indictment alleges that Jiang testified falsely under oath to the SEC in Washington, D.C., about these transactions.  In that testimony, Jiang stated that none of his family members had received anything of value over $500 from CNEP, despite having wired $965,000 from CNEP’s bank account to the account of his father.  Jiang also testified falsely regarding the use of proceeds from the securities offerings.

An indictment is merely an accusation, and defendants are presumed innocent until proven guilty in a court of law.

In a related action, the SEC had previously filed a civil enforcement action against Hongjun, Jiang and others in the Southern District of New York.

The case was investigated by the FBI’s New York Field Office and IRS-CI.  The department wishes to thank the SEC for its significant assistance in this case. The investigation is continuing.

This case is being prosecuted by Trial Attorneys Daniel Kahn and Kevin Muhlendorf of the Criminal Division’s Fraud Section and Assistant U.S. Attorney David Johnson for the District of Columbia.

 

Army National Guard Captain Charged for Alleged Role in Bribery and Wire Fraud Scheme and Two Former Soldiers Sentenced for Their Roles in a Related Scheme

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To Date, 11 Individuals Have Been Charged in Ongoing Corruption Investigation

A Texas Army National Guard captain has been charged for his alleged role in a bribery and wire fraud scheme and two former soldiers in the Texas Army National Guard were sentenced for their roles in a separate scheme to defraud the National Guard Bureau and its contractor, announced Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division.

These cases arose from an investigation concerning allegations that former and current soldiers and military and civilian contract recruiters in the San Antonio and Houston areas engaged in a wide-ranging scheme to obtain fraudulent recruiting referral bonuses.  To date, 11 people have been charged in this ongoing investigation, including yesterday’s 17-count indictment of Fabian Barrera, 46, of Schertz, Texas, a Captain in the Army National Guard accused of personally obtaining more than $185,500 in fraudulent recruiting bonuses.  Barrera made his initial appearance on May 16, 2013, in the U.S. District Court for the District of Maryland, before U.S. Magistrate Judge Jillyn K. Schulze.  The public is reminded that an indictment is merely a charge and the defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

According to court documents, in approximately September 2005, the National Guard Bureau entered into a contract with Document and Packaging Broker, Inc., to administer the Guard Recruiting Assistance Program (G-RAP), which was designed to offer monetary incentives to soldiers who referred others to join the U.S. military.  To participate in the G-RAP, an eligible soldier needed to establish an online recruiting assistant (RA) account.  Through these recruiting programs, a participating soldier could receive up to $3,000 in bonus payments for every person he or she referred to serve in the U.S. military.

Barrera, an RA in the G-RAP between approximately December 2005 and February 2012, is alleged to have paid Army National Guard recruiters for the names and Social Security numbers of potential soldiers and used this information to claim that he was responsible for referring dozens of potential soldiers to join the military, though he allegedly did not recruit any of those people.  As a result, Barrera is accused of receiving more than approximately $185,000 in fraudulent recruiting bonuses, and the indictment alleges that Barrera paid various recruiters in the form of checks and cash payments.

Former Staff Sergeant Jermaine Britt, 39, of Richmond, Texas, was sentenced today to 30 months in prison by Chief U.S. District Judge Biery for his role in obtaining $86,500 in fraudulent bonus payments. According to court documents, Britt served as a recruiter in the Houston area from approximately November 2006 until November 2012. He conspired with former Specialist Stephanie Heller, 37, of Wharton, Texas, who was an RA in the G-RAP and claimed approximately $44,500 in fraudulent bonuses through her account.  Heller made approximately $19,750 in bribe payments to Britt, who served as a recruiter in the Houston area from approximately November 2006 until November 2012. Heller also made a $1,000 bribe payment to another recruiter in exchange for Britt and that recruiter providing the personal information of potential soldiers.  In addition to accepting bribes from Heller, Britt worked with at least two other RAs to claim fraudulent bonus payments and accepted a total of $23,750 in bribe payments in exchange for providing the personal information of potential soldiers.

Britt also admitted that he obstructed justice by coaching Heller to make false statements to federal agents.  In September of 2012, Heller recorded two conversations with Britt.  In those conversations, Britt told Heller how she could provide false stories to federal agents to innocently explain incriminating conduct, such as large cash withdrawals from her bank account, her receipt of emails from Britt in which Britt provided the personal identifiers of potential soldiers, and her use of Britt’s military computer to make referrals under her RA account.

Britt pleaded guilty to conspiracy to commit bribery and wire fraud, bribery, and obstruction of justice on Nov. 9, 2012. Heller pleaded guilty to conspiracy to commit bribery and wire fraud and bribery on Oct. 4, 2012. Heller was also sentenced today to five years’ probation, and her cooperation was instrumental in the case against Britt.

These cases are being prosecuted by Trial Attorneys Edward J. Loya Jr., Brian A. Lichter, and Sean F. Mulryne of the Criminal Division’s Public Integrity Section.  These cases are being investigated by agents from the San Antonio Fraud Resident Agency of the Major Procurement Fraud Unit, U.S. Army CID, and from the San Antonio Field Office of the Internal Revenue Service Criminal Investigation.

Former U.S. Army Corps Of Engineers Employee Sentenced To 13 Years In Prison For Multimillion-Dollar Bribery, Kickback Scheme

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At Least $50 Million in Iraq Construction Contracts Involved

NEWARK, N.J. – A former U.S. Army Corps of Engineers (USACE) Project Engineer deployed to Tikrit, Iraq, during Operation Iraqi Freedom was sentenced today to 156 months in prison for taking at least $3.7 million in bribes and kickbacks in connection with more than $50 million in USACE contracts awarded to foreign companies in Gulf Region North, Iraq, New Jersey U.S. Attorney Paul J. Fishman announced.

Egyptian-born U.S. citizen John Alfy Salama Markus, 40, of Nazareth, Pa., previously pleaded guilty before U.S. District Judge Jose L. Linares to three counts of a 54-count Indictment returned in July 2011 charging him with wire fraud, conspiracy to commit bribery and to defraud the U.S. government, money laundering and tax offenses. Two other USACE employees and two foreign contractors also were charged in the July 2011 Indictment. Judge Linares imposed the sentence today in Newark federal court.

“The Court’s lengthy sentence recognizes the significant harm Salama Markus caused when he corrupted tens of millions in Iraq construction contracts by treating projects to secure safe access to fuel, electricity, education and medical treatment as opportunities for illegally amassing personal wealth,” U.S. Attorney Fishman said. “Bribes should not be the cost of doing business with the United States. They violate our laws and unfairly tarnish those who serve our country with honor.”

“By accepting bribes and corrupting the acquisition process while deployed to a combat theater, Mr. Salama Markus failed in his duty to his country and betrayed his position of trust for personal greed, depriving the U.S. taxpayers of his honest service,” Acting Special Agent in Charge Craig W. Rupert, DCIS Northeast Field Office, said. “The Defense Criminal Investigative Service continues to aggressively root out corruption and fraud impacting our warfighters and to safeguard the proper use of U.S. taxpayer dollars.”

“Today’s sentencing of Salama Markus is a direct result of the excellent relationship IRS has with our law enforcement partners in combating violations of federal law,” Shantelle P. Kitchen, Acting Special Agent in Charge, IRS-Criminal Investigation, Newark Field Office, said. “This sentence should send a clear message: illegally lining your own pocket for personal financial gain will not be tolerated, and individuals like Mr. Markus will be punished for their crimes.”

According to documents filed in this case and statements made in court:

From July 2007 to June 2008, Salama Markus accepted at least $3.7 million in bribe and kickback payments in connection with USACE contracts awarded to multiple companies associated with two foreign contractors named in the Indictment – Ahmed Nouri, a/k/a “Ahmed Bahjat,” 42, a citizen of Great Britain residing in Greece and Iraq and the former vice president of Operations for Iraqi Consultants & Construction Bureau (“ICCB”); and Mithaq Al-Fahal, a/k/a “Mithaq Mahmood Al-Fahal,” 38, an Iraqi citizen who was a senior project manager at Sakar Al-Fahal and controlled Dar Al Jubori Co. From September 2005 to July 2008, Salama Markus was assigned to Tikrit as a project engineer, where he and his co-worker, Onisem Gomez, were involved in the review and award process for contractors seeking lucrative USACE contracts in Gulf Region North, Iraq, as well as the administration, oversight and modification of such contracts, post-award.

Salama Markus admitted that he devised a scheme to provide favorable official action and assistance to co-conspirators Nouri and Al-Fahal for the benefit of their associated companies, including obtaining and disseminating confidential bid and internal USACE pricing information to individuals seeking the award of USACE contracts to their companies, and approving lucrative payments to these companies. All of these actions were taken in exchange for bribes and kickbacks that Salama Markus accepted from foreign contractors. Salama Markus also admitted paying more than $100,000 in bribe money received by Gomez.

Salama Markus opened or established control over multiple foreign bank accounts in Jordan and Egypt to receive illegal bribe and kickback payments that he took from foreign contractors in connection with USACE contracts awarded. With respect to some of these USACE contracts, Salama Markus created, maintained and sent via email to foreign contractors spreadsheets and other records detailing: (a) the value of USACE contracts awarded; (b) the percentage of those contracts that Salama Markus solicited and demanded; (c) the payments – whether by installment or lump sum – made to Salama Markus by foreign contractors in connection with the award of USACE contracts; and (d) in some cases, the date on which these illegal payments were accepted in cash or deposited into Salama Markus’ foreign bank accounts. A single page of one spreadsheet created by Salama Markus in July 2008 reflected his demand and acceptance of bribe payments totaling $1,958,500, or 10 percent of the contract value, from co-conspirator Al-Fahal in connection with the award to companies associated with Al-Fahal of $19,580,000 in contracts for the construction of segments of the Baghdad to Bayji Pipeline.

Salama Markus used the foreign bank accounts under his control to receive and transfer bribe and kickback payments from foreign contractors to at least 11 bank accounts opened, established and controlled by Salama Markus in New Jersey and Pennsylvania. Salama Markus also transferred bribe and kickback money to co-conspirator Gomez.

Salama Markus admitted that with the proceeds of his wire fraud scheme and bribery offenses he paid for the construction of a custom-built home in Nazareth, which was worth $1.1 million. He admitted that on Oct. 16, 2008, the date of settlement, he obtained a cashier’s check drawn on a Bank of America account for $850,807.54 made out to a title company in connection with the construction of the Nazareth home.

Salama Markus also admitted that, for calendar year 2009, he failed to file with the U.S. Department of Treasury a Report of Foreign Bank and Financial Accounts (FBAR), disclosing that he had a financial interest in, and signature and other authority over, certain financial accounts in foreign countries, including Jordan.

Salama Markus agreed to the entry of a forfeiture money judgment in the amount of at least $3.7 million, a portion of which will be satisfied by his forfeiture of the Nazareth residence, as well as his forfeiture of five vehicles and two motorcycles.

In addition to the prison term, Judge Linares sentenced Salama Markus to three years of supervised release, fined him $75,000 and ordered him to cooperate with the IRS concerning the payment of taxes and penalties.

U.S. Attorney Fishman credited special agents of DCIS, under the direction of Special Agent in Charge Craig W. Rupert, Acting Special Agent-in-Charge of the Northeast Field Office of the U.S. Department of Defense, Office of the Inspector General, Defense Criminal Investigative Service; IRS-Criminal Investigation, under the direction of Acting Special Agent in Charge Shantelle P. Kitchen with the investigation leading to today’s sentence. He also thanked special agents of the U.S. Department of Homeland Security, Immigration and Customs Enforcement, Homeland Security Investigations, under the direction of Special Agent in Charge Andrew McLees; and the U.S. Army Criminal Investigation Command, Mid-Atlantic Fraud Field Office, under the direction of Special Agent in Charge William J. Stakes Jr., for their work in the ongoing investigation.

The government is represented by Assistant U.S. Attorneys Sandra L. Moser and Vikas Khanna of the U.S. Attorney’s Office Special Prosecutions Division in Newark.

Former Member of Port Authority Board Sentenced to 57 Months in Prison

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Robert M. Peto, a former member of the Cleveland-Cuyahoga County Port Authority, was sentenced to more than four years in prison today after previously pleading guilty to violating the Hobbs Act, law enforcement officials said today.

Peto, 58, lives in Gates Mills, Ohio. He served as a member of the Port Authority Board between December 2004 through in or around August 2012, according to court documents.

Peto obtained property not due to him or his Port Authority office including free and discounted home improvements and materials, entertainment, and a financial benefit related to a vehicle acquisition, according to court documents.

The property and objects were provided by Michael Forlani and/or Doan Pyramid LLC and Neteam, AVI, companies in which Forlani had an ownership interest, according to court documents.

“This sentence shows the high cost to those who would violate the public’s trust in exchange for personal gain,” said Stephen D. Anthony, Special Agent in Charge of the Federal Bureau of Investigation’s Cleveland Field Office. “Corruption—in this case taking bribes and utilizing his position as a board member for the Port Authority—will not be tolerated.”

The conduct took place between 2004 and October 2, 2007, according to court documents.

The case was prosecuted by Assistant United States Attorneys Antoinette T. Bacon and Nancy L. Kelley following an investigation by the Federal Bureau of Investigation, the Department of Labor, and Internal Revenue Service–Criminal Investigation.

Former Financial Services Broker Sentenced to 10 months in MuniBonds Investigation

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WASHINGTON — A former financial services broker was sentenced today in U.S. District Court for the Southern District of New York, for his participation in conspiracies related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts, the Department of Justice announced.

Adrian Scott-Jones, of Morriston, Fla. , a former broker for Tradition N.A. , was sentenced by District Court Judge Harold Baer Jr. for his role in the conspiracies. Scott-Jones was sentenced to serve 18 months in prison and to pay a $12,500 criminal fine.

“From soliciting intentionally losing bids for investment agreements to paying out kickbacks to manipulate the competitive bidding process, the conspirators went to great lengths to defraud municipalities across the country,” said Scott D. Hammond, Deputy Assistant Attorney General for the Antitrust Division’s criminal enforcement program. “Today’s sentence sends a clear message that the division will continue to hold executives accountable for their anticompetitive conduct. ”

On Sept. 8, 2010, Scott-Jones pleaded guilty to participating in multiple conspiracies with executives of General Electric Co. (GE) affiliates, from as early as 1999 until 2006. According to the charges, GE and other financial institutions and insurance companies (providers), offered a type of contract, known as an investment agreement, to state, county and local governments and agencies throughout the United States. The public entities hired brokers like Scott-Jones and Tradition to conduct bidding for contracts to invest money from a variety of sources, primarily the proceeds of municipal bonds issued to raise money for, among other things, public projects. Scott-Jones also participated in a conspiracy with representatives of a second provider located in New York City.

According to court documents, in each conspiracy, Scott-Jones gave co-conspirators information about the prices, price levels or conditions in competitors’ bids, a practice known as a “last look,” which is explicitly prohibited by U.S. Treasury regulations. Scott-Jones also solicited and received intentionally losing bids for certain investment agreements and other municipal finance contracts. As a result of Scott-Jones’ role in corrupting the bidding process for investment agreements, he and his co-conspirators deprived the municipalities of competitive interest rates for the investment of tax-exempt bond proceeds used by municipalities for various public works projects, such as water pollution abatement projects and low-cost housing. The department said that the conspiracies cost municipalities around the country millions of dollars.

“Today’s sentencing reaffirms the ongoing success of our efforts to weed out corruption in the municipal bond market,” said George Venizelos, Acting Director in Charge of the FBI in New York. “The FBI will continue to work closely with our partners from the Antitrust Division to protect the integrity of the competitive bidding process in public finance. ”

“Individuals who manipulate the competitive bidding system to benefit themselves will be held accountable for their criminal activity,” said Richard Weber, Chief, Internal Revenue Service Criminal Investigation (IRS-CI). “Quite simply, Mr. Scott-Jones profited at the expense of the towns and cities that needed the money for important public works projects. IRS Criminal Investigation is committed to working with our law enforcement partners to uncover this kind of corruption and secure justice for American taxpayers. ”

A total of 20 individuals have been charged as a result of the department’s ongoing municipal bonds investigation, 19 of whom have been convicted at trial or pleaded guilty; one is currently awaiting trial. Additionally, one company has pleaded guilty.

The sentences announced today resulted from an ongoing investigation conducted by the Antitrust Division’s New York Office, the FBI and IRS-CI. The division is coordinating its investigation with the U.S. Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York.

Today’s convictions are 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.

Virginia Anesthesiologist Sentenced for Filing False Tax Returns

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FOR IMMEDIATE RELEASE
Wednesday, December 5, 2012
Virginia Anesthesiologist Sentenced for Filing False Tax Returns

Dr. George Anderson, 57, of Farmville, Va., was sentenced today to 33 months in prison, followed by one year of supervised release, for criminal tax fraud, the Justice Department and Internal Revenue Service (IRS) announced. U.S. District Judge Henry Hudson, sitting in Richmond, Va., also ordered Anderson to pay $471,919 of restitution to the IRS.

 

Anderson had earlier pleaded guilty to two counts of willfully filing false tax returns. According to the statement of facts filed with the court, Anderson was the sole owner of Farmville Anesthesia Associates Inc. Beginning in 2001, Anderson attempted to reduce his business’s tax liability to zero by diverting income to sham and nominee entities. Specifically, Anderson paid hundreds of thousands of dollars worth of bogus expenses out of Farmville Anesthesia’s bank accounts to other accounts held in the names of nominee trusts and limited liability companies Anderson himself controlled.   He then falsely reported these payments on Farmville Anesthesia’s corporate income tax returns as legitimate business expenses. Later, Anderson spent substantial funds out of the nominee bank accounts for his personal benefit, including for the construction of his personal residence, and did not report the expenditures as income on his personal tax returns.

 

In his guilty plea, Anderson admitted that he filed a false 2007 corporate income tax return on behalf of Farmville Anesthesia Associates. That return was false because it reported the bogus expenses paid to Anderson-controlled sham entities. Anderson also admitted to filing a false 2005 personal income tax return. That return was false because it did not report the income Anderson spent for his benefit out of the bank accounts held in the names of the nominee trusts and LLCs.

 

This case was investigated by IRS Criminal Investigation and was prosecuted by Trial Attorney Jonathan Marx of the Justice Department’s Tax Division and Assistant U.S. Attorney David Maguire of the U.S. Attorney’s Office for the Eastern District of Virginia.

Professor Sentenced to 41 Months for Grant Fraud

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Although we were unable to locate a press release issued by the US Attorney’s Office in M.D. Pa, a professor charged on January 31, 2012 with grant fraud, received a stiff sentence: 3.5 years in prison and $660,000 restitution.  More than 100 letters were received by the court advocating leniency (including from the professor’s thesis adviser and from a current financial backer of his research).  Despite this and powerful testimony from supporters (including his father), the court meted out what must have been seen by the defendant, his family and supporters as very harsh justice.

PennLive.Com article on sentencing

Original US Attorney’s 1-31-12 Press Release below:

Former Penn State Professor Charged In $3 Million Federal Research Grant Fraud

FOR IMMEDIATE RELEASE
January 31, 2012

The United States Attorney’s Office for the Middle District of Pennsylvania announced that a felony Information has been filed in United States District Court in Harrisburg against Craig Grimes, age 55, of Raleigh, North Carolina, charging him with wire fraud, false statements, and money laundering. During the time period alleged in the Information, Grimes resided in Boalsburg, Pennsylvania, and was a Professor of Material Science and Engineering at The Pennsylvania State University.

According to United States Attorney Peter J. Smith, Count I of the Information charges that between June 30, 2006, and February 1, 2011, Grimes defrauded the National Institutes of Health (“NIH”) of federal grant monies. The NIH, a component of the United States Department of Health and Human Services, provides funding for medical research through grants.

Grimes, acting through his solely-owned company, SentechBiomed, State College, PA requested a $1,196,359.00 grant from NIH to perform research related to the measurement of gases in a patient’s blood. The measurement of these gases was purported to be relevant to detecting the presence of a disease in infants known as necrotizing enterocolitis.

In the application, Grimes specifically represented to NIH that he would direct approximately $509,274.00 to the Hershey Medical Center to conduct clinical research on adult and infant subjects. The money was never paid. Instead, the grant funds were misappropriated, in part, by Grimes for his own use. The clinical studies/trials were not performed.

Count II of the Information charges Grimes with allegedly making false statements to the United States Department of Energy in connection with a second federal grant. In August 2009, Grimes, while a PSU professor, completed a grant application seeking a $1,908,732.00 grant from the Advanced Research Projects Agency – Energy(ARPA-E) which was created to foster research and development of energy-related technologies. The ARPA-E grant was funded by the American Recovery and Reinvestment Act.

ARPA-E seeks to avoid funding research already funded by other government and private entities. It requires applicants for grants to disclose other funding sources. In the application Grimes completed and had submitted to ARPA-E, he allegedly stated there was no other funding, when, in fact, he had received a grant from the National Science Foundation.

Count III of the Information charges Grimes with money laundering the proceeds of the fraudulent proceeds he received from the National Institutes of Health.

United States Attorney Smith stated, “Fraud in connection with federally funded university research harms public health and safety and damages our scientific and educational institutions. Such cases will be investigated and prosecuted as vigorously as any other type of serious economic crimes. Anyone with information concerning suspected research fraud should contact the Office of Inspector General for the appropriate federal agency.”

Greg Friedman, Inspector General, U.S. Department of Energy, stated that “The Department of Energy is a major underwriter of energy research in the United States. Cases that impact the integrity of the process are important to us. Abuse of the system is unacceptable. I would like to thank the United States Attorney’s Office and the IG Special Agents who worked tirelessly on this case. This investigation and prosecution demonstrate our commitment to holding those who defraud the Department accountable for their actions.”

“NIH grants billions in taxpayer funds each year to advance vital medical research,” said Nicholas DiGiulio, the Philadelphia Region’s Special Agent in Charge for the Office of Inspector General of the Department of Health and Human Services. “Every dollar is precious, so any misappropriation of these funds – as the government charges Mr. Grimes today – will be investigated aggressively.”

If convicted, Grimes faces up to thirty-five years in prison and a fine of $750,000.

Fraud related to U.S. Department of Energy may be reported to: (800) 541-1625.

Fraud related to U.S. Department of Health and Human Services, including U.S. National Institutes of Health, grants and programs may be reported to: 1-800-HHS-TIPS (1-800-447-8477).

Fraud related to U.S. National Science Foundation grants and programs may be reported to: 703-292-7100.

The investigation is being conducted by special agents of the Department of Energy, Office of Inspector General, the National Science Foundation, the Department of Health and Human Services, and the IRS. Prosecution is assigned to Assistant United States Attorney Joseph J. Terz.

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An Indictment or Information is not evidence of guilt but simply a description of the charge made by the Grand Jury and/or United States Attorney against a defendant. A charged Defendant is presumed innocent until a jury returns a unanimous finding that the United States has proven the defendant’s guilt beyond a reasonable doubt or until the defendant has pled guilty to the charges.