Category Archives: USAO

Former Executive Director Of The Ramapo Local Development Corporation Pleads Guilty To Securities Fraud And Conspiracy Charges

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Department of Justice
U.S. Attorney’s Office
Southern District of New York
FOR IMMEDIATE RELEASE
Tuesday, March 7, 2017

Preet Bharara, the United States Attorney for the Southern District of New York, announced that N. AARON TROODLER, the former Executive Director of the Ramapo Local Development Corporation (“RLDC”), pled guilty today before U.S. District Judge Cathy Seibel to conspiring with Ramapo Town Supervisor Christopher St. Lawrence to commit securities fraud as a result of a scheme to defraud investors in municipal bonds issued by the RLDC and the Town of Ramapo (the “Town”). This case is believed to be the first conviction for federal securities fraud in connection with municipal bond issuances.

U.S. Attorney Preet Bharara said: “As we said at the time of his arrest, N. Aaron Troodler defrauded both the citizens of Ramapo and thousands of investors around the country, helping to sell over $150 million of municipal bonds on fabricated financials. Today, Troodler has admitted to committing securities fraud. This guilty plea, in what we believe to be the first municipal bond-related criminal securities fraud prosecution, is a big step in policing and bringing accountability to the $3.7 trillion municipal bond market.”

According to the allegations contained in the Superseding Information to which TROODLER pled guilty today and the related Indictment of TROODLER’s co-conspirator, Town Supervisor Christopher St. Lawrence:

As of August 2015, the Town had more than $128 million in outstanding bonds that had been issued for various municipal purposes, while the RLDC, a corporation created and owned by the Town under state law, had issued $25 million in bonds to pay for the construction of Provident Bank Park (now Palisades Credit Union Park), a minor league baseball stadium in Ramapo.

The Indictment and Superseding Information charge that St. Lawrence and TROODLER lied to investors in the Town’s and RLDC’s bonds in order to conceal the deteriorating state of the Town’s finances and the inability of the RLDC to make scheduled payments of principal and interest to holders of its bonds from its own money.

While the fraud predated the construction of the stadium, the Town’s financial problems were caused largely by the $58 million total cost of the stadium. The Town paid more than half of that cost, despite the rejection of the Town’s guarantee of bonds to pay for construction of the stadium in a Town-wide referendum in 2010 and St. Lawrence’s public statements that no public money would be used to pay for the stadium.

The defendants lied to investors primarily by making up false assets in the Town’s General Fund. The General Fund is the Town’s primary operating fund. The accumulated difference over time between how much money the Town receives in taxes and fees and how much it spends in a year is the fund’s balance. The fund balance is a cushion that can be spent during difficult financial times. The size of the fund balance relative to the amount of the fund’s revenue and trends in a town’s General Fund balance over time are the primary indicators of the town’s financial health.

The Indictment alleges that St. Lawrence lied to the RLDC’s bond rating service in January 2013 when he told them in a telephone call that the 2012 fund balance would remain unchanged from the 2011 balance. Immediately after that call ended, St. Lawrence told Town employees “to do [an upcoming] refinancing of the short term debt as fast as possible because . . . we’re going to have to all be magicians to get to some of those numbers.”

The Indictment and the Superseding Information also allege that St. Lawrence and TROODLER told investors in the Town’s and RLDC’s bonds that the RLDC was making the payments on its bonds from its operating revenue, meaning money it was making from its ordinary business of running the baseball stadium and selling condominiums at a development it had built. That was important to investors because it led them to believe that the Town would not have to pay off the RLDC’s $25 million bonds. It also made the RLDC’s bonds look less risky. The RLDC actually made those payments from money TROODLER borrowed from the bank or money TROODLER obtained from the Town at St. Lawrence’s direction.

When the RLDC issued $25 million in bonds to build the stadium building itself in 2011, St. Lawrence inflated the size of the Town’s General Fund by including a false $3.6 million receivable in the General Fund. The Town’s financial condition was important to investors in the RLDC’s bonds because the Town guaranteed the payments of principal and interest on the bonds. Without that fake asset, the General Fund’s balance would have been negative in that year.

In addition, St. Lawrence inflated the General Fund with another fake receivable for $3.08 million from 2010 through 2015. It first went on the Town’s books when the RLDC agreed to buy property known as The Hamlets from the Town for $3.08 million. That sale never closed because the land turned out to be a habitat for rattlesnakes. Rather than take the receivable off the Town’s books – and reduce the size of the General Fund balance by $3.08 million, thereby creating a negative balance – St. Lawrence claimed the receivable had to do with the RLDC’s purchase of another property from the Town that had already taken place. To keep it on the books, St. Lawrence then caused the Town Attorney to tell the Town’s auditors over a period of years that the receivable would be paid back within a year, which was required if the receivable was going to stay in the General Fund. Without this fake receivable alone, the Town’s General Fund balance would have been negative for years.

In May 2013, the Federal Bureau of Investigation (“FBI”) searched Town Hall in connection with this investigation. Less than 10 days later, St. Lawrence inflated another receivable in the General Fund – this one for money from the Federal Emergency Management Agency (“FEMA”) to reimburse the Town for expenses from Hurricanes Irene and Sandy. St. Lawrence claimed that the Town was going to receive $3.145 million from FEMA when the Town hadn’t even submitted those claims to FEMA yet. Without St. Lawrence’s inflation of this receivable alone, the projected General Fund balance for 2012 would have been negative when the Town sold bonds in May 2013.

Finally, the Indictment alleges that St. Lawrence also inflated the General Fund balance by making more than $12 million in transfers from the Town’s Ambulance Fund to the General Fund from 2009 to 2014. The group of properties in Ramapo that pays into the Ambulance Fund is different from the group of properties that pays into the General Fund. Under state law, transfers between funds with different tax bases can only be loans. St. Lawrence told the auditors that the two funds had the same tax base to justify the transfers.

* * *

TROODLER, 42, of Bala Cynwyd, Pennsylvania, pled guilty to one count of securities fraud, which carries a maximum sentence of 20 years in prison, and one count of conspiracy, which carries a maximum sentence of five years in prison.

The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

TROODLER is scheduled to be sentenced by Judge Seibel on September 18, 2017, at 3:30 p.m.

The charges against Christopher St. Lawrence contained in the Indictment are merely accusations, and he is presumed innocent unless and until proven guilty.

Mr. Bharara praised the investigative work of the FBI and the Rockland County District Attorney’s Office. He also thanked the U.S. Securities and Exchange Commission for their assistance in the investigation.

This case is being prosecuted by the Office’s White Plains Division. Assistant U.S. Attorneys James McMahon, Daniel Loss, and Stephen J. Ritchin are in charge of the prosecution.

Kiekert AG to Plead Guilty to Bid Rigging Involving Auto Parts

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Kiekert AG, an automotive parts manufacturer based in Heiligenhaus, Germany, has agreed to plead guilty and to pay a $6.1 million criminal fine for its role in a conspiracy to rig bids of side-door latches and latch minimodules installed in cars sold in the United States and elsewhere, the Department of Justice announced today.

According to a one-count felony charge filed today in the U.S. District Court for the Eastern District of Michigan, Kiekert participated in a conspiracy to eliminate competition by agreeing to allocate sales, rig bids and fix prices for side-door latches and latch minimodules sold to Ford Motor Company and its subsidiaries in the United States and elsewhere between September 2008 and May 2013.  In addition to Kiekert’s agreement to pay a $6.1 million criminal fine, the manufacturer has agreed to cooperate with the department’s ongoing investigation.  The plea agreement is subject to court approval.

“The Antitrust Division has uncovered conspiracies involving more than 50 automotive parts,” said Acting Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division.  “Automobile manufacturers, and the American consumers who buy their cars, are entitled to prices set by competition, not secret cartels.”

“Americans expect corporations in the United States and overseas to conduct their business honestly.  To do anything less, compromises consumer trust,” said Special Agent in Charge David P. Gelios of FBI’s Detroit Division.  “Today’s plea agreement of Kiekert AG, demonstrates the resolve of the FBI and the Department of Justice to protect American consumers from price fixing and bid rigging schemes that ultimately harm the U.S. economy.”

Side-door latches secure car doors to the body.  Latch minimodules include the side-door latch and all related mechanical operating components, including the electronic lock function.

According to the charges, Kiekert officials participated in meetings and communications with representatives of another major side-door latch producer, during which they agreed to allocate sales, rig bids and fix prices submitted to Ford.  To effectuate those agreements, the conspirators exchanged information on bids and price quotations for submission to Ford.

Today’s charge is the result of an ongoing federal antitrust investigation into price fixing, bid rigging and other anticompetitive conduct in the automotive parts industry, which is being conducted by the Antitrust Division’s criminal enforcement sections and the FBI.  Including Kiekert, 48 companies and 65 executives have been charged in the division’s ongoing investigation and have agreed to pay a total of more than $2.9 billion in criminal fines.

These charges were brought by the Antitrust Division’s Chicago Office and the FBI’s Detroit Field Office with the assistance of the FBI headquarters’ International Corruption Unit.

Kiekert AG Information

New Jersey Plastic Surgeon Sentenced To Prison For Evading Taxes

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Department of Justice
U.S. Attorney’s Office
District of New Jersey
FOR IMMEDIATE RELEASE
Thursday, February 16, 2017

Morris County, New Jersey, Plastic Surgeon Sentenced To Three Years In Prison For Evading Taxes On More Than $5 Million In Income

NEWARK, N.J. – A plastic surgeon with a practice in Basking Ridge, New Jersey, was sentenced today to 36 months in prison for fraudulently diverting millions in corporate earnings for his personal use, costing the United States nearly $3 million in tax revenue between 2006 and 2010, U.S Attorney Paul Fishman announced.

David Evdokimow, 56, of Harding Township, New Jersey, was previously convicted of all eight counts of a superseding indictment charging him with one count of conspiring to defraud the United States, four counts of personal income tax evasion and three counts of corporate tax evasion. He was convicted following three-week trial before U.S. District Judge Noel L. Hillman, who imposed the sentence today in Camden federal court.

According to the superseding indictment and evidence at trial:

Evdokimow ran his medical practice through a corporation called De’Omilia Plastic Surgery P.C. (De’Omilia). He conspired with others to conceal millions of dollars of taxable income from the IRS by forming shell corporations and then having trusted associates open bank accounts for those corporations. Evdokimow then convinced these associates to give him their signatures or signature stamps so that he had full access to the shell company bank accounts while at the same time being able to conceal his connection to those accounts. He and the other conspirators then funneled millions of dollars in De’Omilia income into the bank accounts of the shell corporations and falsely claimed that these transfers were legitimate business expenses. Evdokimow also used bank accounts in the name of De’Omilia to pay his personal expenses, and falsely claimed those were business expenses too.

Evdokimow used the shell corporation and De’Omilia bank accounts to pay for more than $5.8 million in personal expenses, including designer apparel, jewelry, vacations, artwork, and multiple residences, all of which he falsely claimed as business expenses.

Evdokimow also opened accounts at several banks in order to cash checks received directly from patients for professional medical services. Between 2009 and 2011, Evdokimow cashed more than $360,000 in checks from patients, which he failed to report on his federal income tax returns.

Evdokimow was convicted of concealing more than $5.8 million in income from tax years 2006 to 2010. By concealing this income, Evdokimow evaded paying almost $3 million in taxes during that period.

In addition to the prison term, Judge Hillman sentenced Evdokimow to one year of supervised release and fined $96,000. He previously paid the taxes owed.

U.S. Attorney Fishman credited special agents of IRS-Criminal Investigation, under the direction of Special Agent in Charge Jonathan D. Larsen, with the investigation leading to today’s sentencing.

The government is represented by Assistant U.S. Attorneys Paul Murphy and Justin Herring of the U.S. Attorney’s Office Criminal Division in Newark.

Founder of Non-Profit Charged with Bribing Former Prince George’s County Official in Exchange for Grant Funds

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A Maryland man has been charged with bribery and making false statements as part of an alleged scheme to obtain government grants for a charitable organization of which he was the founder. The  case was brought via a criminal complaint filed by the United States Attorney for the District of Maryland. It alleges that the defendant made three annual payments of $5000 each to a member of the Prince George’s County Council to secure annual grants of $25,000 for the Salvadoran Business Caucus, which claimed to award scholarships to high school and college students.
The agent affidavit accompanying the criminal complaint describes conversations  that allegedly occurred between the council member and  the defendant in sufficient detail as to indicate that tape recordings of the conversations exist.
Department of Justice
U.S. Attorney’s Office
District of Maryland
FOR IMMEDIATE RELEASE
Wednesday, February 1, 2017

Greenbelt, Maryland – A criminal complaint has been filed charging

, of Rockville, Maryland, late yesterday with bribery and making false statements in connection with a scheme to engage in bribery in order to influence a public official in the performance of his official duties in Prince George’s County. Ayala’s initial appearance is scheduled today at 1:45 p.m. before U.S. Magistrate Judge Timothy J. Sullivan in U.S. District Court in Greenbelt, Maryland.

The criminal complaint was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Gordon B. Johnson of the Federal Bureau of Investigation, Baltimore Field Office; Acting Special Agent in Charge Thomas J. Holloman of the Internal Revenue Service – Criminal Investigation, Washington, D.C. Field Office; and Chief Hank Stawinski of the Prince George’s County Police Department.

According to affidavit filed in support of the criminal complaint, Ayala was an accountant and founder of Ayala and Associates Public Accountants in Washington, D.C. Ayala was also the founder of the Salvadoran Business Caucus, a non-profit organization also known as the Caucus Salvadoreno Empresarial, Inc. (CSE). CSE’s website stated that CSE awarded scholarships to high school and college students.

The affidavit alleges that Ayala paid bribes to former Prince George’s County Council Member Will Campos in exchange for grant funding. Specifically, the affidavit alleges that Ayala paid Campos $5,000 for each of County fiscal years 2012 through 2015, in exchange for $25,000 in grants to CSE in each of those years. For example, on August 13, 2014, Campos met with Ayala for lunch in Washington, D.C. During the meeting, Ayala asked Campos what would happen after Campos left his position on the County Council and assumed his position within the Maryland General Assembly. According to the affidavit, Ayala advised, “The arrangement is still on,” and Campos asked if Ayala had anything for Campos. Ayala asked Campos to give him two weeks, and “I [Ayala] call you and I’ll say let’s, let’s have a drink and you know what it’s for.” Campos asked for $5,000, “like last time,” and Ayala agreed.

According to the affidavit, on September 23, 2014, Ayala had dinner with Campos at a restaurant in Silver Spring, Maryland, and discussed the grant money. Specifically, Campos advised that he would push for Ayala to still receive grant money after Campos left office. At the conclusion of the meal, Ayala walked Campos out of the restaurant and allegedly handed Campos an envelope bearing a label for CSE and containing a cashier’s check for half the agreed upon amount. The affidavit alleges that Ayala explained, “I was unable to obtain cash. It’s better like this. This comes from – from a third party who knows me, so it’s better.” Campos joked that Ayala was paying “half now, half later,” and Ayala responded, “I would say that.”

According to the affidavit, on January 8, 2015, Ayala met with Campos at Ayala’s office in Washington, D.C. Ayala reached into his desk and retrieved an envelope. Ayala handed the envelope to Campos, who asked if it was “the rest that we talked about? 2,500?” and Ayala responded, “Yeah.” The affidavit alleges that inside the envelope, Ayala had placed $2,500 in cash.

On January 5, 2017, Ayala was interviewed by federal law enforcement agents. The affidavit alleges that Ayala denied providing anything of value to Campos in exchange for receiving Prince George’s County grant money for CSE. Thereafter, agents showed Ayala still photographs from videos taken while Ayala was making bribe payments to Campos on September 23, 2014 and January 8, 2015.

If convicted, Ayala faces a maximum sentence of ten years in prison for bribery, and a maximum of five years in prison for false statements. An individual charged by criminal complaint is presumed innocent unless and until proven guilty at some later criminal proceedings.

United States Attorney Rod J. Rosenstein commended the FBI, IRS-CI, and Prince Georges County Police Department for their work in the investigation. Mr. Rosenstein thanked Assistant U.S. Attorneys Thomas P. Windom, Mara Zusman Greenberg, and James A. Crowell IV, who are prosecuting the case.

Latest GrantFraud.Com post involves a $200 million credit card fraud scheme

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Bradford L. Geyer is reading enforcement agency tea leaves and he is seeing signs of enhanced enforcement involving grant fraud and procurement fraud at grantfraud.com.  His latest note regarding an extensive credit card fraud scheme can be found here.

FTC Charges Qualcomm With Monopolizing Key Semiconductor Device Used in Cell Phones

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Company’s sales and licensing practices hamper Qualcomm’s competitors and threaten innovation in mobile communications, according to FTC

The Federal Trade Commission filed a complaint in federal district court charging Qualcomm Inc. with using anticompetitive tactics to maintain its monopoly in the supply of a key semiconductor device used in cell phones and other consumer products.

Qualcomm is the world’s dominant supplier of baseband processors – devices that manage cellular communications in mobile products. The FTC alleges that Qualcomm has used its dominant position as a supplier of certain baseband processors to impose onerous and anticompetitive supply and licensing terms on cell phone manufacturers and to weaken competitors.

Qualcomm also holds patents that it has declared essential to industry standards that enable cellular connectivity. These standards were adopted by standard-setting organizations for the telecommunications industry, which include Qualcomm and many of its competitors. In exchange for having their patented technologies included in the standards, participants typically commit to license their patents on what are known as fair, reasonable, and non-discriminatory, or “FRAND,” terms.

When a patent holder that has made a FRAND commitment negotiates a license, ordinarily it is constrained by the fact that if the parties are unable to reach agreement, the patent holder may have to establish reasonable royalties in court.

According to the complaint, by threatening to disrupt cell phone manufacturers’ supply of baseband processors, Qualcomm obtains elevated royalties and other license terms for its standard-essential patents that manufacturers would otherwise reject. These royalties amount to a tax on the manufacturers’ use of baseband processors manufactured by Qualcomm’s competitors, a tax that excludes these competitors and harms competition. Increased costs imposed by this tax are passed on to consumers, the complaint alleges.

By excluding competitors, Qualcomm impedes innovation that would offer significant consumer benefits, including those that foster the increased interconnectivity of consumer products, vehicles, buildings, and other items commonly referred to as the Internet of Things.

The FTC has charged Qualcomm with violating the FTC Act. The complaint alleges that Qualcomm:

  • Maintains a “no license, no chips” policy under which it will supply its baseband processors only on the condition that cell phone manufacturers agree to Qualcomm’s preferred license terms. The FTC alleges that this tactic forces cell phone manufacturers to pay elevated royalties to Qualcomm on products that use a competitor’s baseband processors. According to the Commission’s complaint, this is an anticompetitive tax on the use of rivals’ processors. “No license, no chips” is a condition that other suppliers of semiconductor devices do not impose. The risk of losing access to Qualcomm baseband processors is too great for a cell phone manufacturer to bear because it would preclude the manufacturer from selling phones for use on important cellular networks.
  • Refuses to license standard-essential patents to competitors. Despite its commitment to license standard-essential patents on FRAND terms, Qualcomm has consistently refused to license those patents to competing suppliers of baseband processors.
  • Extracted exclusivity from Apple in exchange for reduced patent royalties. Qualcomm precluded Apple from sourcing baseband processors from Qualcomm’s competitors from 2011 to 2016. Qualcomm recognized that any competitor that won Apple’s business would become stronger, and used exclusivity to prevent Apple from working with and improving the effectiveness of Qualcomm’s competitors.

The FTC is seeking a court order to undo and prevent Qualcomm’s unfair methods of competition in violation of the FTC Act. The FTC has asked the court to order Qualcomm to cease its anticompetitive conduct and take actions to restore competitive conditions.

The Commission vote to file the complaint was 2-1. Commissioner Maureen K. Ohlhausen dissented and issued a statement. Both a public and sealed version of the complaint were filed in the U.S. District Court for the Northern District of California on January 17, 2017.

 

GrantFraud.Com: Former DHS Employee Inprisoned for Stealing USDA Funds

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As part of our effort to track white collar enforcement trends with the new Administration we will be tracking developments in grant fraud enforcement and procurement fraud enforcement over at GrantFraud.Com that is under construction and open.  You may click the title below to see a new USDA grant fraud case filing.  For a variety of reasons that Brad Geyer will be blogging about, we are projecting emboldened grant fraud and procurement fraud enforcement moving forward

Former DHS Employee Sentenced to Prison in Scheme to Steal USDA Funds Intended to Feed Hungry Children & Little Rock Man Pleads Guilty in Same Scheme

 

 

 

Fourth Individual in NYPA Big-Rigging Scandal Comes Forward, Faces up to Three Years and $250,000

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Washington, D.C.-  The New York Power Authority (NYPA) has recently come under multilateral investigation over allegations of bid rigging, tax fraud, and market fixture.  The DOJ, IRS, and New York Inspector General are all working jointly in this case and have subsequently made their fourth indivdual charge.  John Simonlacaj (White Plains, NY) has confessed to aiding the NYPA in filing false tax returns and now faces up to three years in prison and a $250,000 fine.

The original article is reproduced below with its link following.

 

Fourth Individual Charged in Ongoing New York Power Authority Procurement Fraud Investigation

The Department of Justice, the Internal Revenue Service (IRS) and the New York State Inspector General, which are all conducting a joint federal and state investigation into bid-rigging, fraud and tax-related offenses in the award of contracts at the New York Power Authority (NYPA), announced today that a Westchester County, New York, resident pleaded guilty today to aiding and assisting in the filing of a false tax return.

According to the one-count felony charge filed in the U.S. District Court for the Southern District of New York, in White Plains, New York, John Simonlacaj caused another individual to file a Form 1040 for the tax year 2010 that substantially understated that individual’s taxable income.  Simonlacaj pleaded guilty to aiding and assisting in the filing of a false tax return, which carries a maximum penalty of three years in prison and a $250,000 fine.

“Our investigation into bid rigging and fraud by companies supplying the New York Power Authority has uncovered a variety of criminal activity,” said Principal Deputy Assistant Attorney General Renata Hesse, head of the Justice Department’s Antitrust Division.  “Filing a false tax return is a serious offense and we are pleased to have worked with our partners in law enforcement to prosecute the criminal violation.”

“We say many times the FBI won’t stop until we find everyone responsible for their roles in a criminal investigation,” said Assistant Director in Charge Diego Rodriguez of the FBI’s New York Field Office.  “These charges prove our tenacity in digging until we hit the bottom of the pile and uncover anyone who had a part in criminal wrongdoing.”

“Today’s plea marks yet another defendant admitting guilt following a bid rigging investigation that began at the state level. My office and those of my federal law enforcement partners, will continue to follow the evidence wherever it may lead,” said New York State Inspector General Catherine Leahy Scott.

“Mr. Simonlacaj is now held accountable for his role in filing a false tax return,” said Special Agent in Charge Shantelle P. Kitchen of the IRS Criminal Investigation New York Field Office.  “Towards pursuing its goal of ensuring that that everyone pays their fair share of taxes, IRS Criminal Investigation remains committed to this ongoing investigation.”

The investigation is being conducted by the Antitrust Division’s New York Office with the assistance of the FBI, IRS Criminal Investigation and the New York State Office of the Inspector General.  NYPA is cooperating with the investigation.  Anyone with information on bid rigging or other anticompetitive conducted related to the award or performance of municipal and state contracts should contact the Antitrust Division’s Citizen Complaint Center at 888-647-3258 or visit http://www.just

Original Link

 

SEC Charges Shell Factory Operators With Fraud

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The Microcap Fraud Task Force Activities have clearly been gaining momentum…

The Securities and Exchange Commission today announced fraud charges against a California stock promoter and a New Jersey lawyer who allegedly were creating sham companies and selling them until the SEC stopped them in their tracks.

The SEC alleges that Imran Husain and Gregg Evan Jaclin essentially operated a shell factory enterprise by filing registration statements to form various startup companies and misleading potential investors to believe each company would be operating and profitable.  The agency further alleges that their secret objective all along was merely to make money for themselves by selling the companies as empty shells rather than actually implementing business plans and following through on their representations to investors.

Moving quickly to protect investors based on evidence collected even before its investigation was complete, the SEC issued stop orders and suspended the registration statements of the last two created companies – Counseling International and Comp Services – before investors could be harmed and the companies could be sold.

“Issuers of securities offerings must make truthful disclosures about the company and its business operations so investors know what they’re getting into when they buy the stock,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office.  “We allege that Husain drummed up false business plans and created a mirage of initial shareholders while Jaclin developed false paperwork to depict emerging companies that later sold as just empty shells.”

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

  • Husain and Jaclin created nine shell companies and sold seven using essentially the same pattern.
  • Husain created a business plan for each company that would not be implemented beyond a few initial steps, and then convinced a friend, relative, or acquaintance to become a puppet CEO who approved and signed corporate documents at Husain’s direction.
  • Jaclin supplied bogus legal documents that Husain used to conduct sham private sales of a company’s shares of stock to “straw shareholders” who were recruited and given cash to pay for the stock they purchased plus a commission.  Some of the recorded shareholders were not even real people.
  • Husain and Jaclin filed registration statements for initial public offerings and falsely claimed that a particular business plan would be implemented.  Deliberately omitted from the registration statements were any mention of Husain starting and controlling the company.
  • Husain and Jaclin filed misleading quarterly and annual reports once a company became registered publicly, providing much of the same false information depicted in the registration statements.
  • Husain obtained about $2.25 million in total proceeds when the empty shell companies were sold, and Jaclin and his firm received nearly $225,000 for their legal services.

The SEC’s complaint charges Husain and Jaclin with violating or aiding and abetting violations of the antifraud, reporting, and securities registration provisions of the federal securities laws.  The SEC seeks disgorgement of ill-gotten gains plus interest and penalties, permanent injunctions, and penny stock bars.  The SEC also seeks an officer-and-director bar against Husain.

The SEC’s investigation was conducted by Roberto A. Tercero and Spencer E. Bendell as part of the Microcap Fraud Task Force.  The litigation will be led by Amy J. Longo and supervised by John Berry.  The SEC appreciates the assistance of the FBI and the U.S. Attorney’s Office for the Northern District of California.

M&T Bank Agrees to Pay $64 Million for FCA liability

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M&T Bank Corp. (M&T Bank) has agreed to pay the United States $64 million to resolve allegations that it violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements, the Justice Department announced today.  M&T Bank is headquartered in Buffalo, New York.

“Mortgage lenders that fail to follow FHA program rules put taxpayer funds at risk and increase the chances of borrowers losing their homes,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “We will continue to hold lenders accountable for knowingly submitting ineligible loans for FHA insurance.”

“M&T Bank bypassed its responsibility to originate and underwrite mortgages in accordance with the standards required by the FHA,” said First Assistant U.S. Attorney James P. Kennedy Jr. for the Western District of New York.  “This case demonstrates that when a financial institution takes such a detour, we will work to ensure that it does not bypass the consequences of that conduct.”

During the time period covered by the settlement, M&T Bank participated as a direct endorsement lender (DEL) in the FHA insurance program.  A DEL has the authority to originate, underwrite and endorse mortgages for FHA insurance.  If a DEL approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD, FHA’s parent agency, for the losses resulting from the defaulted loan.  Under the DEL program, the FHA does not review a loan for compliance with FHA requirements before it is endorsed for FHA insurance.  DELs are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance, to maintain a quality control program that can prevent and correct deficiencies in their underwriting practices, and to self-report any deficient loans identified by their quality control program.

The settlement announced today resolves allegations that M&T Bank failed to comply with certain FHA origination, underwriting and quality control requirements.  As part of the settlement, M&T Bank admitted to the following facts: Between Jan. 1, 2006, and Dec. 31, 2011, it certified for FHA insurance mortgage loans that did not meet HUD underwriting requirements and did not adhere to FHA’s quality control requirements.  Prior to 2010, M&T Bank failed to review all Early Payment Default (EPD) loans, which are loans that become 60 days past due within the first six months of repayment.  Between 2006 and 2011, M&T also failed to review an adequate sample of FHA loans, as required by HUD.

Additionally, M&T created a quality control process that allowed it to produce preliminary major error rates that were significantly lower (sometimes below one percent) than what the rate would have been if M&T had calculated its preliminary major error rate by dividing the number of loans with preliminary major errors by the number of loans reviewed to determine what percent of loans contained a preliminary major error.

M&T Bank also failed to adhere to HUD’s self-reporting requirements.  While M&T Bank identified numerous FHA insured loans with “major errors” between 2006 and 2011, M&T Bank did not report a single loan to HUD until 2008, and thereafter self-reported only seven loans to HUD.  As a result of M&T’s conduct and omissions, HUD insured hundreds of loans approved by M&T that were not eligible for FHA mortgage insurance under the Direct Endorsement program and that HUD would not otherwise have insured.  HUD subsequently incurred substantial losses when it paid insurance claims on those loans.

* * *

“This recovery on behalf of the Federal Housing Administration should serve as a reminder of the potential consequences of not following HUD program rules and the value of private citizen assistance, including whistleblowers, in pursuing lenders that violate the rules,” said Inspector General David A. Montoya of the Department of Housing and Urban Development.

“It is critically important that FHA-approved lenders comply with HUD’s underwriting standards and originate mortgages that borrowers can sustain,” said HUD General Counsel Helen Kanovsky.  “We are pleased M&T Bank worked with the Department of Justice and HUD to arrive at an agreeable settlement that protects FHA’s insurance fund.”

The allegations resolved by this settlement arose from a whistleblower lawsuit filed under the False Claims Act by a former employee of M&T Bank, Keisha Kelschenbach.  Under the False Claims Act, private citizens can sue on behalf of the government and share in any recovery.  The share to be awarded in this case has not yet been determined.

The settlement was the result of a joint investigation conducted by HUD, HUD’s Office of Inspector General, the Civil Division and the U.S. Attorney’s Office for the Western District of New York.

The lawsuit is captioned U.S. ex rel. Kelschenbach v. M&T Bank Corp, 13-CV-0280(S) (W.D.N.Y.).