Category Archives: USAO

Eight Indicted in Fraud Case That Alleges $50 Million in Bogus Claims for Student Substance Abuse Counseling

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Six Linked to Long Beach Treatment Program Taken into Custody Today

Eight people have been indicted for allegedly participating in a scheme that submitted more than $50 million in fraudulent bills to a California state program for alcohol and drug treatment services for high school and middle school students that, in many instances, were not provided or were provided to students who did not have substance abuse problems.

Six of the defendants who worked at the Long Beach-based Atlantic Health Services, formerly known as Atlantic Recovery Services (ARS), were arrested this morning by federal authorities.

The indictment, which charges the defendants with health care fraud and aggravated identity theft, alleges that ARS received more than $46 million from California’s Drug Medi-Cal program after ARS submitted false and fraudulent claims for group and individual substance abuse counseling services.

“The defendants named in the indictment are accused of exploiting a program that was set up to help a particularly vulnerable population – young people who are confronting drug and alcohol abuse,” said U.S. Attorney Eileen M. Decker for the Central District of California.  “According to the indictment, ARS and its employees engaged in a long-running fraud scheme to steal tens of millions of dollars from a program with limited resources that was designed to help underprivileged youth in recovery.  In the process, the defendants and ARS branded many innocent young people as substance abusers and addicts in order to boost enrollment numbers and billings.”

The defendants named in the indictment are:

  • Lori Renee Miller, 54, of Lakewood, California, the program manager at ARS who supervised substance abuse recovery managers and counselors;
  • Nguyet Galaz, 41, of Montclair, California, who oversaw services provided at approximately 11 schools in Los Angeles County;
  • Angela Frances Micklo, 56, of Palmdale, California, who managed counselors at approximately nine schools in Los Angeles County, including several in the Antelope Valley;
  • Maribel Navarro, 48, of Pico Rivera, California, who managed counselors at approximately ten schools in Los Angeles County;
  • Carrenda Jeffery, 64, of the Mid-City District of Los Angeles, who managed counselors at approximately three schools;
  • LaLonnie Egans, 57, of Bellflower, California, who managed counselors at three schools;
  • Tina Lynn St. Julian, 51, of Compton, California, who worked as a counselor at two schools; and
  • Shyrie Womack, 33, Egans’ daughter, also of Bellflower, who worked as a counselor at three schools.

Galaz and Micklo are expected to self-surrender in the coming weeks.  The six other defendants were taken into custody without incident this morning and are scheduled to be arraigned on the indictment this afternoon in U.S. District Court.

Today’s arrests are the result of a 40-count indictment that was returned by a federal grand jury on August 26 and unsealed this morning.

The eight defendants are all former employees of ARS, which received contracts to provide substance abuse treatment services through the Drug Medi-Cal program to students in schools in Los Angeles County.  The schools included various sites operated by Soledad Enrichment Action and public schools in Montebello, California, Bell Gardens,
Californina, Lakewood, and the Antelope Valley.

ARS allegedly submitted bogus claims for payment to the Drug Medi-Cal program for a decade, according to the indictment.  ARS shut down in April 2013, when California suspended payments to the company.

According to the indictment, the claims submitted to the Drug Medi-Cal program were false and fraudulent for a number of reasons, including:

  • ARS billed for services provided to students who did not have substance abuse disorders or addictions and therefore did not qualify to receive Drug Medi-Cal services;
  • ARS billed for counseling sessions that were not conducted at all;
  • ARS billed for counseling services that were not conducted in accordance with Drug Medi-Cal regulations regarding length, number of students, content and setting;
  • ARS personnel falsified documents, including treatment plans, group counseling sign-in sheets, progress notes and update logs (which listed the dates and times of counseling sessions); and
  • ARS personnel forged student signatures on documents.

“For counselors and supervisors to risk stigmatizing students as substance abusers, as alleged in this case, just to enrich themselves at taxpayer expense is outrageous,” said Special Agent in Charge Christian Schrank for the Office of the Inspector General of the Department of Health and Human Services. “This decade-long conspiracy to defraud Medi-Cal while disregarding the true health care needs of children will not be tolerated.”

Previously, 11 other defendants pleaded guilty to health care fraud charges stemming from the ARS scheme.  Those defendants are former ARS managers Cathy Fernandez, 53, of Downey, California; Erin Hoover, 37, of Long Beach, California; Elizabeth Black, 51, of Long Beach; Helsa Casillas, 44, of El Sereno, California; and Sandra Lopez, 41, of Huntington Park, California; and former ARS counselors Tamara Diaz, 45 of East Los Angeles, California; Margarita Lopez, 40, of Paramount, California; Irma Talavera, 27, of Paramount; Laura Vasquez, 52, of Pico Rivera; Cindy Leticia Ortiz, 29, of Norwalk, California; and Arthur Dominguez, 63, of Glendale, California.

Another defendant, Dr. Leland Whitson, 75, of Redondo Beach, California, the former Medical/Clinical Director of ARS, previously pleaded guilty to making a false statement affecting a health care program.

The dozen defendants who have already pleaded guilty are pending sentencing by U.S. District Judge Philip S. Gutierrez.

Each of the eight defendants named in the indictment unsealed today potentially faces decades in federal prison if convicted.  For example, if convicted, Miller faces a statutory maximum sentence of 324 years in federal prison.

An indictment contains allegations that a defendant has committed a crime.  Every defendant is presumed innocent until and unless proven guilty in court.

The cases against the 20 defendants are the result of an investigation by the Office of Inspector General of the Department of Health and Human Services; the California Department of Justice, Bureau of Medi-Cal Fraud and Elder Abuse; and IRS – Criminal Investigation.

Former Silk Road Task Force Agent Pleads Guilty to Money Laundering and Obstruction

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Ex-Secret Service Agent Used Status to Pocket $820,000 Worth of Bitcoin 

A former U.S. Secret Service special agent pleaded guilty today to money laundering and obstruction of justice in connection with his theft of digital currency during the federal investigation of Silk Road, an online marketplace used to facilitate the purchase and sale of illegal drugs and other contraband.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Melinda Haag of the Northern District of California, Chief Richard Weber of the IRS-Criminal Investigation (IRS-CI), Special Agent in Charge David J. Johnson of the FBI’s San Francisco Division, Special Agent in Charge Michael P. Tompkins of the Justice Department’s Office of the Inspector General’s Washington, D.C. Field Office, and Special Agent in Charge Lori Hazenstab of the Department of Homeland Security’s Office of the Inspector General in Washington D.C. made the announcement.

Shaun W. Bridges, 32, of Laurel, Maryland, had been a special agent with the U.S. Secret Service for approximately six years in the Baltimore Field Office and was assigned to the Electronic Crimes Task Force.  He pleaded guilty before the U.S. District Judge Richard Seeborg of the Northern District of California and a sentencing hearing is scheduled for Dec. 7, 2015.

“There is a bright line between enforcing the law and breaking it,” said Assistant Attorney General Caldwell.  “Law enforcement officers who cross that line not only harm their immediate victims but also betray the public trust.  This case shows we will act quickly to hold wrongdoers accountable, no matter who they are.”

“Mr. Bridges has now admitted that he brazenly stole $820,000 worth of digital currency while working as a U.S. Secret Service special agent, a move that completely violated the public’s trust,” said U.S. Attorney Haag.  “We depend on those in federal law enforcement having the highest integrity and unshakeable honor, and Mr. Bridges has demonstrated that he utterly lacks those qualities.  We appreciate the hard work of our federal partners that went into bringing Mr. Bridges to justice.”

“Through a series of complex transactions, the defendant stole bitcoins worth hundreds of thousands of dollars,” said Chief Weber.  “This case is an excellent example of the financial expertise of our special agents. Through the analysis of both the block chain and data from the Silk Road servers, we were able to trace the flow of funds, which eventually led to the defendant.”

Between 2012 and 2014, Bridges was assigned to the Baltimore Silk Road Task Force, a multi-agency group investigating illegal activity on Silk Road.  Bridges’ responsibilities included, among other things, conducting forensic computer investigations in an effort to locate, identify and prosecute targets, including Ross Ulbricht, aka Dread Pirate Roberts, who ran Silk Road.

According to his plea agreement, Bridges admitted that in January 2013 he used an administrator account on the Silk Road website that belonged to another individual to fraudulently obtain access to that website, reset passwords of various accounts and to move bitcoin from those accounts into a bitcoin “wallet” that Bridges controlled.  Bridges admitted that he moved and stole approximately 20,000 bitcoin, which at that time was worth approximately $350,000.

Bridges admitted that he moved the stolen bitcoin into an account at Mt. Gox, an online digital currency exchange based in Japan.  According to his admissions, he liquidated the bitcoin into $820,000 of U.S. currency between March and May 2013, and had the funds transferred to personal investment accounts in the United States.

Bridges’ plea agreement also established that he obstructed the Baltimore federal grand jury’s investigations of Silk Road and Ulbricht in a number of ways, including by impeding the ability of the investigation to fully utilize a cooperator’s access to Silk Road.  In addition, Bridges admitted that he made multiple false and misleading statements to investigators in connection with the San Francisco federal grand jury’s investigation into his own illegal acts, and that he encouraged another government employee to lie to investigators.

Bridges is one of two federal agents to plead guilty in connection with illegal activity during the investigation of Silk Road.  Carl M. Force, 46, of Baltimore, was a special agent with the Drug Enforcement Administration and was also assigned to the Baltimore Silk Road Task Force.  On July 1, 2015, Force pleaded guilty to a three-count information charging him with money laundering related to his theft of over $700,000 in digital currency while acting as an undercover agent on the Task Force.  Force is scheduled to be sentenced by Judge Seeborg on Oct. 19, 2015.

The case was investigated by the FBI’s San Francisco Division, the IRS-CI’s San Francisco Division, the Justice Department’s Office of the Inspector General and the Department of Homeland Security’s Office of the Inspector General in Washington, D.C.  The case is being prosecuted by Assistant U.S. Attorneys Kathryn Haun and William Frentzen of the Northern District of California and Trial Attorney Richard B. Evans of the Criminal Division’s Public Integrity Section, with assistance from Assistant U.S. Attorney Arvon Perteet.

Detroit-Area Physician Pleads Guilty for Role in $5.7 Million Fraud Scheme

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A Detroit-area medical doctor who prescribed unnecessary controlled substances and billed for unperformed office visits and diagnostic testing pleaded guilty today for his role in a $5.7 million health care fraud scheme.

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

Laran Lerner, 59, of Northville, Michigan, pleaded guilty before U.S. District Judge Victoria A. Roberts of the Eastern District of Michigan to one count of health care fraud and one count of structuring cash transactions to avoid bank reporting requirements, as charged in a two-count information filed on Aug. 21, 2015.  Sentencing is set for Jan. 24, 2015.

According to admissions made as part of his plea agreement, Lerner lured patients into his clinic with prescriptions for unnecessary controlled substances.  Lerner admitted that he billed and caused Medicare to be billed for a variety of unnecessary prescriptions, tests and office visits to make it appear as though he was providing legitimate medical services instead of medically unnecessary controlled substances.  According to admissions made as part of his plea agreement, Medicare was billed $5,748,237.31, as a result of Lerner’s unnecessary prescriptions, office visits and diagnostic testing.

As part of the plea agreement, Lerner agreed to permanently surrender his Drug Enforcement Administration controlled substance registration and agreed not to re-apply in the future.

Lerner also pleaded guilty to structuring cash deposits he received as a result of his scheme to avoid triggering the requirement under federal law that domestic banks file a report – called a Currency Transaction Report – with the Secretary of Treasury for all transactions in currency over $10,000.  Lerner admitted that he knew about this requirement and caused his cash deposits to be structured in $5,000 increments on consecutive days at various branch locations in the Detroit area to avoid detection.  According to court documents, Lerner deposited $70,000 in cash in April 2013 alone by making deposits of $5,000 on fourteen different days.

The case was investigated by the FBI, HHS-OIG and IRS-CI, and was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office of the Eastern District of Michigan.  The case is being prosecuted by Trial Attorney Elizabeth Young of the 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.

Justice Department Settles Housing Discrimination Lawsuit Against Owners of Marion, Illinois, Mobile Home Park

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The Justice Department announced today that the owners and operators of the Williams Trailer Court mobile home park in Marion, Illinois, had agreed to pay $75,000 to settle allegations that they discriminated against African Americans and families with children, in violation of the federal Fair Housing Act.  The settlement was approved today by the U. S. District Court for the Southern District of Illinois.

The settlement agreement resolves a lawsuit alleging that the owners and operators of the park, located at 200 East Patrick Street in Marion, Illinois, violated the Fair Housing Act by refusing to rent mobile homes to African Americans and families with children.  The lawsuit is based on the results of testing conducted by the department’s fair housing testing program.  Testing is a simulation of a housing transaction that compares responses given by housing providers to different types of home-seekers to determine whether illegal discrimination is occurring.  The testing conducted by the department revealed that the manager and part owner of the park, Lyle Williams, falsely told African Americans inquiring about renting mobile homes that no homes were available, while telling white home-seekers that such mobile homes were available.  The testing also revealed that Williams unlawfully discouraged families with children from living there.  In addition to Lyle Williams, the lawsuit also names as defendants the park’s other two owners, Kyle Williams and David Williams.

“The right of people to live in the housing of their choice regardless of their race or whether they have children is fundamental,” said Principal Deputy Assistant Attorney General Vanita Gupta, head of the Civil Rights Division.  “The Justice Department will continue its vigorous enforcement of the Fair Housing Act, which seeks to protect that right.”

“It is both shocking and sad that in this day and age any person would try to discriminate against a fellow citizen on the basis of race,” said U.S. Attorney Stephen R. Wigginton of the Southern District of Illinois.  “Neither the Department of Justice nor my office will tolerate such behavior.  Opportunity and justice must remain equal for all.”

Under the terms of the settlement, defendants will establish a settlement fund in the amount of $45,000 to compensate victims of the discriminatory practices.  Defendants also will pay $30,000 in civil penalties to the United States.  In addition, the agreement requires defendants to implement a nondiscrimination policy, establish new nondiscriminatory application and rental procedures, and undergo training on the Fair Housing Act.  Persons who believe they may have been discriminated against at Williams Trailer Court should contact the department at 1-800-896-7743, extension 3, or by email at [email protected]

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The federal Fair Housing Act prohibits discrimination in housing on the basis of race, color, religion, sex, familial status, national origin and disability.  More information about the Civil Rights Division and the laws it enforces is available at www.usdoj.gov/crt.  Individuals who believe that they have been victims of housing discrimination can call the Housing Discrimination Tip Line at 1-800-896-7743, e-mail the Justice Department at [email protected]

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or contact HUD at 1-800-669-9777.

Russian Nuclear Energy Official Pleads Guilty to Money Laundering Conspiracy Involving Violations of the Foreign Corrupt Practices Act

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U.S. Conspirators Paid Over $2 Million to Influence Russian Nuclear Energy Official and to Secure Business with State-Owned Russian Nuclear Energy Company

A Russian official residing in Maryland pleaded guilty today to conspiracy to commit money laundering in connection with his role in arranging over $2 million in corrupt payments to influence the awarding of contracts with the Russian state-owned nuclear energy corporation.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Rod J. Rosenstein of the District of Maryland, Deputy Inspector General John R. Hartman of the U.S. Department of Energy-Office of Inspector General (DOE-OIG) and Assistant Director in Charge Andrew G. McCabe of the FBI’s Washington, D.C., Field Office made the announcement.

Vadim Mikerin, 56, of Chevy Chase, Maryland, pleaded guilty before U.S. District Judge Theodore D. Chuang of the District of Maryland.  Sentencing is scheduled before Judge Chuang on Dec. 8, 2015.

According to court documents, Mikerin was the president of TENAM Corporation and a director of the Pan American Department of JSC Techsnabexport (TENEX).  TENAM, based in Bethesda, Maryland, is a wholly-owned subsidiary and the official representative of TENEX in the United States.  TENEX, based in Moscow, acts as the sole supplier and exporter of Russian Federation uranium and uranium enrichment services to nuclear power companies worldwide.  TENEX is a subsidiary of Russia’s State Atomic Energy Corporation.

In connection with the scheme, Daren Condrey, 50, of Glenwood, Maryland, pleaded guilty on June 17, 2015, to conspiring to violate the Foreign Corrupt Practices Act (FCPA) and conspiring to commit wire fraud, and will be sentenced on Nov. 2, 2015.  Boris Rubizhevsky, 64, of Closter, New Jersey, pleaded guilty on June 15, 2015, to conspiracy to commit money laundering and will be sentenced on Oct. 19, 2015.

According to court documents, between 2004 and October 2014, Mikerin conspired with Condrey, Rubizhevsky and others to transmit funds from Maryland and elsewhere in the United States to offshore shell company bank accounts located in Cyprus, Latvia and Switzerland.  Mikerin admitted the funds were transmitted with the intent to promote a corrupt payment scheme that violated the FCPA.  Specifically, he admitted that the corrupt payments were made by conspirators to influence Mikerin and to secure improper business advantages for U.S. companies that did business with TENEX.  Mikerin further admitted that he and others used consulting agreements and code words such as “lucky figure,” “LF,” “cake” and “remuneration” to disguise the corrupt payments.

According to court documents, over the course of the scheme, Mikerin conspired with Condrey, Rubizhevsky and others to transfer approximately $2,126,622 from the United States to offshore shell company bank accounts.  As part of his plea agreement, Mikerin has agreed to the entry of a forfeiture money judgment in that amount.

The case was investigated by DOE-OIG and the FBI.  The case is being prosecuted by Trial Attorneys Christopher Cestaro, Ephraim Wernick and Derek Ettinger of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys David I. Salem and Michael T. Packard of the District of Maryland.

Florida Businessman Sentenced to 17 Years in Prison for Conspiring to Defraud Investors

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Dozens of Investors Lost More Than $13 Million in Scheme

A Florida businessman was sentenced today to 17 years in prison for his role in an investment fraud scheme resulting in over $13 million in losses to dozens of investors.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Acting U.S. Attorney Vincent H. Cohen Jr. of the District of Columbia and Special Agent in Charge Kimberly A. Lappin of the IRS-Criminal Investigation’s Tampa Field Office made the announcement.

Donovan G. Davis Jr., 34, of Palm Bay, Florida, was found guilty by a jury on May 14, 2015, of one count of conspiracy to commit mail/wire fraud, one count of mail fraud, six counts of wire fraud and eight counts of money laundering.  He was sentenced by U.S. District Judge Carlos E. Mendoza of the Middle District of Florida, who ordered him to pay $10,520,005 in restitution jointly and severally with his co-defendants.

“Donovan Davis Jr. and his co-conspirators lied to persuade victims to invest their retirement savings and children’s college funds, and then concealed the investment fund’s extreme losses so that the victims would stay invested,” said Assistant Attorney General Caldwell.  “The investors lost everything, while Davis and others running the scam looted the fund to pay their own six-figure salaries, purchase luxury cars and travel in private planes.  This sentence will help hold Davis accountable for his crimes, but the investors he deceived will suffer for decades because of his greed and deceit.”

“Dozens of investors and their families lost millions of dollars because they put their trust in an investment firm that lied about its performance,” said Acting U.S. Attorney Cohen.  “The deception of Donovan Davis Jr. and the others involved in this scheme caused great personal and financial harm to people, including many who lost their retirement savings.  Today’s sentence reflects the seriousness of the defendant’s greedy, deceptive conduct and underscores our commitment to prosecuting those who commit financial crimes.  I commend the prosecutors from here in D.C. who held these criminals accountable for their deception in a Florida courthouse.”

“Today’s sentencing demonstrates how federal law enforcement will band together to help put an end to the criminal behavior of those who prey on investors to unjustly enrich themselves,” said Special Agent in Charge Lappin.  “IRS Criminal investigation and our law enforcement partners will relentlessly pursue those who mastermind and perpetrate investment fraud schemes.”

According to evidence presented at trial, Davis was the managing member of Capital Blu Management LLC, a Florida-based corporation that purported to offer investment and managed account services for investors in the off-exchange foreign currency, or “forex,” marketplace.  In 2007 and 2008, Davis solicited relatives, friends and associates to invest in Capital Blu.

In or about September 2007, according to evidence presented at trial, Davis and his co-conspirators formed the CBM FX Fund LP, which pooled investors’ money into a common fund to be traded by Capital Blu Management.  Many of Capital Blu’s managed-account investors transferred their investments into the CBM FX Fund.

According to the evidence presented at trial, CBM FX Fund had sustained significant trading losses, resulting in large losses for its investors.  Nevertheless, the evidence demonstrated that Davis and his co-conspirators made a series of misrepresentations to the investors about Capital Blu’s trading performance, the value of the fund and the risks of the fund.

For example, according to the evidence presented at trial, the Davis and his co-conspirators informed CBM FX Fund’s investors of positive monthly returns from January through August of 2008, even though the fund and its investors had sustained net losses of millions of dollars.  In addition, they diverted investors’ money from the fund to pay for Capital Blu’s operational expenses and personal expenses, including their own six-figure salaries and payments for the use of private airplanes and luxury cars.

In or about September 2008, the National Futures Association, an independent self-regulatory organization that oversees commodities and futures trading in the United States, conducted a surprise audit of Capital Blu and suspended its operations.  As of September 2008, investors had invested over $16.9 million into the CBM FX Fund and lost over $13 million.

Co-defendant  Blayne S. Davis (no relation to Donovan Davis Jr.), 34, formerly of Naples, Florida, pleaded guilty in July 2014 to conspiracy to commit mail and wire fraud, and was sentenced to nine years in prison and ordered to pay $13,215,874 in restitution.  Co-defendant Damien L. Bromfield, 39, of Ocoee, Florida, pleaded guilty in November 2013 to conspiracy to commit wire fraud and is awaiting sentencing.

The case was investigated by a task force consisting of agents from the Internal Revenue Service-Criminal Investigation; U.S. Secret Service; Florida Department of Law Enforcement; and Brevard County, Florida, Sherriff’s Office.  Attorneys, agents and accountants from the U.S. Commodity Futures Trading Commission (CFTC), National Futures Association, Bureau of Prisons and U.S. Immigration and Customs Enforcement also provided assistance to the investigation.  A related civil litigation was pursued by the CFTC, which resulted in a civil judgment against the defendants after a trial in 2011.

The case was prosecuted by Trial Attorneys David M. Fuhr and Ephraim Wernick of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Jonathan P. Hooks of the District of Columbia.  Assistant U.S. Attorneys Catherine K. Connelly and Anthony Saler of the District of Columbia provided invaluable assistance on asset forfeiture matters.

Former Investment Banking Analyst and Two Friends Charged in Insider Trading Scheme

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An analyst with J.P. Morgan Securities and two longtime friends were taken into custody this morning after being charged in a federal grand jury indictment that alleges they participated in an insider trading scheme that netted more than $600,000 in illicit profits.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Eileen M. Decker of the Central District of California and Assistant Director in Charge David Bowdich of the FBI’s Los Angeles Division made the announcement.

Ashish Aggarwal, 27, of San Francisco; Shahriyar Bolandian, 26, of Los Angeles; and Kevan Sadigh, 28, of Los Angeles, are named in an indictment that was unsealed this morning and charges each defendant with one count of conspiracy to commit securities and tender offer fraud, 13 substantive counts of securities fraud, 13 substantive counts of tender offer fraud and three substantive counts of wire fraud.  Bolandian also is charged with one count of money laundering.

The defendants surrendered to the FBI this morning, and are scheduled to be arraigned this afternoon before U.S. Magistrate Judge Patrick J. Walsh of the Central District of California.

Between June 2011 and June 2013, Aggarwal was employed by J.P. Morgan Securities, LLC (JPMS) as an investment banking analyst in its San Francisco office.  According to the indictment, through his employment, Aggarwal allegedly obtained material, non-public (inside) information about upcoming mergers and acquisitions involving publicly-traded companies.  The indictment alleges that Aggarwal disclosed this information to his friend Bolandian who, in turn, shared the information with Sadigh, who is also a friend of Bolandian.  Bolandian and Sadigh then allegedly used the inside information to trade in advance of the public announcements of Integrated Device Technology Inc.’s April 2012 planned acquisition of PLX Technology Inc., and Salesforce.com Inc.’s June 2013 acquisition of ExactTarget Inc.  According to the indictment, through this scheme, Aggarwal, Bolandian and Sadigh netted more than $600,000 in illicit profits, which the defendants allegedly used to, among other things, cover previous trading losses and to repay liabilities incurred by Aggarwal and Bolandian.

The case was investigated by the FBI.  The case is being prosecuted by Trial Attorneys Thomas B.W. Hall and Alexander F. Porter of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Paul Stern of the Central District of California.  The Securities and Exchange Commission provided valuable assistance.

The charges and allegations contained in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

Former President of Bay Area Home Builder Pleads Guilty to Mortgage Fraud Conspiracy

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Ayman Shahid Admits to Participation in Builder Bailout Scheme to Inflate Home Prices during Peak of Mortgage Crisis

Ayman Shahid, 39, of Danville, California, the former president of Discovery Sales Inc. (DSI), pleaded guilty in federal court in Oakland, California, to conspiracy to commit bank fraud announced U.S. Attorney Melinda Haag for the Northern District of California, Special Agent in Charge David J. Johnson of the FBI’s San Francisco Division, Acting Special Agent in Charge Thomas McMahon of the Internal Revenue Service-Criminal Investigation (IRS-CI) and Special Agent in Charge Leslie DeMarco for the Federal Housing Finance Agency’s Office of Inspector General (FHFA-OIG).   Shahid is the most recent and highest placed individual charged by the U.S. Attorney’s Office of the Northern District of California as a result of a wide-ranging investigation by the FBI into mortgage fraud in connection with the sale of homes by DSI and its affiliates.

Shahid was the president of DSI, which was the sales arm of affiliated residential construction companies, including Discovery Home Builders and Albert D. Seeno Construction Co.  According to Shahid’s plea agreement that was unsealed today, DSI was created to sell new homes built by Discovery Builders Inc. (DBI), Albert D. Seeno Construction Co. Inc. (AD Seeno) and other entities affiliated with Albert Seeno III and the Seeno family.  The homes were built in developments throughout the East Bay Area, including in Contra Costa and Alameda Counties.

In connection with his plea agreement, Shahid admitted that he conspired with others to fraudulently cause bank underwriters to approve mortgage loans for unqualified buyers during the height of the financial crisis.  From 2006 to 2008, when Shahid was DSI’s vice president, buyers with little or no money of their own were induced to purchase homes at prices that were inflated through the use of financial incentives.  The buyers were not required to possess or post any of their own money when buying a home; DSI, the builders and their affiliates provided money to buyers to make down payments.  Further, DSI inflated the sale price of the new homes by offering significant cash and other incentives to new home buyers.  The primary purpose of the price inflation was to support a large line of credit maintained by the builders; the new homes and the property on which the homes would be built collateralized the line of credit.

Shahid’s plea agreement explained that it was important to the scheme to maintain inflated property values because if the home and property values dropped, the value of the collateral would drop and the line of credit would be put at risk.  Specifically, the line of credit could be reduced or terminated, or additional collateral would be required to secure the line of credit.  This is what has become known as a “builder bailout” scheme.

Shahid’s plea agreement also explains that DSI made loans that were secured by homes that were in some cases worth less than the loan amount and that DSI did not make an effort to determine the true value of these homes.  Shahid admitted he and others took steps to ensure information that would reflect poorly on the value of the homes was kept out of bank loan files.  Specifically, Shahid ensured the details of the incentives that were being given to specific buyers would not appear in the bank loan files because the loan-to-value ratio would not support the requested loan on the inflated sales price of the home.  If the incentives appeared in the bank loan files, Shahid explained, the loan underwriters would likely reject the loans.  Accordingly, Shahid instructed DSI employees not to inform appraisers of the incentives being given to buyers.

Over 325 Seeno and Discovery homes during the period of 2006 to 2008 involved the use of incentives, amounting to sales in excess of $200 million.  Shahid agreed that the losses that resulted from foreclosures or short sales on these homes were approximately $75 million; Fannie Mae and Freddie Mac, which purchased mortgage loans used to pay for Seeno and Discovery Homes, lost almost $3.5 million.

Shahid was charged in April 2014 with one count of bank fraud conspiracy and 17 individual counts of bank fraud.  Pursuant to the plea agreement, he pleaded guilty to the lead conspiracy count, which encompassed the conduct alleged in the remaining counts.

“Shahid and his coconspirators were responsible for saddling the banking system with dozens of fraudulent mortgage loans without regard for the damage those loans would cause to individual home buyers, downstream investors, and, ultimately, the U.S. economy as a whole,” said U.S. Attorney Haag.  “Shahid fraudulently inflated the price of homes purchased by individuals who were unable to pay their mortgages in the long run.  By doing this to serve their own narrow economic interests, Shahid, and actors like him, contributed to the housing bubble.”

“The actions of Ayman Shahid, certain sales managers and others directly contributed to one of the most significant housing and financial crises of recent memory,” said Special Agent in Charge Johnson.  “While this case was extremely complex, the FBI and Department of Justice built this case, brick by brick, from low-level employees all the way up to the president of the company.  We will continue to pursue executives and corporations who fraudulently took advantage of the country’s financial turmoil for their own corporate gain.”

“Shahid participated in a fraudulent scheme involving over $230 million in mortgage loans, many of which ultimately defaulted, to the detriment of Fannie Mae, Freddie Mac and the American taxpayers,” said Special Agent in Charge DeMarco.  “We are proud to support our law enforcement partners in investigating and prosecuting this case.”

Carey Hendrickson and Jason Sterlino, sales managers for Seeno properties, were previously charged.  Former Bank of America loan officer Jennifer Xiao, Homecomings Financial underwriter Tony Phan and independent brokers Sharon Wang, Heather Yin, Miguel Arenas, George Zevada and Chang Park were also charged as participants in the scheme.  All of these defendants have pleaded guilty pursuant to cooperation agreements with the government, except Xiao, who is a fugitive.

Because Shahid is cooperating with the ongoing FBI investigation, a sentencing date has not yet been scheduled.  Shahid is next scheduled to appear in court for a status hearing on Dec. 10, 2015, at 3:00 p.m. PST before U.S. District Judge Yvonne Gonzalez-Rogers of the Northern District of California.  The maximum penalty for conspiracy to commit bank fraud is 30 years in prison, a fine of $1 million or twice the gain or loss and restitution to be decided by the court.  However, any sentence would be imposed by the court only after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence.

The case is being prosecuted by the U.S. Attorney’s Office in San Francisco’s Special Prosecutions Unit.  The prosecution is the result of an investigation by the FBI, with assistance from IRS-CI and FHFA-OIG.

Former Executive Pleads Guilty to Conspiring to Bribe Panamanian Officials

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A former regional director of SAP International Inc. pleaded guilty today to conspiracy to violate the Foreign Corrupt Practices Act (FCPA) by participating in a scheme to bribe Panamanian officials to secure the award of government technology contracts for SAP.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Melinda Haag of the Northern District of California, Special Agent in Charge George L. Piro of the FBI’s Miami Division and Acting Special Agent in Charge Thomas McMahon of the Internal Revenue Service-Criminal Investigation (IRS-CI) made the announcement.

Vicente Eduardo Garcia, 65, of Miami, pleaded guilty to a one-count information charging him with conspiracy to violate the anti-bribery provisions of the FCPA.  Sentencing before Senior U.S. District Court Judge Charles R. Breyer of the Northern District of California is scheduled for Dec. 16, 2015.

According to plea documents, in late 2009, SAP sought a multi-million dollar contract to provide a Panamanian state agency with a technology upgrade package.  In connection with his guilty plea, Garcia admitted that, to secure the contract, he conspired with others, including advisors and consultants to SAP, to pay bribes to two Panamanian government officials, as well as to the agent of a third government official (with the understanding that at least a portion of the money would be transmitted to the third official).  According to Garcia’s admissions, the conspirators used sham contracts and false invoices to disguise the true nature of the bribes.  Garcia further admitted that he believed paying such bribes was necessary to secure both the initial contract and additional Panamanian government contracts.

Ultimately, SAP’s Panamanian channel partner secured the technology upgrade contract for $14.5 million, which included $2.1 million in SAP software licenses.  Soon thereafter, the Panamanian government awarded SAP’s channel partner additional contracts that included the provision of SAP products.

The investigation is being conducted by FBI and the IRS-CI.  The Criminal Division’s Office of International Affairs and the Securities and Exchange Commission’s Division of Enforcement, which separately announced civil charges against Garcia, provided assistance.  The case is being prosecuted by Trial Attorney Aisling O’Shea of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Adam A. Reeves of the Northern District of California.

Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.

INDIVIDUAL CONVICTED OF CONSPIRACY AND MONEY LAUNDERING FOR ROLE IN COSTA RICAN TELEMARKETING SCHEME

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An Ohio man was convicted yesterday after a two-day jury trial in the Western District of North Carolina for his role in a Costa Rican telemarketing scheme.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and Acting U.S. Attorney Jill Westmoreland Rose of the Western District of North Carolina made the announcement.

Paul Ronald Toth Jr., 40, of Wintersville, Ohio, was convicted of one count of conspiracy to commit money laundering and six counts of international money-laundering concealment.  Sentencing before U.S. District Judge Robert J. Conrad Jr. of the Western District of North Carolina will be scheduled at a later date.

According to the evidence presented at trial, Toth was involved in a telemarketing scheme in which his co-conspirators contacted U.S. residents from call centers in Costa Rica, falsely informing them that they had won substantial cash prizes in “sweepstakes.”  To claim the cash prizes, the victims – many of whom were elderly – were instructed to send a purported “refundable insurance fee.”

The trial evidence showed that, between approximately November 2009 and November 2010, Toth was a United States-based “smasher” who facilitated the laundering of funds received from the elderly victims.  Specifically, according to the evidence presented at trial, Toth and others he recruited and supervised received over $300,000 from victims and, using various individuals as senders and recipients to conceal the fraudulent nature of the transactions, wired over $200,000 of those funds to co-conspirators in Costa Rica.  The evidence further demonstrated that Toth kept the remainder as his profit.

This case is being investigated by the U.S. Postal Inspection Service, the FBI, the Internal Revenue Service, Federal Trade Commission and Department of Homeland Security.  The case is being prosecuted by Senior Litigation Counsel Patrick Donley and Trial Attorneys William Bowne and Anna Kaminska of the Criminal Division’s Fraud Section.