Category Archives: USAO

Two Individuals Plead Guilty to Conspiring to Defraud Consumers through Fraudulent Debt Relief Services Firms

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Two individuals pleaded guilty today for their roles at fraudulent debt relief services companies that offered to settle credit card debts but instead took victims’ payments as undisclosed up-front fees, the Justice Department and U.S. Postal Inspection Service (USPIS) announced.

Athena Maldonado, 30, and Christopher Harati, 31, both of Orange County, California, pleaded guilty to a one-count information alleging conspiracy in connection with debt relief companies known as Nelson Gamble & Associates (Nelson Gamble) and Jackson Hunter Morris & Knight LLP (Jackson Hunter).  According to the information filed in the case, the defendants and their co-conspirators portrayed the debt relief companies as law firms and attorney-based companies that would negotiate favorable settlements with creditors.  Clients made monthly payments expecting the money to go toward settlements.  The companies instead took an amount equal to at least 15 percent of clients’ total debt as company fees, with the first six months of payments going almost entirely toward undisclosed up-front fees.

“Debt relief service scams prey on vulnerable consumers trying to climb out of tough financial situations,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.  “The Justice Department will aggressively pursue the criminals who operate these schemes.”

Maldonado admitted that she acted as the “legal department” for both companies, and used multiple aliases when responding to complaints submitted by state attorney general offices, the Better Business Bureau and private attorneys.  Maldonado admitted that, after Nelson Gamble changed its name to Jackson Hunter, she responded to consumer complaints by falsely stating, among other things, that the two companies were not related and that Jackson Hunter could not refund money paid to Nelson Gamble.

Harati admitted that he worked as a client relations manager for the companies and handled complaint calls from clients.  He admitted he told customers that Nelson Gamble and Jackson Hunter were separate companies, falsely stated that Jackson Hunter was a nationwide law firm with years of experience and made other misrepresentations designed to convince customers to stay with the company.

The defendants each face a statutory maximum sentence of five years in prison and a $250,000 fine, or an alternate fine of twice the loss or twice the gain, whichever is greater, along with mandatory restitution.  Their sentencing dates have not been set.

On Dec. 3, 2014, a grand jury in Santa Ana, California, returned a 22-count indictment charging Jeremy Nelson, Elias Ponce and John Vartanian, all of Orange County, for mail fraud, wire fraud, and conspiracy to commit mail and wire fraud in the same fraudulent scheme.  The trial in that case is scheduled to begin on Feb. 16, 2016, in Los Angeles.

The Federal Trade Commission (FTC) brought a civil case against Nelson Gamble, Jackson Hunter and other defendants in September 2012, alleging that the defendants falsely claimed they would reduce consumers’ unsecured debt by 50 percent or more, made unauthorized charges to their bank accounts and called phone numbers listed on the National Do Not Call Registry.  For more information about debt relief firms, the FTC encourages consumers to review this page on their website.

Principal Deputy Assistant Attorney General Mizer commended the USPIS team assigned to the Civil Division’s Consumer Protection Branch for their investigative efforts, and thanked the U.S. Attorney’s Office of the Central District of California for their contributions to the case.  The case is being prosecuted by Trial Attorney Alan Phelps of the Consumer Protection Branch.

Kentucky Businessman Sentenced in New York Federal Court for $53 Million Tax Scheme and Massive Fraud that Involved Bribery of Bank Officials

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Acting Assistant Attorney General Caroline D. Ciraolo of the Department of Justice’s Tax Division and U.S. Attorney Preet Bharara of the Southern District of New York announced that a Kentucky businessman was sentenced today to serve 12 years in prison.

Wilbur Anthony Huff, 53, of Caneyville and Louisville, Kentucky, was also ordered to pay more than $108 million in restitution for committing various tax crimes that caused more than $50 million in losses to the Internal Revenue Service (IRS), and a massive fraud that involved the bribery of bank officials, the fraudulent purchase of an insurance company, and the defrauding of insurance regulators and an investment bank.  In December 2014, Huff pleaded guilty before U.S. District Judge Noemi Reice Buchwald of the Southern District of New York, who imposed today’s sentence.

“The department is committed to vigorously pursuing and prosecuting those individuals who violate the employment tax laws of the United States,” said Acting Assistant Attorney General Ciraolo.  “Today’s significant prison sentence sends a loud and clear message to those engaged in such criminal conduct, including owners and operators of professional employer organizations like Mr. Huff, who steal employment taxes collected from their business clients to line their own pockets, instead of paying over those funds to the IRS.”

“Anthony Huff and his co-conspirators stole millions of dollars from taxpayers and engaged in extensive frauds, all in the pursuit of additional property, luxury cars and the like,” said U.S. Attorney Bharara.  “His crimes have earned him 12 years in prison.  I would like to thank our law enforcement partners for their assistance on this case.”

According to the information, plea agreement, sentencing submissions and statements made during court proceedings:

Huff was a businessman who controlled numerous entities located throughout the United States (Huff-Controlled Entities).  Huff controlled the companies and their finances, using them to orchestrate a $53 million fraud on the IRS and other schemes that spanned four states, involving tax violations, bank bribery, fraud on bank regulators and the fraudulent purchase of an insurance company.  As part of his crimes, Huff concealed his control of the Huff-Controlled Entities by installing other individuals to oversee the companies’ day-to-day functions and to serve as the companies’ titular owners, directors, or officers.  Huff also maintained a corrupt relationship with Park Avenue Bank and Charles J. Antonucci Sr., the bank’s president and chief executive officer, and Matthew L. Morris, the bank’s senior vice president.

Tax Crimes

From 2008 to 2010, HUFF controlled O2HR, a professional employer organization (PEO) located in Tampa, Florida.  Like other PEOs, O2HR was paid to manage the payroll, tax and workers’ compensation insurance obligations of its client companies.  However, instead of paying $53 million in taxes that O2HR’s clients owed the IRS and $5 million to Providence Property and Casualty Insurance Company (Providence P&C) – an insurance company based in Oklahoma – for workers’ compensation coverage expenses for O2HR clients, Huff stole the money that his client companies had paid O2HR for those purposes.  Among other things, Huff diverted millions of dollars from O2HR to fund his investments in unrelated business ventures and pay his family members’ personal expenses.  The expenses included mortgages on Huff’s homes, rent payments for his children’s apartments, staff and equipment for Huff’s farm, designer clothing, jewelry and luxury cars.

Conspiracy to Commit Bank Bribery, Defraud Bank Regulators and Fraudulently Purchase an Oklahoma Insurance Company

From 2007 through 2010, Huff engaged in a massive multi-faceted conspiracy in which he schemed to bribe executives of Park Avenue Bank, defraud bank regulators and the board and shareholders of a publicly-traded company, and fraudulently purchase an Oklahoma insurance company.  As described in more detail below, Huff paid bribes totaling hundreds of thousands of dollars in cash and other items to Morris and Antonucci in exchange for their favorable treatment at Park Avenue Bank.

As part of the corrupt relationship between Huff and the bank executives, Huff, Morris, Antonucci and others conspired to defraud various entities and regulators during the relevant time period.  Specifically, Huff conspired with Morris and Antonucci to falsely bolster Park Avenue Bank’s capital by orchestrating a series of fraudulent transactions to make it appear that Park Avenue Bank had received an outside infusion of $6.5 million, and engaged in a series of further fraudulent actions to conceal from bank regulators the true source of the funds.

Huff further conspired with Morris, Antonucci and others to defraud Oklahoma insurance regulators and others by making material misrepresentations and omissions regarding the source of $37.5 million used to purchase Providence Property and Casualty Insurance Company, an insurance company based in Oklahoma that provided workers’ compensation insurance for O2HR’s clients and to whom O2HR owed a significant debt.

Bribery of Park Avenue Bank Executives

From 2007 to 2009, Huff paid Morris and Antonucci at least $400,000 in exchange for which they: provided Huff with fraudulent letters of credit obligating Park Avenue Bank to pay $1.75 million to an investor in one of Huff’s businesses if Huff failed to pay the investor back himself; allowed the Huff-Controlled Entities to accrue $9 million in overdrafts; facilitated intra-bank transfers in furtherance of Huff’s fraud; and fraudulently caused Park Avenue Bank to issue at least $4.5 million in loans to the Huff-Controlled Entities.

Fraud on Bank Regulators and a Publicly-Traded Company

From 2008 to 2009, Huff, Morris and Antonucci engaged in a scheme to prevent Park Avenue Bank from being designated as “undercapitalized” by regulators – a designation that would prohibit the bank from engaging in certain types of banking transactions and that would subject the bank to a range of potential enforcement actions by regulators.  Specifically, they engaged in a series of deceptive, “round-trip” financial transactions to make it appear that Antonucci had infused the bank with $6.5 million in new capital when, in actuality, the $6.5 million was part of the bank’s pre-existing capital.  Huff, Morris and Antonucci funneled the $6.5 million from the bank through accounts controlled by Huff to Antonucci.  This was done to make it appear as though Antonucci was helping to stabilize the bank’s capitalization problem, so that the bank could continue engaging in certain banking transactions that it would otherwise have been prohibited from doing, and to put the bank in a better posture to receive $11 million from the Troubled Asset Relief Program.  To conceal their unlawful financial maneuvering, Huff created, or directed the creation of, documents falsely suggesting that Antonucci had earned the $6.5 million through a bogus transaction involving another company Antonucci owned.  Huff, Morris and Antonucci further concealed their scheme by stealing $2.3 million from General Employment Enterprises Inc., a publicly-traded temporary staffing company, in order to pay Park Avenue Bank back for monies used in connection with the $6.5 million transaction.

Fraud on Insurance Regulators and the Investment Firm

From July 2008 to November 2009, Huff, Morris, Antonucci and Allen Reichman, an executive at an investment bank and financial services company headquartered in New York City (the Investment Firm), conspired to defraud Oklahoma insurance regulators into allowing Antonucci to purchase the assets of Providence P&C and defraud the Investment Firm into providing a $30 million loan to finance the purchase.  Specifically, Huff and Antonucci devised a scheme in which Antonucci would purchase Providence P&C’s assets by obtaining a $30 million loan from the Investment Firm, which used Providence P&C’s own assets as collateral for the loan.  However, because Oklahoma insurance regulators had to approve any sale of Providence P&C, and because Oklahoma law forbade the use of Providence P&C’s assets as collateral for such a loan, Huff, Morris, Antonucci and Reichman made and conspired to make a number of material misstatements and material omissions to the Investment Firm and Oklahoma insurance regulators concerning the true nature of the financing for Antonucci’s purchase of Providence P&C.  Among other things, Reichman directed Antonucci to sign a letter that provided false information regarding the collateral that would be used for the loan, and Huff, Morris and Antonucci conspired to falsely represent to Oklahoma insurance regulators that Park Avenue Bank – not the Investment Firm – was funding the purchase of Providence P&C.

After deceiving Oklahoma regulators into approving the sale of Providence P&C, Huff took $4 million of the company’s assets, which he used to continue the scheme to defraud O2HR’s clients.  Ultimately, in November 2009, the insurance company became insolvent and was placed in receivership after Huff, Morris and Antonucci had pilfered its remaining assets.

*                *                *

In addition to his prison sentence, Huff was sentenced to three years of supervised release, and ordered to forfeit $10.8 million to the United States and pay a total of more than $108 million in restitution to victims of his crimes, including, among others, the Federal Deposit Insurance Corporation (FDIC) and the IRS.

In imposing today’s sentence, Judge Buchwald said Huff’s crimes were “truly staggering” and “eye popping.”  Judge Buchwald described Huff’s conduct, which was preceded by a federal conviction and failure to pay millions in civil judgments, as “a living example” of “chutzpah,” which she defined as “shameless audacity and unmitigated gall.”

Morris and Reichman pleaded guilty for their roles in the above-described offenses on Oct. 17, 2013, and Feb. 20, 2015, respectively.  Reichman is scheduled to be sentenced before Judge Buchwald on July 15, and Morris is scheduled to be sentenced before Judge Buchwald on Aug. 19.

Antonucci pleaded guilty to his role in the crimes described above on Oct. 8, 2010, and is scheduled to be sentenced on Aug. 20, also before Judge Buchwald.

Acting Assistant Attorney General Ciraolo and U.S. Attorney Bharara thanked the Special Inspector General for the Troubled Asset Relief Program, the FBI, IRS-Criminal Investigation, the New York State Department of Financial Services, Immigration and Customs Enforcement’s Homeland Security Investigations, and the Office of Inspector General of the FDIC, for their work in the investigation, and the Tax Division and the U.S. Attorney’s Office of the Southern District of Florida, for their assistance in the prosecution.

Today’s announcement is part of efforts underway by the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it’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.  Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.  For more information on the task force, please visit www.StopFraud.gov.

The case is being handled by the U.S. Attorney’s Office of the Southern District of New York Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys Janis Echenberg and Daniel Tehrani and Special Assistant U.S. Attorney Tino Lisella of the Tax Division are in charge of the criminal case.

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

Four People Arrested and Charged in Cross-Country Insider Trading Scheme

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The owner and operator of a stock trading operation and three of his associates were arrested today on charges arising from their alleged participation in a multi-year insider trading scheme that netted more than $3.2 million in illicit profits, announced today by U.S. Attorney Paul J. Fishman for the District of New Jersey.

Steven Fishoff, 58, of Westlake Village, California, Ronald Chernin, 66, of Oak Park, California, Steven Costantin aka Steven Constantin, 54, of Farmingdale, New Jersey, and Paul Petrello, 53, of Boca Raton, Florida, are each charged by complaint with one count of conspiracy to commit securities fraud.  Fishoff is charged with four substantive counts of securities fraud, Chernin and Petrello are each charged with two counts of securities fraud and Costantin is charged with one count of securities fraud.

The defendants were arrested by FBI agents this morning at their respective residences.  Costantin is scheduled to appear this afternoon before U.S. Magistrate Judge Joseph A. Dickson in Newark, New Jersey, federal court.  Fishoff is scheduled to appear before U.S. Magistrate Judge Kenly Kiya Kato in Riverside, California, federal court, Chernin is scheduled to appear before U.S. Magistrate Judge Carla Woehrle in Los Angeles, Californina, federal court, and Petrello is expected to appear before U.S. Magistrate Judge Dave Lee Brannon in West Palm Beach, Florida, federal court.

“The defendants and their associates were entrusted with confidential, nonpublic information about companies and time and time again, they allegedly violated that trust by illegally trading the companies’ stock for substantial profits,” said U.S. Attorney Fishman.  “They allegedly rigged the game so they would always win, and their profits came at the expense of legitimate investors, who were not privy to this inside information.”

“Insider trading is an investigative priority of the FBI,” said Special Agent in Charge Richard M. Frankel for the FBI in Newark, New Jersey.  “The FBI is committed to stopping insider trading and will hold those who perpetrate these schemes accountable because their illegal activities undermine the integrity of the U.S. financial markets and weaken investor confidence.”

“We allege an insider trading scheme based on a short-selling business model designed to systematically profit on confidential information obtained under false pretenses,” said Senior Associate Director Sanjay Wadhwa for Enforcement in the SEC’s Regional Office in New York.  “But the defendants’ short selling proved to be short-sighted as they overlooked the fact that their trading patterns would be detected and they would be caught by law enforcement.”

According to the complaint unsealed today, Fishoff, Chernin, Costantin, Petrello and others, acting individually and through their associated trading entities, engaged in an insider trading scheme in which they netted more than $3.2 million in illicit profits over three years by executing illegal trades through trading entities that they controlled.

Fishoff is the president and sole owner of Featherwood Capital Inc. (Featherwood), a trading entity that he operates out of his home.  Featherwood maintained numerous stock trading accounts in its own name and in various additional names under which Featherwood did business (DBAs), including Gold Coast Total Return Inc. (Gold Coast), Seaside Capital Inc. (Seaside) and Data Complete Inc. (Data Complete).

Chernin, an attorney who was disbarred in California for misappropriation of client assets, is a friend and longtime business associate of Fishoff.  Corporate documents list Chernin as the president of Gold Coast and Fishoff as an officer.  Chernin is president of the trading entity Cedar Lane Enterprises Inc. (Cedar Lane) and an officer of Data Complete.

Costantin, a former pipefitter by trade, is Fishoff’s brother-in-law and a friend and business associate of Chernin.  Corporate documents list Costanstin as president of Seaside.  In brokerage account documents, Fishoff identifies himself as Seaside’s owner.  Costanstin is also the vice president and secretary of Cedar Lane.

Petrello is the president and owner of two trading entities, Brielle Properties Inc. and Oceanview Property Management LLC and a friend and longtime business associate of Fishoff.

On numerous occasions, the conspirators obtained material, nonpublic information related to publicly traded companies and traded on that information before it became public.  Between June 2010 and July 2013, Fishoff, Chernin, Costantin and a business associate referred to in the complaint as “Trader A” expressed interest in participating in at least 14 stock offerings by publicly traded companies.  Before providing these individuals with confidential information concerning the companies or the terms of the proposed sales, the investment bankers first required that Fishoff, Chernin, Costantin, Trader A and their associated trading entities, agree to be “brought over the wall,” or “wall-crossed,” standard industry terms which meant that they were required to keep the information disclosed to them confidential and could not buy or sell the stock based on the information.

Fishoff, Chernin, Costantin and Trader A agreed to these disclosure and trading restrictions and then flagrantly breached the agreements.  In instances where Fishoff was not personally wall-crossed in an offering, Chernin and Costantin tipped Fishoff telephonically or by email about the offering prior to the public announcement.  Even where Fishoff ostensibly was a party to the confidentiality agreement, through his affiliation with the wall-crossed trading entity, Fishoff himself breached the agreement by trading on the confidential information and by providing the information to Petrello so that Petrello could engage in parallel trading.  There were also instances where Chernin and Costantin violated the terms of the confidentiality agreements by trading themselves before the offering.  The conspirators traded through the accounts of the trading entities or through related accounts that they controlled.  The conspirators shared the proceeds of the insider trading scheme, with Fishoff wiring money to Chernin and Costantin for their services and Fishoff receiving compensation from Petrello for the offering-related tips that Fishoff provided to him.

The conspiracy count with which each defendant is charged carries a maximum potential penalty of five years in prison and a $250,000 fine, or twice the aggregate loss to victims or gain to the defendants.   Each of the substantive securities fraud charges carry a maximum penalty of 20 years in prison and a $5 million fine.

U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Frankel, for the investigation leading to today’s arrests and complaint.  He also thanked the U.S. Securities and Exchange Commission’s New York Regional Office under the direction of Andrew Calamari.  He also thanked special agents of the FBI, Los Angeles (Ventura Resident Agency and Riverside Resident Agency) and FBI, Miami (West Palm Beach Resident Agency) for their assistance.

The government is represented by Assistant U.S. Attorneys Shirley U. Emehelu of the Economic Crimes Unit of the U.S. Attorney’s Office in Newark, New Jersey and Acting Chief Barbara Ward for the of the Office’s Asset Forfeiture and Money Laundering Unit.

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

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’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 nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants.  For more information on the task force, please visit www.stopfraud.gov

United Parcel Service Agrees to Settle Alleged Civil False Claims Act Violations

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United Parcel Service Inc. (UPS) has agreed to pay $25 million to resolve allegations that it submitted false claims to the federal government in connection with its delivery of Next Day Air overnight packages, the Justice Department announced today.  UPS is a package delivery company based in Atlanta.

“Protecting the federal procurement process from false claims is central to the mission of the Department of Justice,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.  “We will continue to ensure that when federal monies are used to purchase commercial services the government receives the prices and services to which it is entitled.”

“This conduct affected numerous federal agencies,” said U.S. Attorney Dana J. Boente of the Eastern District of Virginia.  “We place high importance on the integrity of companies that provide services to the government.  Combating all manners of fraud on the government is a high priority in the Eastern District of Virginia.”

UPS provides delivery services to hundreds of federal agencies through contracts with the U.S. General Services Administration (GSA) and U.S. Transportation Command, which provides support to Department of Defense agencies.  Under these contracts, UPS guaranteed delivery of packages by certain specified times the following day.  The settlement announced today resolves allegations that from 2004 to 2014, UPS engaged in practices that concealed its failure to comply with its delivery guarantees, thereby depriving federal customers of the ability to request refunds for the late delivery of packages.  In particular, the government alleged that UPS knowingly recorded inaccurate delivery times on packages to make it appear that the packages were delivered on time, applied inapplicable “exception codes” to excuse late delivery  (such as “security delay,” “customer not in,” or “business closed”), and provided inaccurate “on-time” performance data under the federal contracts.

“The United States should get what it pays for, nothing less,” said Acting Inspector General Robert C. Erickson of the GSA.

The civil settlement resolves a lawsuit filed under the whistleblower provision of the False Claims Act, which permits private parties to file suit on behalf of the United States for false claims and obtain a portion of the government’s recovery.  The civil lawsuit was filed in the Eastern District of Virginia by Robert K. Fulk, a former employee of UPS, who will receive $3.75 million.

The resolution in this matter was the result of a coordinated effort between the U.S. Attorney’s Office of the Eastern District of Virginia, the GSA Office of Inspector General (OIG), the Federal Deposit Insurance Corporation OIG, the Defense Criminal Investigative Service, and the Treasury Inspector General for Tax Administration and the Department of Treasury OIG, with assistance from the Department of Veterans Affairs OIG.

The lawsuit is captioned United States ex rel. Fulk v. United Parcel Service, Inc., et al., No. 1:11cv890 (E.D. Va.).  The claims resolved by this settlement are allegations only, and there has been no determination of liability.

New Orleans Jury Convicts Two Doctors, a Nurse and an Office Manager for Roles in $50 Million Fraud Scheme

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Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Kenneth A. Polite of the Eastern District of Louisiana, Special Agent in Charge Michael J. Anderson of the FBI’s New Orleans Field Office, Special Agent in Charge Mike Fields of the Department of Health and Human Services’ Office of the Inspector General (HHS-OIG) Dallas Regional Office and Louisiana Attorney General James D. “Buddy” Caldwell made the announcement.

Barbara Smith, M.D., 66, of Metairie, Louisiana; Roy Berkowitz, M.D., 69, of Slidell, Louisiana; Beverly Breaux, 67, of New Orleans; and Joe Ann Murthil, 57, of New Orleans, were convicted on all counts after a five-day jury trial before Chief U.S. District Court Judge Sarah S. Vance of the Eastern District of Louisiana.

Evidence introduced at trial showed that the defendants and others carried out a home health care fraud scheme in and around New Orleans through multiple companies over the course of more than 10 years.  Smith and Berkowitz falsely claimed that thousands of Medicare recipients were homebound and required nursing or therapy services to be provided in their homes.  Breaux was a registered nurse who falsely certified that these patients were homebound, and falsely claimed to have treated patients that she had not seen.  Murthil was an office manager and biller at one home health company who assisted with the payment of illegal kickbacks to patient recruiters.  Murthil also submitted false claims to Medicare stating that patients were homebound when some of these patients had jobs, had not received services or did not want services.  From 2007 through 2014, the companies in this scheme submitted more than $56 million in claims to Medicare, the vast majority of which were fraudulent.  Medicare paid approximately $50.7 million on these claims.

Sentencing for the defendants is scheduled for Aug. 26, 2015.  In total, 13 defendants have been charged for their roles in this scheme.  Nine other defendants previously pleaded guilty.

This case was investigated by the FBI, HHS-OIG and the Louisiana Attorney General’s Medicaid Fraud Control Unit, and was brought as part of the Medicare Fraud Strike Force, under the supervision of the Criminal Division’s Fraud Section and the U.S. Attorney’s Office of the Eastern District of Louisiana.  This case was prosecuted by Trial Attorneys William Kanellis and Antonio Pozos and Assistant Chief Ben Curtis of the Criminal Division’s Fraud Section.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged nearly 2,100 defendants who have collectively billed the Medicare program for more than $6.5 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.

Thirty-Three Defendants Charged in Massive Criminal Conspiracies Including Allegations of Fraud, Prescription Drug Diversion, and Money Laundering

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FOR IMMEDIATE RELEASE
Thursday, May 7, 2015

Thirty-two people were arrested yesterday after being charged variously with racketeering conspiracy, conspiracy to commit identity theft, conspiracy to commit access device fraud, conspiracy to commit mail, wire and bank fraud, conspiracy to commit money laundering, conspiracy to use a facility of interstate commerce to commit murder-for-hire and conspiracy to engage in the unlicensed wholesale distribution of drugs, announced U.S. Attorney Melinda Haag of the Northern District of California, Special Agent in Charge David J. Johnson of the Federal Bureau of Investigation, and Special Agent in Charge José M. Martinez of Internal Revenue Service (IRS) Criminal Investigation.  A thirty-third defendant remains at large and is subject to an active arrest warrant.

According to an indictment that was unsealed yesterday, Ara Karapedyan, 45, Mihran Stepanyan, 29, and Artur Stepanyan, 38, were at the center of a nationwide conspiracy—with at least 18 other person—to conduct the affairs of a wide-ranging criminal enterprise through a pattern of racketeering.  This enterprise was fueled by a broad range of criminal activity including unlicensed wholesale drug distribution, money laundering and fraud.  The indictment names 33 defendants in all and describes an enterprise that spanned throughout California as well as in Minnesota, Ohio and Puerto Rico.

One key aspect of the alleged criminal activity described in the indictment was a multi-million dollar prescription drug diversion scheme.  Members and associates of the enterprise are alleged to have procured prescription drugs from unlicensed sources and to have resold the drugs to unknowing customers.  A central figure to these allegations is David Miller, 50.  Miller is alleged to be the owner and operator of a drug wholesaler called Minnesota Independent Cooperative (MIC) that, between 2010 and 2014, bought approximately $157 million of drugs from Mihran Stepanyan and Artur Stepanyan.  Miller and his employees allegedly knew the Stepanyans were not licensed to sell drugs and knew the Stepanyans procured their drugs through unlicensed sources.  Miller and his employees nevertheless purchased the drugs from the Stepanyans’ various companies, including Panda Capital Group, Red Rock Capital, Trans Atlantic Capital, GC National Wholesale, Sky Atlantic Capital and Nationwide Payment Solutions and resold the drugs as legitimate products.

A separate investigation has resulted in another indictment in the Southern District of Ohio charging David Miller, Mihran Stepanyan, Artur Stepanyan and MIC with various crimes arising from their sale of millions of dollars of illicitly-procured drugs.

The indictment also charges Karapedyan and his associates with engaging in the fraudulent unlicensed distribution of drugs.  For instance, from 2013 through 2015, Karapedyan, either personally or through an associate, sold several hundred thousand dollars’ worth of drugs such as Abilify, Liboderm, Cymbalta and Namenda, as well as HIV drugs such as Atripla, Truvada and Isentress and the cancer drug Gleevec.  Likewise, from roughly the latter part of 2014 through early 2015, Karapdyan and his racketeer co-conspirator Maxwell Starsky, 36, sold to another complicit wholesaler more than $1 million in illicitly procured drugs.  Karapedyan also supplied the Stepanyans with drugs.

Hugo Marquez, 41, Eric Figueroa, 29, Arman Zagaryan, 32, and their associates are likewise charged with procuring drugs from unlicensed sources and distributing the drugs to buyers.  According to the indictment, Alexander Soliman, 46, was one of their principal customers.  Between roughly 2012 and 2014, Soliman, through his companies Apex Pharmaceuticals and Maroon Pharma, knowingly purchased illicitly-procured drugs from Marquez, Figueroa and Zagaryan and then re-sold them as legitimate drugs.  During this time period, Marquez, Figueroa, Zargaryan and Soliman engaged in the distribution of more than $20 million worth of drugs.

Another aspect of the alleged criminal activity is a massive check and bank fraud operation.  As part of the enterprise, Karapedyan and his associates, including Asatour Magzanyan, 53, Tigran Sarkisyan, 38, and Hripsime Khachtryan, 41, allegedly used fraudulent identification information to prepare fraudulent tax returns, which were then filed with the government in order to induce the U.S. Treasury to issue tax refund checks.  Karapedyan associate Khachig Geuydjian, 74, allegedly used his unlicensed mail-box business to provide addresses for these fraudulent tax filings.  They and other members and associates of the enterprise then negotiated the tax refund checks using fraudulent identities or through a complicit check cashing business operated by Jean Dukmajian, 61, Karine Dukmajian, 33, and Angela Dukmajian, 26.  In addition to the tax refund scheme, members and associates of the enterprise also engaged in negotiating counterfeit and stolen checks.  In all, from roughly late 2012 to late 2014, Karapedyan and his associates negotiated more than 500 fraudulent checks worth more than $5 million.

In addition to the fraudulent unlicensed distribution of drugs and negotiating fraudulent checks, Karapedyan, the Stepanyans, Miller and others are charged with conspiring to launder money in an effort to promote their criminal activities and to conceal proceeds collected from their criminal activities.  For example, a description of Miller’s activity between 2012 through 2014, wherein he attempted to hide the fact he was paying the Stepanyans for drugs is alleged in the indictment.  The indictment further alleges Miller made the payments to the Stepanyans’ company GC National Wholesale through companies in Puerto Rico he controlled, such as B&Y Wholesalers and FMC Distributors.  The payments were for sales of drugs that the Stepanyans actually delivered to Miller’s company MIC.  Similarly, the indictment includes allegations Karapedyan and Starsky also arranged payments for more than $1 million of illicitly-procured drugs through a shell company.  In addition, Karapedyan also allegedly laundered money for the Stepanyans.  According to the indictment, in 2013, the Stepanyans transferred more than $1 million in proceeds derived from MIC to Karapedyan, who caused the money to be withdrawn as cash.

Furthermore, in addition to the foregoing, defendants Karapedyan and Gevork Ter-Mkrtchyan are charged with conspiring to use a facility of interstate commerce to commit murder-for-hire.  According to the indictment, these defendants made several attempts to find a person who would be willing to kill someone who had angered Ter-Mkrtchyan.  Although the defendants paid $1,500 for the hit, it was never carried out.

According to the indictment, a significant portion of the criminal activity took place in the Northern District of California.  For example, one delivery of drugs took place in the Northern District of California and many of the checks were negotiated in the Northern District as well.  In addition, much of the proceeds from the check and the drug schemes were laundered through the Northern District of California, where Karapedyan and his associates regularly picked up large amounts of cash.  In addition, Miller’s company, MIC, posted fraudulent information relating to the origins of the drugs he sold via a website.  The website was maintained by an Internet service provider in the Northern District of California.  Furthermore, Karapedyan made numerous calls to the Northern District of California in order to find individuals willing to perform the hit he sought.

An indictment merely alleges that crimes have been committed, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt.   All the defendants except Miller were arrested yesterday.  Miller remains at large and is the subject of an active arrest warrant.

In sum, the indictment includes seven counts as follows: count One, RICO conspiracy, in violation of 18 U.S.C. § 1962(d) (maximum term of imprisonment, life or 20 years); Count Two, conspiracy to commit identity theft, in violation of 18 U.S.C. §  1028(f) (maximum term of imprisonment, 15 years); Count Three, conspiracy to commit access device fraud, 18 U.S.C. § 1029(b)(2) (maximum term of imprisonment, 5 years); Count Four, conspiracy to commit mail, wire, and bank fraud, in violation of 18 U.S.C. § 1349; Count Five, conspiracy to commit money laundering, in violation of 18 U.S.C. § 1956(h) (maximum term of imprisonment, 20 years); Count Six, conspiracy to use interstate facility to commit murder-for-hire, in violation of 18 U.S.C. § 1958); Count Seven, conspiracy to engage in unlicensed wholesale distribution of drugs, in violation of 18 U.S.C. § 371 (maximum term of imprisonment, 5 years).

The following charges apply as against the following defendants are: Ara Karapedyan on Counts one through seven, Mihran Stepanyan on counts one through five and seven, Artur Stepanyan on counts one through five and seven, Gevork Ter-Mkrtchyan on counts 1-7, Khachig Geuydjian on counts one through five, Arman Petrosyan on counts one through five, Lanna Karapedyan on counts one through five, Maxwell Starsky on counts one through five and seven, Sevak Gharghani on counts one through five and seven, Jean Dukmajian, on counts one through five, Karine Dukmajian on counts one through five, Angela Dukmajian on counts one through five, Arman Danielian count one, four, five and seven, Asatour Magzanyan conts one through five, Tigran Sarkisyan counts one through five, Hripsime Khachtryan counts one through five, Loui Artin on counts one through five, Hugo Marquez on counts one through five and seven, Arman Zargaryan on counts one through five and seven, Dmitriy Kustov on counts two through four, Michael Inman on counts two through four, Araxia Nazaryian on counts two five and seven, Alexander Soliman on counts four, five and seven, Cheryl Barndt on counts four, five and seven, Eric Figueroa on counts four, five and seven, Marc Asheghian on counts four, five and seven, Michael Asheghian on counts four, five and seven, David Milleron cunts one through five and seven, James Russoon on counts four, five and seven, Jeannette Couch counts four, five and seven, Marie Polichetti counts four, five and seven, Bernardo Guillen counts four, five and seven, Javier Ramirez on counts four and seven.

Additional periods of supervised release, fines and special assessments also could be imposed.  Any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

Thirty-one defendants appeared before the Honorable Victor B. Kenton and Michael R. Wilner in the Central District of California on Wednesday, May 6, 2015, to be advised of the charges against them and to determine conditions of release.  Some of those hearings have been continued at the request of the defendants.  Specifically, the bail hearing for Eric Figueroa has been continued to Friday, May 8, 2015, and the hearings for Hugo Marquez and Michael Inman have been continued to Monday, May 11, 2015, before the Honorable Michael R. Wilner.  In addition, Karapedyan will appear on Friday, May 8, 2015, before the Honorable Victor B. Kenton.

Further, Ter-Mkrtchyan has requested a hearing in which the government will be required to prove his identity, i.e., that he is the individual named in the indictment.  That hearing will occur on Friday, May 8, 2015, before the Honorable Victor B. Kenton.

The remaining 26 defendants have been ordered to appear before the Honorable Jacqueline Scott Corley in the Northern District of California. Alexander Soliman, Araxia Nazaryian and Asatour Magzanyan will appear on May 12, 2015.  Cheryl Barndt, Marc Asheghian, Michael Asheghian, Hripsime Khachtryan, Bernardo Guillen, Javier Ramirez, Jean Dukmajian, Karine Dukmajian, Angela Dukmajian, Khachig Geuydjian and Arman Zargaryan will appear on May 20, 2015.  Jeannette Couch, Loui Artin, Dmitriy Kustov, Marie Polichetti, Arman Danielian, Lanna Karapedyan, Sevak Gharghani, Arman Petrosyan and Maxwell Starsky will appear on May 22, 2015.

Mihran Stepanyan, Artur Stepanyan and Tigran Sarkisyan are being transported to the Northern District of California by the U.S. Marshal Service and will make court appearances after their arrival.

Assistant U.S. Attorneys Damali A. Taylor, David Countryman and W.S. Wilson Leung are prosecuting the case with the assistance of Lance Libatique, Ponly Tu, Daniel Charlier-Smith.  The prosecution is the result of an investigation by the Federal Bureau of Investigation and the Internal Revenue Service.

Medtronic to Pay $4.41 Million in USDOJ-CIV Case

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The Justice Department announced today that Medtronic plc and affiliated Medtronic companies, Medtronic Inc., Medtronic USA Inc., and Medtronic Sofamor Danek USA Inc., have agreed to pay $4.41 million to the United States to resolve allegations that they violated the False Claims Act by making false statements to the U.S. Department of Veterans Affairs (VA) and the U.S. Department of Defense (DoD) regarding the country of origin of certain Medtronic products sold to the United States.

“Today’s settlement demonstrates our commitment to ensure that our service members and our veterans receive medical products that are manufactured in the United States and other countries that trade fairly with us,” said Acting Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.  “The Justice Department will take action to hold medical device companies to the terms of their government contracts.”

“Domestic manufacture is a required component of many military and Veterans Administration contracts,” said U.S. Attorney Andrew M. Luger of the District of Minnesota.  “Congress has mandated that the United States use its purchasing power to buy goods made in the United States or in designated countries.  We take that mandate seriously and will not hesitate to take appropriate legal action to ensure compliance.”

According to the settlement agreement, between 2007 and 2014, Medtronic sold to the VA and DoD products it certified would be made in the United States or other designated countries.  The Trade Agreements Act of 1979 (TAA) generally requires companies selling products to the United States to manufacture them in the United States or in another designated country.  The United States alleged that Medtronic sold to the United States products manufactured in China and Malaysia, which are prohibited countries under the TAA.

The specific Medtronic products at issue included anchoring sleeves sold with cardiac leads and used to secure the leads to patients, certain instruments and devices used in spine surgeries, and a handheld patient assistant used with a wireless cardiac device.  The agreement covers the period from Jan. 1, 2007, to Dec. 31, 2013, and for one device (the handheld patient assistant), the period from Jan. 1, 2014, to Sept. 30, 2014.

The settlement resolves allegations originally brought in a lawsuit filed by three whistleblowers under the qui tam provisions of the False Claims Act, which allow private parties to bring suit on behalf of the government and share in any recovery. The relators will receive a total of $749,700 of the recovered funds.

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $23.9 billion through False Claims Act cases, with more than $15.2 billion of that amount recovered in cases involving fraud against federal health care programs.

The case was handled by the U.S. Attorney’s Office of the District of Minnesota with assistance from the Civil Division, DoD, Defense Logistics Agency and Defense Criminal Investigative Service and the VA’s Office of General Counsel.

The underlying case is United States of America ex rel. Samuel Adam Cox, III, Meayna Phanthavong, and Sonia Adams v. Medtronic, Inc., Medtronic USA, Inc., and Medtronic Sofamor Danek USA, Inc., Civil No. 12-cv-2562 (PAM/JSM).

The claims resolved by the settlement are allegations only; there has been no determination of liability.

Former Trader Pleads Guilty for Scheme to Falsify Records

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

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

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

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

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

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

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

Florida Home Health Care Company Agrees to Pay $1.1 Million to Resolve False Claims Act Allegations

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Recovery Home Care Inc., Recovery Home Care Services Inc. (collectively Recovery Home Care) and National Home Care Holdings LLC have agreed to pay $1.1 million to resolve allegations that the Recovery Home Care entities violated the False Claims Act by improperly paying doctors for referrals of home health care services provided to Medicare patients, the Department of Justice announced today.  The Recovery Home Care entities provide home health care services to Medicare beneficiaries and were purchased by National Home Care Holdings LLC in 2012, after the conduct addressed by the settlement occurred.

“Health care providers that attempt to profit by providing illegal inducements will be held accountable,” said Acting Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.  “We will continue to advocate for the appropriate use of Medicare funds and the proper care of our senior citizens.”

From 2009 through 2012, Recovery Home Care, headquartered in West Palm Beach, Florida, allegedly paid dozens of physicians thousands of dollars per month to perform patient chart reviews.  According to the government’s lawsuit, the physicians were over-compensated for any actual work they performed and, in reality, payments to the physicians were used to induce them to refer their patients to Recovery Home Care, in violation of the Anti-Kickback Statute and the Stark Law.

“Inducements of this kind are designed to improperly influence a physician’s independent medical judgment,” said U.S. Attorney A. Lee Bentley III of the Middle District of Florida.  “This lawsuit and today’s settlement attests to our office’s on-going commitment to safeguard federal health care program beneficiaries from the effects of such illegal conduct.”

The Anti-Kickback Statute and the Stark Law are intended to ensure that a physician’s medical judgment is not compromised by improper financial incentives.  The Anti-Kickback Statute prohibits offering, paying, soliciting or receiving remuneration to induce referrals of items or services covered by federal health care programs, including Medicare.  The Stark Law forbids a home health care provider from billing Medicare for certain services referred by physicians who have a financial relationship with the entity.

The settlement partially resolves allegations made in a lawsuit filed in federal court in Tampa, Florida, by Gregory Simony, a former employee of Recovery Home Care.  The lawsuit was filed under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery.  The act also allows the government to intervene and take over the action, as it did in part in this case.  Simony will receive $198,000 of the recovered funds.  The government continues to litigate this case against Recovery Home Care’s previous owner, Mark Conklin.

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $23.8 billion through False Claims Act cases, with more than $15.2 billion of that amount recovered in cases involving fraud against federal health care programs.

The settlement was the result of a coordinated effort by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the Middle District of Florida and HHS-OIG.

The case is captioned United States ex rel. Simony v. Recovery Home Care, et al., Case No. 8-12-cv-2495-T-36TBM (M.D. Fla.).  The claims resolved by the settlement are allegations only and there has been no determination of liability.

Seventh Circuit affirms that physician referral includes certification.

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In U.S. v. Patel, the U.S. Court of Appeals for the Seventh Circuit upheld a Chicago doctor’s criminal conviction under the Anti-Kickback Statute for accepting payments from a home health agency finding that a referral includes not just a recommendation to visit a specific business but also a certification allowing that visit to be billed to the federal government.

“A narrow definition of the term would defeat the central purposes of the [statute],” the circuit panel wrote.

The appellant physician had provided his patients a wide variety of agencies to choose from and only accepted inducements from one home health care agency.  Still , the Circuit Court ruled that that conduct was still improper because it implied a quid pro quo every time Patel filled out the forms necessary for the home health care agency to receive reimbursements from the government.

“Patel argues that he … played no role in his patients’ initial selection of Grand (the health care agency) or their decision to continue using Grand,” the court said. “True, but Patel chose whether his patients could go to Grand at all, which we think is just as important.”

The panel noted that federal Stark Law, which restricts physician self-referrals, defines the term to cover “certifying or recertifying” the need for care.  Rejecting the loophole offered by the appellant physician in his appeal, the Circuit Court recognized that “the possibility of a kickback for each recertification incentivizes the physician to keep recertifying, even if further treatment is unnecessary or if treatment by a different provider would be in the patient’s best interest….”