Tag Archives: Criminal Division-Fraud Section

U.S. Army Major Pleads Guilty in South Carolina to Defrauding U.S. Government

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WASHINGTON – A U.S. Army Major has pleaded guilty today to accepting thousands of dollars in gratuities from contractors while he was a U.S. Army captain deployed to Iraq, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney for the District of South Carolina William N. Nettles.

Ulysses S. Hicks, 40, of Sumter, S.C., pleaded guilty before U.S. District Chief Judge Margaret B. Seymour in the District of South Carolina to a criminal information charging him with one count of conspiracy to accept illegal gratuities.

According to court documents, Hicks was a captain in the U.S. Army, who was deployed to Forward Operating Base (FOB) Hammer in Iraq as a pay agent for field ordering officer (FOO) funds.  FOO funds are used to purchase miscellaneous items and supplies such as paint, lumber and plywood from local vendors.  It is a violation of federal law for pay agents to accept gratuities from contractors dependent upon them for contracts.

From about March 2007 through October 2008, Hicks, along with co-conspirator former U.S. Army Master Sergeant Julio Soto Jr., was involved with the construction of a government building at FOB Hammer by local Iraqi contractors.  According to court documents, Hicks and Soto unlawfully sought, received and accepted illegal gratuities for helping Iraqi contractors gain U.S. government contracts.  After accepting the illegal gratuities, Hicks and Soto purchased U.S. Postal money orders with the illegal proceeds and mailed them back to the United States.

At sentencing, Hicks faces a maximum penalty of five years in prison, a fine of $250,000 and up to three years of supervised release.  As part of his plea agreement, Hicks agreed to pay $65,409 plus interest in restitution to the United States.

Soto pleaded guilty on Aug. 29, 2012, before U.S. District Chief Judge Seymour to a criminal information charging him with one count of conspiracy to accept illegal gratuities.  On Dec. 7, 2012, Soto was sentenced to serve five years of probation and ordered to pay $62,542 in restitution.

This case is being prosecuted by Special Trial Attorney Mark Grider of the Criminal Division’s Fraud Section, on detail from the Special Inspector General for Iraq Reconstruction (SIGIR), and by Assistant U.S. Attorney Winston Holliday, Deputy Chief of the General Crimes Section of the U.S. Attorney’s Office for the District of South Carolina.  The case was investigated by SIGIR, the Defense Criminal Investigative Service and the Major Procurement Fraud Unit of the U.S. Army Criminal Investigation Command.

Caddell Construction Co. Commits to Pay $2 Million Penalty in Agreement to Resolve Criminal Fraud Violations

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WASHINGTON – Caddell Construction Company Inc., a major commercial and industrial federal government construction contractor based in Montgomery, Ala., has entered into an agreement with the Department of Justice to resolve criminal fraud violations arising from Caddell’s intentional overstating of developmental assistance provided to a disadvantaged small business as part of a Department of Defense (DoD) program.  The agreement, including a $2 million penalty to be paid by Caddell, was announced today by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division.

According to the non-prosecution agreement (NPA) between the government and Caddell, in February 2003, Caddell entered into an agreement with Mountain Chief – which is certified as a Native American, woman-owned and economically-disadvantaged small business – to participate in the DoD’s Mentor-Protégé Program, in which major DoD contractors (mentor firms) contract with and provide developmental assistance to disadvantaged small businesses (protégé firms) and are reimbursed by the DoD for related costs.

Around the same time, Caddell began participating with Mountain Chief in DoD’s Indian Incentive Program, which provides incentives – in the form of a rebate of 5 percent of the total dollar amount of work – for major DoD contractors to engage Native-American-owned businesses as subcontractors and suppliers.  Caddell and Mountain Chief participated in these programs in connection with two DoD construction contracts at Fort Bragg, N.C., each worth approximately $65 million and a DoD construction project at Fort Campbell, Ky., worth approximately $34 million.

According to the NPA, from February 2004 to March 2005, Caddell submitted more than 20 requests for payment to the DoD in connection with the Mentor-Protégé Program that significantly overstated the amount of developmental assistance Caddell had provided Mountain Chief.  In addition, Caddell filed documents falsely stating Mountain Chief’s size and income, as well as the status of Mountain Chief’s technical capabilities and business infrastructure.  From April 2003 to October 2004, Caddell also submitted at least eight requests to the DoD for the Indian Incentive Program, for rebates based on services purportedly performed on subcontracts Caddell gave to Mountain Chief.  Mountain Chief performed few, if any of these services, and the invoices were created solely to support Caddell’s applications for payment.

As part of the NPA, Caddell will pay a $2 million criminal penalty, and must cooperate with the Department of Justice for the two-year term of the agreement.  The agreement recognizes Caddell’s voluntary disclosure; thorough self-investigation of the underlying conduct; and full cooperation with the department and remedial measures already undertaken and to be undertaken, including employment actions and improving reporting systems, corporate governance, and compliance training and oversight.  As a result of these factors, among others, the department agreed not to prosecute Caddell for the improper pay requests, provided Caddell satisfies its ongoing obligations under the agreement.

In January 2012, Daniel W. Chattin, 50, of Granite Bay, Calif., the son of Mountain Chief’s owner and a project manager and consultant for Mountain Chief, and Mark L. Hill, 57, of Montgomery, Ala., the Mentor-Protégé Program Coordinator and a director of business development at Caddell, were indicted in the Middle District of Alabama on three counts of major fraud against the United States stemming from the same scheme.  In addition, Hill was charged with one count of making a false statement to the DoD.  Chattin and Hill await trial, which is scheduled to begin on April 22, 2013.  The charges and allegations against Chattin and Hill are merely accusations and they are considered innocent unless and until proven guilty.

This investigation is being conducted by the General Services Administration – Office of Inspector General, and the DoD’s Defense Criminal Investigative Service.  This case is being handled by Assistant Chief Albert B. Stieglitz Jr. and Trial Attorney Thomas B.W. Hall of the Criminal Division’s Fraud Section.

Clinical Director for Miami-based Health Care Clinic Sentenced to Prison for Role in $50 Million Medicare Fraud Scheme

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 WASHINGTON – A former clinical director for Biscayne Milieu, a Miami-based mental-health clinic, was sentenced today to 100 months in prison for his participation in a Medicare fraud scheme involving the submission of more than $50 million in fraudulent billings to Medicare, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida; Michael B. Steinbach, Acting Special Agent in Charge of the FBI’s Miami Field Office; and Special Agent in Charge Christopher B. Dennis of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG), Office of Investigations Miami Office.

Rafael Alalu, 47, of Miami, was sentenced today by U.S. District Judge Robert N. Scola Jr. in the Southern District of Florida.  Alalu was convicted on Aug. 24, 2012, of one count of conspiracy to commit health care fraud and two substantive counts of health care fraud, following a two-month jury trial.  The evidence at trial showed that Alalu participated in treating ineligible patients, concealing that fact by falsifying patient files and writing fraudulent group therapy notes, and instructing others to do the same.  In addition to the prison term, Alalu was ordered to pay more than $5.6 million in restitution, jointly and severally with his co-defendants.

Various owners, doctors, managers, therapists, patient brokers and other employees of Biscayne Milieu have also been charged with various health care fraud, kickback, money laundering and other offenses in two indictments unsealed in September 2011 and May 2012.  Biscayne Milieu, its owners, and more than 25 of the individual defendants charged in these cases have pleaded guilty or have been convicted at trial.  Antonio and Jorge Macli and Sandra Huarte – the owners and operators of Biscayne Milieu – and Dr. Gary Kushner – its medical director – were each convicted at trial of various offenses and are scheduled for sentencing in March 2013.

According to the evidence at trial, the defendants and their co-conspirators caused the submission of over $50 million dollars in false and fraudulent claims to Medicare through Biscayne Milieu, which purportedly operated a partial hospitalization program (PHP) – a form of intensive treatment for severe mental illness.  Instead, the defendants devised a scheme in which they paid patient recruiters to refer ineligible Medicare beneficiaries to Biscayne Milieu for services that were never provided.  Many of the patients admitted to Biscayne Milieu were not eligible for PHP because they were chronic substance abusers, suffered from severe dementia and would not benefit from group therapy, or had no mental health diagnosis but were seeking exemptions for their U.S. citizenship applications.  The evidence at trial showed that once these ineligible patients were admitted to Biscayne Milieu, Alalu and others concealed the fraud by falsifying patients’ group therapy notes to reflect legitimate PHP treatment that was never provided, and directed others to do so.

The case is being prosecuted by Assistant U.S. Attorneys Michael Davis and Marlene Rodriguez of the U.S. Attorney’s Office for the Southern District of Florida, and by Trial Attorney James V. Hayes of the Fraud Section of the Justice Department’s Criminal Division.  The case was investigated by the FBI with the assistance of HHS-OIG, and was brought by the U.S. Attorney’s Office for the Southern District of Florida in coordination with the Medicare Fraud Strike Force, supervised by 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 more than 1,480 defendants who have collectively billed the Medicare program for more than $4.8 billion. In addition, HHS’s Centers for Medicare and Medicaid Services, working in conjunction with HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.

UBS Securities Japan to Plead Guilty to Felony Wire Fraud For Long Running Manipulation of LIBOR Benchmark Interest Rates

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Two Former Senior UBS Traders Face Felony Charges Unsealed Today

UBS AG to Pay Substantial Penalty in Agreement Reflecting
Substantial Cooperation, Significant Changes

WASHINGTON — UBS Securities Japan Co. Ltd. (UBS Japan), an investment bank, financial advisory securities firm and wholly-owned subsidiary of UBS AG, has agreed to plead guilty to felony wire fraud and admit its role in manipulating the London Interbank Offered Rate (LIBOR), a leading benchmark used in financial products and transactions around the world, Attorney General Eric Holder announced today.  The criminal information, filed today in U.S. District Court in the District of Connecticut, charges UBS Japan with one count of engaging in a scheme to defraud counterparties to interest rate derivatives trades by secretly manipulating LIBOR benchmark interest rates.

As part of the ongoing criminal investigation by the Criminal and Antitrust Divisions of the Justice Department and the FBI into LIBOR manipulation, two former senior UBS traders also are charged.  Tom Alexander William Hayes, 33, of England, and Roger Darin, 41, of Switzerland, were both charged with conspiracy in a criminal complaint unsealed in Manhattan federal court earlier today.  Hayes is also charged with wire fraud, based on the same scheme, and a price fixing violation arising from his collusive activity with another bank to manipulate LIBOR benchmark rates.

UBS Japan has signed a plea agreement with the government admitting its criminal conduct, and has agreed to pay a $100 million fine.  In addition, UBS AG, the parent company of UBS Japan headquartered in Zurich, has entered into a non-prosecution agreement (NPA) with the government requiring UBS AG to pay an additional $400 million penalty, to admit and accept responsibility for its misconduct as set forth in an extensive statement of facts and to continue cooperating with the Justice Department in its ongoing investigation.  The NPA reflects UBS AG’s substantial cooperation in discovering and disclosing LIBOR misconduct within the financial institution and recognizes the significant remedial measures undertaken by new management to enhance internal controls.

Together with approximately $1 billion in regulatory penalties and disgorgement – $700 million as a result of the Commodity Futures Trading Commission (CFTC) action; $259.2 million as a result of the U.K. Financial Services Authority (FSA) action; and $64.3 million as a result of the Swiss Financial Markets Authority (FINMA) action – the Justice Department’s criminal penalties bring the total amount of the resolution to more than $1.5 billion.

“By causing UBS and other financial institutions to spread false and misleading information about LIBOR, the alleged conspirators we’ve charged – along with others at UBS – manipulated the benchmark interest rate upon which many transactions and consumer financial products are based.  They defrauded the company’s counterparties of millions of dollars.  And they did so primarily to reap increased profits, and secure bigger bonuses, for themselves,” said Attorney General Holder. “Today’s announcement – and $1.5 billion global resolution – underscores the Justice Department’s firm commitment to investigating and prosecuting such conduct, and to holding the perpetrators of these crimes accountable for their actions.”

“UBS manipulated one of the cornerstone interest rates in our global financial system,” said Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division.  “The scheme alleged is epic in scale, involving people who have walked the halls of some of the most powerful banks in the world.  Today’s agreement by UBS Japan to plead guilty, the charges against individual alleged perpetrators of these crimes, and our agreement recognizing the steps being taken by UBS AG to right itself demonstrate the Justice Department’s determination to hold accountable those in the financial marketplace who break the law.  We cannot, and we will not, tolerate misconduct on Wall Street of the kind admitted to by UBS today, and by Barclays last June.  We will continue to follow the facts and the law wherever they lead us in this matter, as we do in every case.”

“The criminal complaint charges two senior UBS traders with colluding to manipulate Yen LIBOR interest rates for the purpose of improving trading positions held by Hayes and UBS,” said Deputy Assistant Attorney General Scott D. Hammond of the Justice Department’s Antitrust Division.  “Coordinating the movement of interest rates even by a very small margin meant higher profits and bigger bonuses for the conspirators at the expense of those that relied on LIBOR as a reference rate.”

“The manipulation of LIBOR affects financial products including mortgages, credit cards, student loans and many other interest rate products,” said FBI Associate Deputy Director Kevin L. Perkins.  “This practice further erodes Main Street’s confidence in Wall Street.  The public expects our financial institutions to maintain proper oversight of their businesses and to ensure the public is not harmed by criminal activity within these institutions.  In this case, UBS acknowledged its failures and cooperated with our investigation.  The FBI would like to thank its federal partners in this investigation – the Department of Justice Criminal Division’s Fraud Section and Antitrust Division, Commodity Futures Trading Commission’s Division of Enforcement and the Securities and Exchange Commission’s Division of Enforcement whose joint efforts brought a successful resolution to this matter.”
 
According to documents filed in these cases, LIBOR is an average interest rate, calculated based on submissions from leading banks around the world, reflecting the rates those banks believe they would be charged if borrowing from other banks.  LIBOR serves as the primary benchmark for short-term interest rates globally, and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products.  The Bank of International Settlements estimated that as of the second half of 2009, outstanding interest rate contracts were estimated at approximately $450 trillion.

LIBOR, published by the British Bankers’ Association (BBA), a trade association based in London, is calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year.  The LIBOR for a given currency at a specific maturity is the result of a calculation based upon submissions from a panel of banks.

Between July 2006 and September 2009, Hayes was a senior trader employed in the Tokyo office of UBS Japan, which then operated under the name UBS Securities Japan Ltd.  Among other financial products, Hayes traded in interest rate derivatives that essentially consisted of bets against other traders on the direction in which Yen LIBOR would move.  UBS was a member of the Yen LIBOR panel, and Darin was, at certain times relevant to the criminal complaint, a trader responsible for making and supervising LIBOR submissions to the BBA on behalf of the bank.  In a statement of facts attached to the NPA and plea agreement, Hayes is referred to as “Trader-1” and Darin is referred to as “Submitter-1.”

Beginning in September 2006, UBS Japan and Hayes orchestrated a sustained, wide-ranging and systematic scheme to move Yen LIBOR in a direction favorable to Hayes’ trading positions, defrauding UBS’ counterparties and harming others with financial products referencing Yen LIBOR who were unaware of the manipulation.  Between November 2006 and August 2009, Hayes or one of his colleagues endeavored to manipulate Yen LIBOR on at least 335 of the 738 trading days in that period, and during some periods on almost a daily basis.  Because of the large size of Hayes’ trading positions, even slight moves of a fraction of a percent in Yen LIBOR could generate large profits.  For example, Hayes once estimated that a 0.01 percent movement in the final Yen LIBOR fixing on a specific date could result in a $2 million profit for UBS.

According to the charging documents, UBS Japan and Hayes employed three strategies to execute the scheme: from November 2006 through September 2009, Hayes conspired with Darin and others within UBS to cause the bank to make false and misleading Yen LIBOR submissions to the BBA; also, Hayes caused cash brokerage firms, which purported to provide market information regarding LIBOR to panel banks, to disseminate false and misleading information about short-term interest rates for Yen, which those banks could and did rely upon in formulating their own LIBOR submissions to the BBA; and Hayes communicated with interest rate derivatives traders employed at three other Yen LIBOR panel banks in an effort to cause them to make false and misleading Yen LIBOR submissions to the BBA.

As alleged in the charging documents, Hayes, Darin and other co-conspirators often executed their scheme through electronic chats.  On Nov. 20, 2006, for example, Hayes asked a UBS Yen LIBOR submitter who was substituting for Darin, “hi . . .  [Darin] and I generally coordinate ie sometimes trade if ity [sic] suits, otherwise skew the libors a bit.”  Hayes went on to request, “really need high 6m [6-month] fixes till Thursday.”  The submitter responded, “yep we on the case there . . . will def[initely] be on the high side.”  The day before this request, UBS’s 6-month Yen LIBOR submission had been tied with the lowest submissions included in the calculation of the LIBOR fix.  Immediately after this request for high submissions, however, UBS’s 6-monthYen LIBOR submissions rose to the highest submission of any bank in the contributor panel and remained tied for the highest, precisely as Hayes had requested.

Another example of such an alleged accommodation occurred on March 29, 2007, when Hayes asked Darin, “can we go low 3[month] and 6[month] pls?  . . .  3[month] esp.” Darin responded “ok”, and the two had the following exchange:

Hayes:

 what are we going to set?

Darin:

 too early to say yet . . .  prob[ably]  .69 would be our unbiased contribution

Hayes:

 ok wd really help if we cld keep 3m low pls
Darin: as i said before – i [don’t] mind helping on your fixings, but i’m not setting libor 7bp away from the truth. . .  i’ll get ubs banned if i do that, no interest in that.
Hayes: ok obviousl;y [sic] no int[erest] in that happening either . . . not asking for it to be 7bp from reality anyway any help appreciated[.]

Hayes received the help he requested.

In addition, the criminal complaint charges Hayes with colluding with a trader employed at another LIBOR panel bank in May 2009, in violation of the Sherman Antitrust Act.  Hayes allegedly engaged in the collusive scheme to fix the price of derivative instruments whose price was based on Yen LIBOR.  In electronic chats, Hayes asked the trader to move 6-month Yen LIBOR up due to a “gigantic” position Hayes had taken.  For the trade in question, UBS trading records confirmed that each 0.01 percent movement in LIBOR would generate profits of approximately $459,000 for Hayes’ book.  The trader at the other bank responded that he would comply, and his bank’s submission moved by 0.06 percent compared to its submission the previous day, for which Hayes thanked him.

In entering into the NPA with UBS AG, the Justice Department considered information from UBS, and from regulatory agencies in Switzerland and Japan, demonstrating that in the last two years UBS has made important and positive changes in its management, compliance and training to ensure adherence to the law.  The department received favorable reports from the Swiss Financial Market Supervisory Authority (FINMA) and the Japan Financial Services Authority (JFSA) describing, respectively, progress that UBS has made in its approach to compliance and enforcement and UBS Japan’s effective implementation of the remedial measures the JFSA imposed based on findings relating to the attempted manipulation of Yen benchmarks.

The investigation is being handled by Deputy Chiefs William Stellmach and Daniel Braun and Trial Attorney Luke Marsh of the Criminal Division’s Fraud Section, and Assistant Chief Elizabeth Prewitt and Trial Attorney Richard Powers of the Antitrust Division, New York Field Office.  Assistant Chief Rebecca Rohr and Trial Attorneys Alexander Berlin and Thomas Hall of the Criminal Division’s Fraud Section, Trial Attorneys Portia Brown and Wendy Norman of the Antitrust Division, and Assistant U.S. Attorneys Eric Glover and Liam Brennan of the U.S. Attorney’s Office for the District of Connecticut have also provided valuable assistance.  The Criminal Division’s Office of International Affairs also provided assistance in this matter.  The investigation is being conducted by the FBI’s Washington Field Office.

The investigation leading to these cases has required, and has greatly benefited from, a diligent and wide-ranging cooperative effort among various enforcement agencies both in the United States and abroad.  The Justice Department acknowledges and expresses its deep appreciation for this assistance.  In particular, the Commodity Futures Trading Commission’s Division of Enforcement referred this matter to the Department and, along with the FSA, has played a major role in the investigation.  The Securities and Exchange Commission has also played a significant role in the LIBOR series of investigations and, among other efforts, has made an invaluable contribution to the investigation relating to UBS.  The Department of Justice also wishes to acknowledge and thank FINMA, the Japanese Ministry of Justice, and the JFSA.  Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the Department is grateful for their cooperation and assistance.

This prosecution is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force.  President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.  The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets and recover proceeds for victims of financial crimes. For more information about the task force visit: www.stopfraud.gov.

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Las Vegas Man Sentenced to 37 Months in Prison for Foreclosure Rescue Scam and Theft of Government Funds

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FOR IMMEDIATE RELEASE
Tuesday, December 11, 2012
Las Vegas Man Sentenced to 37 Months in Prison for Foreclosure Rescue Scam and Theft of Government Funds

WASHINGTON – A Las Vegas man was sentenced today to 37 months in prison for operating a foreclosure rescue scam that defrauded distressed homeowners who were struggling to pay their mortgages, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney Daniel G. Bogden of the District of Nevada.

Alex P. Soria, 65, was sentenced today by U.S. District Judge Lloyd D. George in the District of Nevada.  In addition to his prison term, Soria was sentenced to serve three years of supervised release and ordered to pay $320,266 in restitution.

In August 2012, Soria pleaded guilty to one count of wire fraud in connection with his scheme to defraud distressed homeowners and one count of theft of government funds for defrauding the Social Security Disability Insurance benefits program.

According to court documents, Soria identified homeowners whose mortgage debt exceeded the value of their homes and charged them a fee purportedly to reduce the principal balance of their mortgages using money from the Department of the Treasury’s Troubled Asset Relief Program (TARP).  Soria admitted in court that he lied to homeowners about his affiliation with several mortgage lenders and that he provided victims with fraudulent letters stating they had been approved for loans.  Soria also admitted he falsely told victims that his loan program had been successful in the past and charged homeowners for loan modifications he knew he could not deliver.  Court documents show that Soria concealed from homeowners the fact that the state of Nevada had issued a cease and desist order which legally prohibited him from working in the mortgage industry.  Soria collected over $100,000 in fees from distressed homeowners, many of whom lost their homes to foreclosure after Soria failed to deliver the loan modifications he promised.

As part of the same case, Soria also admitted to stealing government funds by continuing to collect Social Security Disability Insurance benefits while at the same time receiving income from his foreclosure relief operation.  The Social Security Disability Insurance program is a federal program that replaces the wages of individuals who become unable to work due to a disability.  Soria admitted to collecting over $200,000 in disability benefits from 1990 to 2010 while at the same time receiving income that he concealed from the Social Security Administration.

This case is being prosecuted by Trial Attorneys Brian R. Young and Mary Ann McCarthy of the Criminal Division’s Fraud Section.  The U.S. Attorney’s Office for the District of Nevada assisted with the investigation and prosecution. The case was investigated by the Offices of Inspector General for the Department of Housing and Urban Development and the Social Security Administration.

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

Brooklyn, N.Y., Clinic Employee Pleads Guilty in Connection with $71 Million Medicare Fraud Scheme

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Brooklyn, N.Y., Clinic Employee Pleads Guilty in Connection with $71 Million Medicare Fraud Scheme

WASHINGTON – A Brooklyn, N.Y., resident pleaded guilty today for his role in a $71 million Medicare fraud scheme, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division, U.S. Attorney for the Eastern District of New York Loretta E. Lynch, Acting Assistant Director in Charge George Venizelos of the FBI’s New York Field Office and Special Agent in Charge Thomas O’Donnell of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG).

Yuri Khandrius, 50, pleaded guilty today before U.S. District Judge Nina Gershon in the Eastern District of New York to one count of conspiracy to commit health care fraud, one count of health care fraud and one count of conspiracy to pay kickbacks.

Khandrius was an employee of a clinic in Brooklyn that operated under three corporate names: Bay Medical Care PC, SVS Wellcare Medical PLLC and SZS Medical Care PLLC (Bay Medical clinic).  According to court documents, owners, operators and employees of the Bay Medical clinic paid cash kickbacks to Medicare beneficiaries and used the beneficiaries’ names to bill Medicare for more than $71 million in services that were medically unnecessary or never provided.  The defendants billed Medicare for a wide variety of fraudulent medical services and procedures, including physician office visits, physical therapy and diagnostic tests.

According to the criminal complaint, the co-conspirators allegedly paid kickbacks to corrupt Medicare beneficiaries in a room at the clinic known as the “kickback room,” in which the conspirators paid approximately 1,000 kickbacks totaling more than $500,000 during a period of approximately six weeks from April to June 2010.

Khandrius admitted in court that he conspired with co-workers at Bay Medical to commit health care fraud and to pay cash kickbacks to Medicare beneficiaries as part of the scheme.

At sentencing, Khandrius faces a maximum penalty of 25 years in prison.  Sentencing is scheduled for March 11, 2013.

In total, 16 individuals have been charged in the Bay Medical scheme, including two doctors, nine clinic owners/operators/employees and five external money launderers.  To date, 11 defendants have pleaded guilty for their roles in the conspiracy.  Five individuals await trial before Judge Gershon on Jan. 22, 2013.

The case is being prosecuted by Assistant U.S. Attorney Shannon Jones of the Eastern District of New York and Trial Attorney Sarah M. Hall of the Criminal Division’s Fraud Section.  The case was investigated by the FBI and HHS-OIG.

The case 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 for the Eastern District of New York.  The Medicare Fraud Strike Force operations are part of the Health Care Fraud Prevention & Enforcement Action Team (HEAT), a joint initiative announced in May 2009 between the Department of Justice and HHS to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged more than 1,480 defendants who have collectively billed the Medicare program for more than $4.8 billion.  In addition, HHS’s Centers for Medicare and Medicaid Services, working in conjunction with HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.

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

Former Director of Accounting and Outside Auditor of American Mortgage Specialists Inc. Plead Guilty to Roles in Fraud Against BNC National Bank

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(ed. note: Would not want to be in the cross-hairs of this cross-agency group of fraud enforcers.)
Former Director of Accounting and Outside Auditor of American Mortgage Specialists Inc. Plead Guilty to Roles in Fraud Against BNC National Bank

The former director of accounting and the former outside auditor of Arizona-based residential mortgage loan originator American Mortgage Specialists Inc. (AMS) pleaded guilty in Arizona to conspiracy to defraud BNC National Bank and obstruction of justice, respectively, Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney Timothy Q. Purdon of the District of North Dakota; Christy Romero, Special Inspector General for the Troubled Asset Relief Program (SIGTARP); and Steve A. Linick, Inspector General of the Federal Housing Finance Agency Office of Inspector General (FHFA-OIG) announced today.

Lauretta Horton, 45, and David Kaufman, 69, both residents of Arizona, pleaded guilty yesterday before U.S. District Judge Daniel L. Hovland of the District of North Dakota, who took the pleas in Arizona federal court.   Horton and Kaufman were charged in separate criminal informations unsealed on Oct. 2, 2012, for their roles in the fraud scheme against BNC.

“ While the nation was reeling from a financial downturn, Lauetta Horton conspired with AMS executives to deceive BNC Bank about AMS’s true financial stability, and AMS auditor David Kaufman lied to federal investigators to impede their investigation,” said Assistant Attorney General Breuer.  “Horton and Kaufman’s guilty pleas reflect our continued vigilance in investigating and punishing criminal conduct relating to the financial crisis.”

“Banks in North Dakota were not immune from illegal conduct related to the mortgage crisis that impacted banks all across the country,” said U.S. Attorney Purdon. “These guilty pleas are the result of close collaboration with our federal investigative partners and the Justice Department’s Criminal Division and should send the message that the Department of Justice is committed to prosecuting cases such as these wherever they might arise.”

  “As the controller and director of accounting of mortgage originator AMS, Horton sent to TARP-recipient BNC National Bank false financial statements she had prepared so that BNC would continue to fund AMS,” said Special Inspector General Romero.   “In a cover-up and an attempt to impede the federal grand jury investigation, AMS’s external auditor Kaufman lied to SIGTARP agents about his telling an AMS executive that he had changed the financial statements so that BNC would not discover the truth.   Kaufman is the third person convicted of lying to SIGTARP agents, which shows that SIGTARP will aggressively pursue those who fail to tell the truth and impede our investigations.”

“This is a significant case because it holds accountable an individual who participated in a scheme to defraud a member bank of the Federal Home Loan Bank System, and another individual who lied to federal investigators,” said Inspector General Linick.   “This case is a reminder that there are consequences for giving investigators false information and manipulating numbers.”

AMS was in the business of originating residential real estate mortgage loans to borrowers and then selling the loans to institutional investors.   In 2006, AMS entered into a loan participation agreement with BNC whereby BNC provided funding for the loans issued by AMS.  According to court documents, Horton, the director of accounting at AMS, conspired from February 2009 to April 2010 to defraud BNC by making false representations regarding the financial well-being of AMS in order for AMS to continue to obtain funding from BNC.  Specifically, Horton admitted to inflating asset items and altering financial information in the AMS balance sheet provided to BNC to falsely reflect that AMS had substantial liquid assets when, in fact, it did not.

According to court documents, Kaufman, a certified public accountant and the outside auditor of AMS’ annual financial statements, lied to federal agents during the criminal investigation and obstructed the grand jury investigation.   Specifically, Kaufman admitted denying to agents that he had a conversation with an AMS executive in which Kaufman explained to the AMS executive that Kaufman had combined two expenses on AMS’s financial statements in order to conceal the true nature and extent of AMS’s financial condition from BNC.

Although BNC’s holding company had received approximately $20 million under the TARP and had injected approximately $17 million of the TARP funds into BNC, BNC incurred losses exceeding the millions received from TARP.  BNC then did not make its required TARP dividends to the Department of Treasury for nearly two years.

At sentencing, scheduled for May 6, 2013, Kaufman and Horton face a maximum penalty of 10 years and five years in prison, respectively.

The investigation was conducted by agents assigned to the Offices of the Inspector General of SIGTARP and of FHFA.  The case is being prosecuted by Trial Attorney Robert A. Zink and Senior Litigation Counsel Jack B. Patrick of the Criminal Division’s Fraud Section and by Assistant U.S. Attorney Clare Hochhalter of the District of North Dakota, with the assistance of Trial Attorney Jeannette Gunderson of the Criminal Division’s Asset Forfeiture and Money Laundering Section.

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

Former Fair Financial Company CEO Sentenced In Indianapolis to 50 Years in Prison for Role in $200 Million Fraud Scheme

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Department of Justice
Office of Public Affairs
FOR IMMEDIATE RELEASE
Friday, November 30, 2012
Former Fair Financial Company CEO Sentenced In Indianapolis to 50 Years in Prison for Role in $200 Million Fraud Scheme
Two Other Fair Financial Executives Sentenced Today for Roles in Scheme

WASHINGTON – The former chief executive officer of Fair Financial Company, an Ohio financial services business, was sentenced today to serve 50 years in prison for his role in a scheme to defraud approximately 5,000 investors of more than $200 million, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney for the Southern District of Indiana Joseph H. Hogsett.

 

Timothy S. Durham, 50, of Fortville, Ind., was sentenced today by U.S. District Judge Jane Magnus-Stinson.  In addition to his prison term, Durham was sentenced to serve two years supervised release.

 

James F. Cochran, the former chairman of the board of Fair, was sentenced today by Judge Magnus-Stinson to serve 25 years in prison and three years of supervised release.

 

Rick D. Snow, the former chief financial officer of Fair, was sentenced today by Judge Magnus-Stinson to ten years in prison and two years of supervised release.

 

Judge Snow also ordered Durham, Cochran and Snow to pay restitution in the amount of $208 million.

 

“The lengthy prison sentences handed down today are just punishment for a group of executives who built a business on smoke and mirrors,” said Assistant Attorney General Breuer.  “By deliberately misleading their investors and state regulators, Mr. Durham and his co-conspirators were able defraud thousands of innocent investors.  The Justice Department will continue to devote considerable time and resources to ensure that fraudsters like Mr. Durham, Mr. Cochran and Mr . Snow are brought to justice for their crimes.”

 

“This ordeal is truly a tragedy for all families involved,” said U.S. Attorney Hogsett.  “All we can do is ask that today’s decision send a warning to others in Indiana that if you sacrifice truth in the name of greed, if you steal from another’s American dream to enhance your own, you will be caught and you will pay a significant price.”

 

“The FBI will continue to aggressively pursue financial crimes investigations,” said Special Agent in Charge Robert A. Jones of the FBI Indianapolis Division.  “Today’s sentencing represents a significant step toward justice.  We must remain mindful that the victims of this crime still suffer.”

 

On June 20, 2012, following an eight-day trial, a federal jury in the Southern District of Indiana convicted Durham and two co-conspirators for their roles in this scheme. Durham was convicted of one count of conspiracy to commit wire and securities fraud, 10 counts of wire fraud and one count of securities fraud.  James F. Cochran, 57, of McCordsville, Ind., was convicted of one count of conspiracy to commit wire and securities fraud, one count of securities fraud and six counts of wire fraud.  Rick D. Snow, 49, Fishers, Ind., was convicted of one count of conspiracy to commit wire and securities fraud, one count of securities fraud and three counts of wire fraud.

 

Durham and Cochran purchased Fair, whose headquarters was in Akron, Ohio, in 2002.  According to evidence presented at trial, between approximately February 2005 through November 2009, Durham, Cochran and Snow executed a scheme to defraud Fair’s investors by making and causing others to make false and misleading statements about Fair’s financial condition and about the manner in which they were using Fair investor money. The evidence also established that Durham, Cochran and Snow executed the scheme to enrich themselves, to obtain millions of dollars of investors’ funds through false representations and promises and to conceal from the investing public Fair’s true financial condition and the manner in which Fair was using investor money.

 

When Durham and Cochran purchased Fair in 2002, Fair reported debts to investors from the sale of investment certificates of approximately $37 million and income producing assets in the form of finance receivables of approximately $48 million. By November 2009, after Durham and Cochran had owned the company for seven years, Fair’s debts to investors from the sale of investment certificates had grown to more than $200 million, while Fair’s income producing assets consisted only of the loans to Durham and Cochran, their associates and the businesses they owned or controlled.

 

Durham, Cochran and Snow terminated Fair’s independent accountants who, at various points during 2005 and 2006, told the defendants that many of Fair’s loans were impaired or did not have sufficient collateral.  After firing the accountants, the defendants never released audited financial statements for 2005, and never obtained or released audited financial statements for 2006 through September 2009.  With independent accountants no longer auditing Fair’s financial statements, the defendants were able to conceal from investors Fair’s true financial condition.

Evidence introduced at trial showed that the defendants engaged in a variety of other fraudulent activities to conceal from the State of Ohio Division of Securities and from investors Fair’s true financial health and cash flow problems.  Evidence showed that the defendants made false and misleading statements to concerned investors who either had not received principal or interest payments on their certificates from Fair or who were worried about Fair’s financial health.  The defendants also directed employees of Fair not to pay investors who were owed interest or principal payments on their certificates.

 

Even though Fair’s financial condition had deteriorated and Fair was experiencing severe cash flow problems, Durham and Cochran continued to funnel Fair investor money to themselves for their personal expenses, to their family, friends and acquaintances, and to the struggling businesses that they owned or controlled.

 

This case is being prosecuted by Trial Attorney Henry P. Van Dyck and Senior Deputy Chief for Litigation Kathleen McGovern of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Winfield D. Ong and Nicholas E. Surmacz of the Southern District of Indiana. The investigation was led by the FBI in Indianapolis.

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

Two Brooklyn Clinic Employees Plead Guilty in Connection with $71 Million Medicare Fraud Scheme

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Two Brooklyn Clinic Employees Plead Guilty in Connection with $71 Million Medicare Fraud Scheme
Co-Defendant Pleaded Guilty Yesterday for Role in Scheme

11/28/2012

WASHINGTON—Two Brooklyn, New York residents pleaded guilty today for their roles in a $71 million Medicare fraud scheme, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney for the Eastern District of New York Loretta E. Lynch; Acting Assistant Director in Charge Mary E. Galligan of the FBI’s New York Field Office; and Special Agent in Charge Thomas O’Donnell of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG).

Katherina Kostiochenko, 34, pleaded guilty today before U.S. District Judge Nina Gershon in the Eastern District of New York to one count of conspiracy to commit health care fraud, one count of health care fraud, and one count of conspiracy to pay kickbacks. Sergey V. Shelikhov, 51, pleaded guilty today before Judge Gershon to one count of conspiracy to commit health care fraud.

Co-conspirator Leonid Zheleznyakov, 28, pleaded guilty yesterday before Judge Gershon to one count of conspiracy to commit health care fraud for his role in the scheme.

Kostiochenko, Shelikhov, and Zheleznyakov were employees of a clinic in Brooklyn that operated under three corporate names: Bay Medical Care PC, SVS Wellcare Medical PLLC, and SZS Medical Care PLLC (Bay Medical clinic). According to court documents, owners, operators, and employees of the Bay Medical clinic paid cash kickbacks to Medicare beneficiaries and used the beneficiaries’ names to bill Medicare for more than $71 million in services that were medically unnecessary or never provided. The defendants billed Medicare for a wide variety of fraudulent medical services and procedures, including physician office visits, physical therapy, and diagnostic tests.

According to the criminal complaint, the co-conspirators allegedly paid kickbacks to corrupt Medicare beneficiaries in a room at the clinic known as the “kickback room,” in which the conspirators paid approximately 1,000 kickbacks totaling more than $500,000 during a period of approximately six weeks from April to June 2010.

Kostiochenko, Shelikhov, and Zheleznyakov pleaded guilty to conspiring to commit health care fraud for their roles in the Bay Medical scheme. Kostiochenko also pleaded guilty to paying cash kickbacks to Medicare beneficiaries as part of the scheme.

At sentencing, Kostiochenko faces a maximum penalty of 25 years in prison, and Shelikhov and Zheleznyakov both face a maximum penalty of 10 years in prison. Kostiochenko and Zheleznyakov are scheduled for sentencing on March 12, 2013, and Shelikhov is scheduled for sentencing March 13, 2013.

In total, 16 individuals have been charged in the Bay Medical scheme, including two doctors, nine clinic owners/operators/employees, and five external money launderers. To date, 10 defendants have pleaded guilty for their roles in the conspiracy. Six individuals await trial before Judge Gershon on January 22, 2013.

The case is being prosecuted by Trial Attorney Sarah M. Hall of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Shannon Jones of the Eastern District of New York. The case was investigated by the FBI and HHS.

The case 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 for the Eastern District of New York. The Medicare Fraud Strike Force operations are part of the Health Care Fraud Prevention and Enforcement Action Team (HEAT), a joint initiative announced in May 2009 between the Department of Justice and HHS to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged more than 1,480 defendants who have collectively billed the Medicare program for more than $4.8 billion. In addition, HHS’s Centers for Medicare and Medicaid Services, working in conjunction with HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.

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

Los Angeles-Area Doctor Pleads Guilty to Conspiring to Defraud Medicare of Over $11 Million

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FOR IMMEDIATE RELEASE
Monday, November 26, 2012
Los Angeles-Area Doctor Pleads Guilty to Conspiring to Defraud Medicare of Over $11 Million

WASHINGTON— A Los Angeles-area doctor pleaded guilty today to conspiring to defraud Medicare of over $11 million, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney André Birotte Jr. of the Central District of California; Glenn R. Ferry, Special Agent in Charge for the Los Angeles Region of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG); Bill L. Lewis, Assistant Director in Charge of the FBI’s Los Angeles Field Office; and Tony Sidley, Assistant Chief of the California Department of Justice, Bureau of Medi-Cal Fraud and Elder Abuse.

Dr. Juan Tomas Van Putten, 66, of Ladera Heights, Calif., pleaded guilty today before U.S. District Judge George Wu in the Central District of California to one count of conspiracy to commit health care fraud.

Van Putten pleaded guilty to obtaining patients for his medical clinic, Greater South Bay Medical Group, which was located in Carson, Calif., and a nursing home where he also saw patients from street-level patient recruiters or “marketers” who illegally solicited patients with Medicare benefits for expensive, highly-specialized power wheelchairs and other durable medical equipment (DME) that the patients did not need.  According to the indictment to which Van Putten pleaded guilty, some of the marketers worked for the operators of fraudulent DME supply companies, including Van Putten’s co-defendants Charles Agbu, a church pastor, and his daughter Obiageli Agbu, who both operated Bonfee Inc. d/b/a “Bonfee Medical Supplies” and Ibon Inc., which were located in Carson.

Van Putten admitted that operators of fraudulent DME supply companies paid him cash kickbacks to write prescriptions for power wheelchairs and other DME that Van Putten knew the patients did not need.  Van Putten admitted that he exaggerated the symptoms and diagnoses that he wrote on the prescriptions to make it appear as if the patients met both the medical and Medicare requirements for the power wheelchairs and DME.  Van Putten admitted that he knew when he provided the prescriptions to the DME company operators that they would use the prescriptions to submit false claims to Medicare.  Van Putten also admitted that he submitted claims to Medicare for services that he provided to the patients at Greater South Bay and the nursing home even though he knew it was illegal for him to provide services to patients who had been recruited by marketers.

As a result of this scheme, court documents indicate that Van Putten and his co-defendants submitted approximately $11,094,918 in false claims to Medicare and received approximately $5,788,725 on those claims.

Charles Agbu and Obiageli Agbu are scheduled for trial on Feb. 26, 2013, for their alleged roles in the conspiracy.  Co-defendants Dr. Emmanuel Ayodele, Alejandro Maciel and Candalaria Estrada have also been charged for their alleged roles in the conspiracy.

Defendants are presumed innocent until proven guilty at trial.

At sentencing, scheduled for March 28, 2013, Van Putten faces a maximum penalty of 10 years in prison and a $250,000 fine.

The case is being prosecuted by Trial Attorney Jonathan T. Baum of the Criminal Division’s Fraud Section.  The case is being investigated by the FBI, HHS-OIG, the California Department of Justice and the Internal Revenue Service.

The case 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 for the Central District of California.  The Medicare Fraud Strike Force operations are part of the Health Care Fraud Prevention & Enforcement Action Team (HEAT), a joint initiative announced in May 2009 between the Department of Justice and HHS to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged more than 1,480 defendants who have collectively billed the Medicare program for more than $4.8 billion.  In addition, HHS’s Centers for Medicare and Medicaid Services, working in conjunction with HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.