Tag Archives: fraud

Owner of Detroit Home Health Care Companies Sentenced to 80 Months in Prison for Role in $12.6 Million Fraud Scheme

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A Michigan resident was sentenced to 80 months in prison late yesterday for his leading role in a $12.6 million Medicare fraud and tax fraud scheme.  Eleven other individuals have been convicted in this case.

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

Mohammed Sadiq, 67, of Oakland County, Michigan, pleaded guilty on March 13, 2015, to one count of health care fraud and one count of filing a false tax return.  In addition to imposing the prison term, U.S. District Judge Denise Page Hood of the Eastern District of Michigan ordered Sadiq to pay $14.1 million in restitution and entered a forfeiture judgment for the same amount, which represents the proceeds traceable to his criminal conduct.

Sadiq owned and directed operations at two home health care companies in Detroit.  In connection with his guilty plea, Sadiq admitted that, working with co-conspirators, he billed Medicare for home health services that were not provided.  Sadiq also admitted to paying kickbacks to patient recruiters in order to obtain the information of Medicare beneficiaries, which he then used to bill Medicare for services that were not medically necessary or were not provided at all.  Sadiq further admitted that he created fake patient files to fool a Medicare auditor by making it appear as if home health services were provided and medically necessary.  Medicare paid $12.6 million for these services.

In connection with his guilty plea, Sadiq also admitted that he received proceeds of the fraud through bank accounts that he controlled, that he withdrew substantial sums for his personal use and that he failed to report these amounts on his individual federal income tax return in 2008.  In total, Sadiq admitted that he owes approximately $1.5 million in taxes, interest and penalties for tax years 2008 through 2010.

This case was investigated by the FBI, HHS-OIG and IRS-CI, and was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office of the Eastern District of Michigan.  The case is being prosecuted by Trial Attorneys William Kanellis, Christopher Cestaro, Brooke Harper and Elizabeth Young of the Criminal Division’s Fraud Section, as well as Assistant U.S. Attorney Patrick Hurford of the Eastern District of Michigan.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged nearly 2,300 defendants who have collectively billed the Medicare program for more than $7 billion.  In addition, HHS’ Centers for Medicare & Medicaid Services, working in conjunction with HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.

Investment Company Executives Indicted for $1.5 Billion Ponzi Scheme

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The president and chief executive officer and two former Asia-based executives of a Las Vegas investment company were indicted today for their roles in an alleged $1.5 billion Ponzi scheme.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Daniel G. Bogden of the District of Nevada and Special Agent in Charge Laura A. Bucheit of the FBI’s Las Vegas Division made the announcement.

“The defendants allegedly preyed on thousands of unsuspecting Japanese victims to enrich themselves by operating a billion-plus dollar Ponzi scheme,” said Assistant Attorney General Caldwell.  “This prosecution shows that the Criminal Division will pursue not only those who victimize American citizens, but also those who use the U.S. as a home base to defraud victims abroad.”

“Investment fraud and other financial fraud cases are a high priority for the U.S. Attorney’s Office in Nevada,” said U.S. Attorney Bogden.  “These defendants are accused of using a Nevada corporation to conduct their $1.5 billion fraud scheme and falsely telling thousands of overseas victims that their investments would be safely held and managed by an independent, third-party escrow agent in Nevada.  Fraudulent ruses and schemes perpetrated by Nevadans using Nevada corporations and entities will continue to be addressed by this office.”

“These indictments are a reminder of the FBI’s determination to identify, investigate and bring to justice those who are committing financial crimes against innocent consumers,” said Special Agent in Charge Bucheit.  “We are appreciative of the continued support we receive from our international, federal, state and local law enforcement partners.”

Edwin Fujinaga, 68, of Las Vegas; Junzo Suzuki, 66, of Tokyo; and Paul Suzuki, 36, of Tokyo, were charged in an indictment with eight counts of mail fraud and nine counts of wire fraud.  Fujinaga also is charged with three counts of money laundering.  The indictment seeks from all three defendants forfeiture of the proceeds from the alleged crimes.

Fujinaga was the president and CEO of Las Vegas-based MRI International Inc. (MRI).  Junzo Suzuki previously was MRI’s executive vice president for Asia Pacific, and Paul Suzuki previously was the company’s general manager for Japan operations.  MRI purportedly specialized in “factoring,” whereby the company purchased accounts receivable from medical providers at a discount, and then attempted to recover the entire amount, or at least more than the discounted amount, from the debtor.

According to allegations in the indictment, from at least 2009 to 2013, Fujinaga and the Suzukis fraudulently solicited investments from thousands of Japanese residents, and MRI currently owes investors over $1.5 billion.  Specifically, the indictment alleges that Fujinaga and the Suzukis promised investors a series of interest payments that would accrue over the life of the investment and that would be paid out along with the face value of the investment at the conclusion of the investments’ duration.  The defendants allegedly solicited investments by, among other things, promising investors that their investments would be used only for the purchase of medical accounts receivable (MARS) and by representing that investors funds would be managed and safeguarded by an independent third-party escrow company.

The indictment further alleges that MRI operated as a Ponzi scheme, wherein the defendants used new investors’ money to pay prior investors’ maturing investments.  According to the indictment, the defendants also allegedly used investors’ funds for purposes other than the purchase of MARS, including paying themselves sales commissions, subsidizing gambling habits, funding personal travel by private jet, and other personal expenses.

The charges contained in an indictment are merely accusations.  A defendant is presumed innocent until and unless proven guilty.

This case is being investigated by the FBI’s Las Vegas Division.  Significant assistance was provided by the U.S. Securities and Exchange Commission, the Criminal Division’s Office of International Affairs and Japanese authorities.  This case is being prosecuted by Assistant Chief Albert B. Stieglitz Jr. and Trial Attorney Melissa Aoyagi of the Criminal Division’s Fraud Section and First Assistant U.S. Attorney Steven W. Myhre of the District of Nevada.

If you believe you are a victim of this offense, please click on the following link for more information: justice.gov/usao-nv/united-states-v-edwin-fujinaga-junzo-suzuki-and-paul-suzuki-mri.

 

Former Owner of Medical Equipment Supply Company Sentenced for $3.5 Million Medicare and Medi-Cal Fraud Scheme

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The former owner of Ezcor Medical Supply was sentenced today to serve 97 months in prison for her role in a fraud scheme that resulted in $3.5 million in fraudulent claims to Medicare and Medi-Cal.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Eileen M. Deckerof the Central District of California, Special Agent in Charge Glenn R. Ferry of the U.S. Department of Health and Human Services, Office of Inspector General’s (HHS-OIG) Los Angeles Region, Assistant Director in Charge David Bowdich of the FBI’s Los Angeles Division and Special Agent in Charge Joseph Fendrick of the California Department of Justice’s Bureau of Medi-Cal Fraud and Elder Abuse made the announcement.

Sylvia Walter-Eze, 48, of Stevenson Ranch, California, was found guilty by a federal jury on March 20, 2015, of conspiracy to commit health care fraud, four counts of health care fraud, and one count of conspiracy to pay illegal health care kickbacks.  In addition to imposing the term of imprisonment, U.S District Judge R. Gary Klausner ordered Walter-Eze to pay restitution in the amounts of $1,866,260 to Medicare and $73,268 to Medi-Cal.

The evidence presented at trial showed that Walter-Eze, the former owner of Ezcor, a durable medical equipment (DME) supply company located in Valencia, California, fraudulently billed more than $3.5 million to Medicare and Medi-Cal for DME that was not medically necessary.  The trial evidence also demonstrated that Walter-Eze paid illegal kickbacks to patient recruiters in exchange for patient referrals.  The evidence further showed that Walter-Eze paid kickbacks to physicians for fraudulent prescriptions for medically unnecessary, and expensive, power wheelchairs, which prescriptions Walter-Eze then used to support her fraudulent claims to Medicare and Medi-Cal.  The evidence showed that, between 2007 and 2012, Walter-Eze submitted $3,521,786 in fraudulent claims to Medicare and Medi-Cal, and that she received $1,939,529 in reimbursement for those claims.

The case was investigated by the FBI, HHS-OIG’s Los Angeles Regional Office and the California Department of Justice, and was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office of the Central District of California.  The case was prosecuted by Trial Attorneys Blanca Quintero and Alexander F. Porter 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 over 2,300 defendants who collectively have billed the Medicare program for over $7 billion.  In addition, the HHS Centers for Medicare & Medicaid Services, working in conjunction with the HHS-OIG, are taking steps to increase accountability and decrease the presence of fraudulent providers.

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

New York Tax Return Preparer Pleads Guilty to Preparing False Tax Returns

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A Staten Island, New York, tax return preparer and business owner pleaded guilty today in U.S. District Court in the Eastern District of New York to preparing false federal income tax returns, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division.

According to court documents and statements, Alabi Gbangbala, 51, was the operator of Broadfield, a tax return preparation business located in Staten Island.  For tax years 2008 and 2009, Gbangbala prepared false individual income tax returns for Broadfield clients by, among other things, falsifying self-employment business receipts and losses on Schedules C and inflating or fabricating charitable contributions and unreimbursed employee expenses on Schedule A.  Gbangbala was responsible for filing false tax returns on behalf of his clients that resulted in at least a $178,000 tax loss to the U.S. Treasury. Gbangbala also filed false personal individual income tax returns for tax years 2008 through 2010, in which he failed to report his total income for each calendar year.

Gbangbala faces a statutory maximum sentence of three years in prison and a fine of $250,000 for one count of aiding and assisting the preparation of a false return at his Sept. 24 sentencing.

Acting Assistant Attorney General Ciraolo commended the special agents of IRS-Criminal Investigation, who investigated the case, and Trial Attorneys Christopher O’Donnell and Mark McDonald of the Tax Division, who are prosecuting the case.  Ciraolo also thanked the U.S. Attorney’s Office of the Eastern District of New York for their assistance.

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

Alabama Woman Pleads Guilty for Involvement in Stolen Identity Refund Fraud Ring

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A Phenix City, Alabama, resident pleaded guilty today in the Middle District of Alabama for her role in a stolen identity refund fraud (SIRF) scheme, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney George L. Beck Jr. of the Middle District of Alabama.

According to court documents, between March 2011 and May 2014, Teresa Floyd conspired with her daughter, Lasondra Miles Davis, and others to defraud the United States by filing false federal income tax returns using stolen identities.  Miles Davis obtained the means of identification of individuals without their authorization and provided the stolen identities to Floyd.  Floyd and her co-conspirators obtained Electronic Filing Identification Numbers (EFINs) from the Internal Revenue Service (IRS) in the names of tax preparation businesses, which Floyd then used to file false tax returns with the stolen identities.  All of the false returns included fraudulent claims for tax refunds.  Floyd, Miles Davis and others cashed the refund checks at several companies in Alabama and Georgia, and Floyd deposited refund checks into her bank account.

Floyd faces a mandatory statutory sentence of two years in prison for the aggravated identity theft count and an additional statutory maximum sentence of 10 years in prison for the conspiracy count.  Both counts include a statutory maximum fine of $250,000.  Miles Davis pleaded guilty on April 10 to one count of aggravated identity theft and is scheduled to be sentenced on Aug. 12.

Acting Assistant Attorney General Ciraolo and U.S. Attorney Beck commended special agents of IRS-Criminal Investigation, who investigated the case, and Trial Attorneys Michael C. Boteler and Michael P. Hatzimichalis of the Tax Division and Assistant U.S. Attorney Jonathan Ross of the Middle District of Alabama, who are prosecuting the case.

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

Former President of Riverside General Hospital Sentenced to 45 Years in Prison in $158 Million Medicare Fraud Scheme

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The former president of a Houston hospital, his son and a co-conspirator were sentenced today to 45 years, 20 years and 12 years in prison, respectively, for their roles in a $158 million Medicare fraud scheme.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Kenneth Magidson of the Southern District of Texas, Special Agent in Charge Perrye K. Turner of the FBI’s Houston Field Office, Special Agent in Charge Lucy R. Cruz of the Internal Revenue Service Criminal Investigation’s (IRS-CI) Houston Field Office, the Texas Attorney General’s Medicaid Fraud Control Unit (MFCU), Special Agent in Charge Mike Fields of the U.S. Department of Health & Human Services-Office of the Inspector General (HHS-OIG) Dallas Regional Office, Special Agent in Charge Joseph J. Del Favero of the Railroad Retirement Board-Office of Inspector General (RRB-OIG) and Inspector General Patrick E. McFarland of the Office of Personnel Management-Office of Inspector General (OPM-OIG) made the announcement.

“The former President of Houston’s Riverside hospital, his son and their co-conspirators saw mentally ill, elderly and disabled Medicare beneficiaries as commodities to be turned into profit centers – not as vulnerable individuals in need of health care,” said Assistant Attorney General Caldwell.  “Rather than providing needed medical care to a historically underserved community, the defendants ran a longstanding hospital into the ground through their greed and fraud.  According to the evidence presented at trial, the defendants had patients sit around the facility watching movies while they received no treatment.  Meanwhile, the defendants billed Medicare more than $158 million for care that was never provided.  This brazen fraud cannot and will not be tolerated.”

Earnest Gibson III, 70, the former president of Riverside General Hospital, Earnest Gibson IV, 37, the operator of Devotions Care Solutions, a satellite psychiatric facility of Riverside General Hospital, and Regina Askew, 50, the owner of Safe and Sound group home, were sentenced by U.S. District Judge Lee H. Rosenthal of the Southern District of Texas.  In addition to the significant terms of imprisonment, Earnest Gibson III was ordered to pay restitution in the amount of $46,753,180, Earnest Gibson IV was ordered to pay restitution in the amount of $7,518,480, and Regina Askew was ordered to pay restitution in the amount of $46,255,893.

Following a five-week jury trial, on Oct. 20, 2014, Earnest Gibson III, Earnest Gibson IV and Regina Askew each were convicted of conspiracy to commit health care fraud, conspiracy to pay and receive kickbacks, as well as related counts of paying or receiving illegal kickbacks.  Earnest Gibson III and Earnest Gibson IV also were convicted of conspiracy to commit money laundering.  Co-defendant Robert Crane, a patient recruiter, also was convicted of conspiracy to pay and receive kickbacks, and is scheduled to be sentenced on Dec. 9, 2015.

According to evidence presented at trial, from 2005 until June 2012, the defendants and others engaged in a scheme to defraud Medicare by submitting to Medicare, through Riverside and its satellite locations, approximately $158 million in false and fraudulent claims for partial hospitalization program (PHP) services.  A PHP is a form of intensive outpatient treatment for severe mental illness.

Specifically, evidence at trial demonstrated that the Medicare beneficiaries for whom the hospital billed Medicare did not qualify for or need PHP services.  Moreover, the evidence showed that Medicare beneficiaries rarely saw a psychiatrist and did not receive intensive psychiatric treatment.  In fact, some of the beneficiaries were suffering from Alzheimer’s and could not actively participate in the treatment for which Medicare was billed.

Evidence presented at trial also showed that Earnest Gibson III paid kickbacks to patient recruiters and to owners and operators of group care homes, including Regina Askew, in exchange for which those individuals delivered ineligible Medicare beneficiaries to the hospital’s PHPs.  Earnest Gibson IV also paid patient recruiters, including Robert Crane and others, to deliver ineligible Medicare beneficiaries to the specific PHP operated by Earnest Gibson IV.

To date, six other individuals either have pleaded guilty based on their involvement in the scheme.  Mohammad Khan, an assistant administrator at Riverside, who managed many of the hospital’s PHPs, pleaded guilty to conspiracy to commit health care fraud, conspiracy to defraud the United States and to pay illegal kickbacks, and five counts of paying illegal kickbacks; on May 21, 2015, Mohammad Khan was sentenced by U.S. District Judge Sim Lake of the Southern District of Texas to 40 years in prison for his role in the scheme.  William Bullock, an operator of a Riverside satellite location, as well as Leslie Clark, Robert Ferguson, Waddie McDuffie and Sharonda Holmes, who were involved in paying or receiving kickbacks, also have pleaded guilty to participating in the scheme and await sentencing.

The case was investigated by the FBI, IRS-CI, Texas MFCU, HHS-OIG, RRB-OIG and OPM-OIG.  The case 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 Southern District of Texas.  The case is being prosecuted by Assistant Chiefs Laura M.K. Cordova and Jennifer L. Saulino and Trial Attorney Ashlee C. McFarlane 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 collectively have 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.

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

Three People Arrested in Puerto Rico in a Contractor Major Scheme to Defraud the U.S. Department Of Veterans Affairs

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On June 3, 2015, a federal grand jury in the District of Puerto Rico returned a five count indictment charging Jose A. Rosa-Colon, his brother and business partner, Ivan Rosa-Colon and Louis Enrique Torres with a multi-million dollar Service-Disabled Veteran-Owned Small Business (SDVOSB) scheme to defraud the U.S. Department of Veteran Affairs.  The charges include major fraud against the United States and wire fraud.  This investigation was conducted by Special Agents from the U.S. Department of Veteran Affairs, Office of Inspector General, Criminal Investigations Division.

The indictment unsealed in federal court today alleges that from on or about 2007 to 2014, Ivan Rosa-Colon, Jose Rosa-Colon and Torres conspired to use Jose Rosa-Colon’s service-disabled veteran status to create BELKRO General Contractors, which was a pass- through or front company for Ivan Rosa-Colon’s other business, IRC Air Contractors.

The indictment alleges that Ivan Rosa-Colon and Louis Torres used Jose Rosa-Colon’s service-disabled veteran status to certify and register BELKRO General Contractors in various government databases as a SDVOSB after Ivan Rosa- Colon learned that President George W. Bush would be signing a government stimulus package encouraging the use of SDVOSB.  The stimulus package would allow for government agencies to award non-competitive, set-aside or sole-source government contracts to SDVOSB like BELKRO General Contractors.

The indictment further alleges that Jose Rosa-Colon, owner of BELKRO General Contractors, was employed as a full-time U.S. Postal Service Carrier; he was not in charge of the day to day operations of BELKRO General Contractors.  Jose Rosa-Colon was simply a figurehead or “rent-a-vet”, who was being used for his service-disabled veteran status to obtain contracts for his brother Ivan Rosa-Colon’s company.  As a result of the scheme, BELKRO General Contractors unlawfully received set-aside and/or sole-source SDVOSB contracts from the U.S. Department of Veterans Affairs, including contracts involving American Recovery and Reinvestment Act (ARRA) funds.

If convicted, they face a term of 20 years in prison as to each wire fraud charge and up to ten years in prison for the charges of major fraud against the United States.  Additionally, they face fines of up to $250,000 and up to three years of supervised release as to each count.

This indictment was announced today by U.S. Attorney Rosa Emilia Rodríguez-Vélez for the District of Puerto Rico, Special Agent in Charge Monty Stokes for the Southeast Field Office, Department of Veterans Affairs, Office of Inspector General, Criminal Investigations Division and Acting Special Agent in Charge Sharon Johnson for the Eastern Regional Office, Small Business Administration, Office of Inspector General.  The government is represented by Assistant U.S. Attorney Julia Diaz-Rex.

Members of the public are reminded that an indictment constitutes only charges and that every person is presumed innocent until their guilt has been proven beyond a reasonable doubt.

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.

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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