GeyerGorey LLP is pleased to announce that two veteran Department of Justice prosecutors, Allen P. Grunes and Maurice E. Stucke, have joined the firm. Grunes, recently named as a “Washington D.C. Super Lawyer for 2013” in antitrust litigation, government relations, and mergers & acquisitions, joins as a partner. Stucke, a widely-published professor with numerous honors including a Fulbright fellowship, joins as of counsel. Stucke will continue to teach at the University of Tennessee College of Law.
“We are delighted that Allen and Maurice have decided to join us,” said Brad Geyer. “They add considerable fire power to our already impressive antitrust, compliance and white collar roster and give us more capabilities and capacity, particularly on the civil side.”
Robert Zastrow, who was Verizon’s Assistant General Counsel for 15 years before co-founding the firm in October 2012, added, “Allen’s and Maurice’s extensive background and expertise nicely complement our firm’s unique philosophy and enrich our competition and merger practices. We are thrilled they are joining our innovative effort in delivering legal services.”
GeyerGorey LLP presents a new way to practice law. It may be the only law firm in the country where prior federal prosecutorial experience is a prerequisite for partnership. Given its lawyers’ extensive legal expertise, GeyerGorey can handle trials involving the most complex legal and factual issues, and, when advantageous, work with other law firms, economists and specialists, particularly former federal prosecutors and agents, who bolster existing resources, expertise and constantly freshen perspective. As founding partner Hays Gorey added, “We seek to avoid the traditional hierarchal partner-associate pyramid, hourly billing fee structure, and practice fiefdoms. We want to attract entrepreneurial lawyers, like Allen and Maurice, who love competition policy and practicing law. Having worked with them at DOJ, I am excited about the expertise and enthusiasm they bring to our clients.”
Consistent with GeyerGorey’s philosophy, both Grunes and Stucke are alumni of the U.S. Department of Justice, Antitrust Division, in Washington, D.C. At DOJ, they led numerous civil investigations, worked on high-profile trials, and negotiated consent decrees involving significant divestitures across many different industries. In their last case together at the Division, In re Visa Check/MasterMoney Antitrust Litigation, they successfully sought, as a matter of equity and the first time in the Division’s history, for the government’s share of damages in a private class action settlement.
Grunes and Stucke are regarded as leading authorities on competition policy in the media. Their scholarship on media and telecommunications policy has been published in the Antitrust Law Journal, the Northwestern University Law Review, the Connecticut Law Review, the Journal of European Competition Law & Practice, and the Federal Communications Law Journal. They have spoken at numerous conferences on competition policy and the media, including the U.S. Federal Trade Commission’s workshop, How Will Journalism Survive the Internet Age? Both are frequently quoted in the press on mergers and anticompetitive conduct. In addition, both serve on the advisory boards of the American Antitrust Institute and the Loyola Institute for Consumer Antitrust Studies in Chicago.
Allen Grunes joins GeyerGorey from another Washington, D.C. firm, where he was a shareholder. His recent matters include acting as class counsel in litigation against several hospitals and an association in Arizona that allegedly artificially depressed the rates paid to temporary nurses, opposing the merger of AT&T and T-Mobile for a coalition of companies including DISH Network, and representing Warner Music Group in connection with the merger of Universal and EMI. He has counseled dozens of companies and associations on antitrust issues and corporate mergers. He also serves as chair of the antitrust committee of the Bar Association of the District of Columbia.
Maurice Stucke is a tenured professor at the University of Tennessee and a leading competition law scholar. With over 30 articles and book chapters, Stucke has been invited by competition authorities from around the world and the OECD to speak about behavioral economics and competition policy. He currently is one of the United States’ non-governmental advisors to the International Competition Network, the only international body devoted exclusively to competition law enforcement. His scholarship has been cited by the U.S. federal courts, the OECD, competition agencies and policymakers.
Headquartered in Washington, D.C., GeyerGorey specializes in white collar criminal defense, particularly investigations and cases involving allegations of economic crimes, such as violations of the federal antitrust laws (price fixing, bid rigging, territorial and customer allocation agreements), procurement fraud, securities fraud, foreign bribery (Foreign Corrupt Practices Act) and qui tam (False Claims Act) and whistleblower actions. The firm also conducts internal investigations of possible criminal conduct and provides advice regarding compliance with U.S. antitrust and other laws.
Mitchell D. Potts, 48, and Jeffrey S. Philpot, 35, both of Sylvester, Ga., each pleaded guilty today before U.S. District Judge W. Louis Sands in the Middle District of Georgia to one count of bribery of a public official.
During their guilty pleas, Potts, the former Traffic Office Supervisor for the Defense Logistics Agency (DLA) at MCLB-Albany, and Philpot, the former Lead Transportation Assistant in the Traffic Office, admitted to participating in a scheme whereby Potts and Philpot assisted Person A, the owner of several local commercial trucking companies, in obtaining trucking business from the DLA in exchange for the payment of cash and other things of value. Both defendants admitted that they took a variety of steps designed to push business to Person A and his companies, including: 1) delaying shipments for a period of hours or days, thereby reducing the time available to fulfill the shipping request and assuring that it would be awarded to a local trucking company, usually one owned by Person A; 2) “short loading” shipments awarded to Person A’s companies so that it would appear to require more trucks than necessary to move the subject freight, resulting in additional loads being awarded to Person A’s companies; 3) indicating that removable gooseneck (RGN) trailers were required for shipments, which resulted in many loads being directed to Person A’s companies because they always had RGNs available; and 4) creating “ghost shipments” where Person A billed the DLA for shipments that were never made. Both Potts and Philpot admitted that their actions led to millions of dollars of overcharges to the government.
Potts and Philpot admitted that they received cash payments from Person A when he visited the traffic office, sometimes multiple times per week. They also admitted receiving lunches provided by Person A several times a week during the relevant period and that they also received gift cards and other things of value. Potts admitted receiving approximately $209,000 in kickbacks from Person A during the roughly three-year scheme. Philpot admitted receiving approximately $523,000 in cash and other things of value from Person A during the same period.
At sentencing, Potts and Philpot each face a maximum penalty of 15 years in prison and a fine of not more than twice the pecuniary loss to the government. As part of their plea agreements with the United States, both Potts and Philpot have agreed to forfeit the bribe proceeds they received from the scheme, as well as to pay full restitution to the Department of Defense. Sentencing is scheduled for Aug. 15, 2013.
The case is being investigated by the Naval Criminal Investigative Service, with assistance from the Dougherty County District Attorney’s Office Economic Crime Unit, the Defense Criminal Investigative Service, and the Defense Logistics Agency Office of the Inspector General. The case is being prosecuted by Trial Attorneys Richard B. Evans and J.P. Cooney of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney K. Alan Dasher of the Middle District of Georgia.
Two employees of a U.S. broker-dealer and a senior official in Venezuela’s state economic development bank have been charged in New York’s federal court for their alleged roles in a massive international bribery scheme.
Mythili Raman, Acting Assistant Attorney General for the Justice Department’s Criminal Division; Preet Bharara, the U.S. Attorney for the Southern District of New York; and George Venizelos, the Assistant Director-in-Charge of the New York Office of the FBI, made the announcement.
According to the criminal complaint unsealed today, Tomas Alberto Clarke Bethancourt (Clarke) and Jose Alejandro Hurtado – who were both employees of a U.S. broker-dealer (Broker-Dealer) – and Maria de los Angeles Gonzalez de Hernandez (Gonzalez) – who is a senior official in Venezuela’s state economic development bank, Banco de Desarrollo Económico y Social de Venezuela (BANDES) – are accused of conspiring to pay bribes to Gonzalez in exchange for her directing BANDES’s financial trading business to the Broker-Dealer. Gonzalez, 54, a resident of Caracas, Venezuela, was arrested in Miami on May 3, 2013. Clarke, 43, and Hurtado, 38, were also arrested Friday in Miami, where they reside. All three defendants were presented yesterday in federal court in Miami and remain in custody.
“Today’s announcement is a wake-up call to anyone in the financial services industry who thinks bribery is the way to get ahead,” said Acting Assistant Attorney General Raman. “The defendants in this case allegedly paid huge bribes so that foreign business would flow to their firm. Their return on investment now comes in the form of criminal charges carrying the prospect of prison time. We will not stand by while brokers or others try rig the system to line their pockets, and will continue to vigorously enforce the FCPA and money laundering statutes across all industries.”
“The defendants’ arrests lay bare a web of bribery and corruption in which employees of a U.S. broker-dealer allegedly generated tens of millions of dollars through transactions in order to fund kickbacks to a Venezuelan government official in exchange for her directing the Venezuelan economic development bank’s financial trading business to their employer,” said U.S. Attorney Bharara. “As alleged, the defendants also engaged in international money laundering to carry out their corrupt scheme. This Office, along with all of our federal partners, is committed to holding individuals who violate the Foreign Corrupt Practices Act to account.”
“As alleged, the defendants conspired to use Venezuela’s economic development bank as their personal piggy bank,” said FBI Assistant Director-in-Charge Venizelos. “Clarke and Hurtado reaped huge commissions from their trading of the bank’s assets, and kicked back significant sums to Gonzalez. The brazenness of the alleged scheme was exemplified in their buying bank bonds and selling them back on the same day.”
In a separate action, the U.S. Securities and Exchange Commission (SEC) announced
civil charges against Clarke, Hurtado, and two others.
According to the allegations in the criminal complaint unsealed today, the forfeiture complaint, and other documents filed in Manhattan federal court, Clarke and Hurtado worked or were associated with the Broker-Dealer, based in New York City, principally through its Miami offices. In 2008, the Broker-Dealer established a group called the Global Markets Group, which included Clarke and later Hurtado, and which offered fixed income trading services to institutional clients. One of the Broker-Dealer’s clients was BANDES. Gonzalez was an official at BANDES and oversaw the development bank’s overseas trading activity. At her direction, BANDES conducted substantial trading through the Broker-Dealer. Most of the trades executed by the Broker-Dealer on behalf of BANDES involved fixed income investments for which the Broker-Dealer charged the bank a mark-up on purchases and a mark-down on sales.
From April 2009 through June 2010, Clarke, Hurtado, and Gonzalez participated in a bribery scheme in which Gonzalez directed trading business she controlled at BANDES to the Broker-Dealer, and in return, agents and employees of the Broker-Dealer split the revenue the Broker-Dealer generated from this trading business with Gonzalez. During this time period, the Broker-Dealer generated over $60 million in mark-ups and mark-downs from trades with BANDES. Agents and employees of the Broker-Dealer, including Clarke and Hurtado, devised a split with Gonzalez of the commissions paid by BANDES to the Broker-Dealer. Emails, account records, and other documents collected from the Broker-Dealer and other sources reveal that Gonzalez received a substantial share of the revenue generated by the Broker-Dealer for BANDES -related trades. Specifically, Gonzalez received monthly kickbacks from Broker-Dealer agents and employees that were frequently in six-figure amounts.
Some of the trades the Broker-Dealer executed for BANDES had no discernible business purpose. For instance, in January 2010, the Broker-Dealer executed at least two round-trip trades between itself and BANDES for the same bonds on the same day. In other words, the Broker-Dealer bought certain bonds from BANDES and then immediately sold those same bonds back to the bank. The result of the trades was that BANDES was left with the same bond holdings as before the trades, except that it had paid the Broker-Dealer approximately $10.5 million in mark-ups in the course of the two round-trip transactions.
Certain payments to Gonzalez directly from Hurtado and an entity controlled by Clarke totaled at least $3.6 million. When added together with other payments referenced in the Complaint, Gonzalez received a total of at least $5 million.
To further conceal the scheme, the kickbacks to Gonzalez were often paid using intermediary corporations and offshore accounts that she held in Switzerland, among other places. For instance, Clarke used an account he controlled in Switzerland to transfer funds to an account Gonzalez controlled in Switzerland. Gonzalez then transferred some of this money to an account she held in the United States. Additionally, Hurtado and his spouse received substantial compensation from the Broker-Dealer, portions of which Hurtado transferred to an account held by Gonzalez in Miami and to an account held by an associate of Gonzalez in Switzerland. Hurtado also sought and received reimbursement from Gonzalez for the payment of U.S. income taxes related to the money that he used to make kickback payments to Gonzalez.
In addition to the criminal complaint, on May 6, 2013, the government filed a civil forfeiture action in Manhattan federal court, seeking the forfeiture of assets held in a number of bank accounts associated with the scheme, including several bank accounts located in Switzerland. The forfeiture complaint also seeks the forfeiture of several properties in the Miami area related to Hurtado that were purchased with his proceeds from the scheme. As set forth in the forfeiture complaint, in addition to Gonzalez, another BANDES official, identified as CC-1 in the forfeiture complaint, also received kickback payments as part of the scheme. Also on May 6, 2013, the Court issued seizure warrants for multiple bank accounts and a restraining order relating to the Miami properties.
This ongoing investigation is being conducted by the FBI, with assistance from the SEC and the Justice Department’s Office of International Affairs. Assistant Chief James Koukios and Trial Attorneys Maria Gonzalez Calvet and Aisling O’Shea of the Criminal Division’s Fraud Section and Assistant United States Attorneys Harry A. Chernoff and Jason H. Cowley of the Southern District of New York’s Securities and Commodities Fraud Task Force are in charge of the prosecution. Assistant United States Attorney Carolina Fornos is also responsible for the forfeiture aspects of the case.
Additional information about the Justice Department’s FCPA enforcement efforts can be
found at www.justice.gov/criminal/fraud/fcpa.
The charges contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
Alina Feas, 53, of Miami, pleaded guilty before U.S. District Judge Cecilia M. Altonaga in the Southern District of Florida to one count of conspiracy to commit health care fraud and one substantive count of health care fraud.
During the course of the conspiracy, Feas was employed as a therapist and clinical director of HCSN’s Partial Hospitalization Program (PHP). A PHP is a form of intensive treatment for severe mental illness. HCSN operated two community mental health centers in Florida and one community mental health center in North Carolina.
In her capacity as clinical director, Feas oversaw the entire clinical program and supervised therapists and other personnel at HCSN in Florida (HCSN-FL). Feas also conducted group therapy sessions when therapists were absent.
According to court documents, Feas was aware that HCSN-FL paid illegal kickbacks to owners and operators of assisted living facilities (ALF) in Miami-Dade County in exchange for patient referral information to be used to submit false and fraudulent claims to Medicare and Medicaid. Feas knew that many of the ALF referral patients were ineligible for PHP services because they suffered from either mental retardation, dementia or Alzheimer’s disease, which are not effectively treated by PHP services.
Court documents reveal that Feas submitted claims to Medicare for individual therapy she purportedly provided to HCSN-FL patients using her personal Medicare provider number, knowing that HCSN-FL was simultaneously billing the same patients for PHP services. Feas continued to bill Medicare under her personal provider number while HCSN in North Carolina (HCSN-NC) simultaneously submitted false and fraudulent PHP claims.
Feas was aware that HCSN-FL personnel were fabricating patient medical records, according to court documents. Many of these medical records were created weeks or months after the patients were admitted to HCSN-FL for purported PHP treatment and were utilized to support false and fraudulent billing to government sponsored health care benefit programs, including Medicare and Florida Medicaid. During her employment at HCSN-FL, Feas signed fabricated PHP therapy notes and other medical records used to support false claims to government sponsored health care programs.
At HCSN-NC, Feas was aware that her co-conspirators were fabricating medical records to support the fraudulent claims she was causing to be submitted to Medicare. Feas was aware that a majority of the fabricated notes were created at the HCSN-FL facility for patients admitted to HCSN-NC. In some instances, Feas signed therapy notes and other medical records even though she never provided services at HCSN-NC.
According to court documents, from 2004 through 2011, HCSN billed Medicare and the Florida Medicaid program approximately $63 million for purported mental health services.
Fifteen defendants have been charged for their alleged roles in the HCSN health care fraud scheme, and 13 defendants have pleaded guilty. On April 25, 2013, Wondera Eason was convicted, following a five-day jury trial, on one count of conspiracy to commit health care fraud for her role in the scheme at HCSN. Alleged co-conspirator Lisset Palmero is scheduled for trial on June 3, 2013. Defendants are presumed innocent until proven guilty at trial.
This case was prosecuted by Trial Attorney Allan J. Medina and former Special Trial Attorney William J. Parente. This case is being investigated by the FBI and HHS-OIG 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 for the Southern District of Florida.
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.
Heidi Haischer, 44, was sentenced by U.S. District Judge Miranda M. Du in the District of Nevada. In addition to her prison term, Haischer was sentenced to serve three years of supervised release.
In November 2012, after a four-day trial, a federal jury in Las Vegas found Haischer guilty of one count of wire fraud and one count of conspiracy to commit wire fraud for submitting fraudulent loan documents to purchase two homes.
According to court documents and evidence presented at trial, Haischer participated in a mortgage fraud scheme while employed as a mortgage broker in Nevada. From December 2006 to January 2007, Haischer and her co-conspirators fraudulently secured loans totaling over $1 million to obtain properties with the intent to flip and sell them for profit. Evidence at trial showed that Haischer and her co-conspirators subsequently enriched themselves by collecting brokerage commissions generated by the sales of the properties.
The court documents and trial evidence demonstrated that Haischer submitted multiple loan applications in which she overstated her income, submitted false verification of employment and misrepresented her intent to reside in one of the properties as her primary residence. Additionally, Haischer presented inflated bank account balances supported by forged bank statements to make it appear that she had assets she did not have, in order to help qualify for mortgage loans for which she otherwise would not have been eligible.
Co-conspirator Kelly Nunes was convicted in a related case in Las Vegas on Feb. 2, 2012, of one count of bank fraud and one count of conspiracy to commit wire and bank fraud. On July 11, 2012, Nunes was sentenced to 51 months in prison.
This case was investigated by the FBI. Trial Attorneys Thomas B.W. Hall and Brian R. Young of the Criminal Division’s Fraud Section prosecuted the case, with assistance from the U.S. Attorney’s Office for the District of Nevada.
This case was a result of efforts 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.
Manuel Lozano, 65, was sentenced by U.S. District Judge Joan A. Lenard in the Southern District of Florida. In addition to his prison term, Lozano was sentenced to serve two years of supervised release and ordered to pay $1,851,000 in restitution, jointly and severally with co-conspirators.
In February 2013, Lozano pleaded guilty to one count of conspiracy to receive health care kickbacks.
According to court documents, Lozano was a patient recruiter who worked for Serendipity Home Health, a Miami home health care agency that purported to provide home health and therapy services to Medicare beneficiaries.
According to court documents, from approximately April 2007 through March 2009, Lozano recruited patients for Serendipity, and in doing so he solicited and received kickbacks and bribes from the owners and operators of Serendipity in return for allowing the company to bill the Medicare program on behalf of the patients he recruited. These Medicare beneficiaries were billed for home health care and therapy services that were medically unnecessary and/or not provided.
From approximately January 2006 through March 2009, Serendipity submitted approximately $20 million in claims for home health services that were not medically necessary and/or not provided, and Medicare paid approximately $14 million for these fraudulent claims. As a result of Lozano’s participation in the illegal scheme, the Medicare program was fraudulently billed more than $1 million but less than $2.5 million for purported home health care services.
In a related case, on June 21, 2012, Ariel Rodriguez and Reynaldo Navarro, the owners and operators of Serendipity, were sentenced to 73 and 74 months in prison, respectively, and ordered to pay $14 million in restitution and severally with each other and their co-defendants, Melissa Rodriguez and Ysel Salado. Ariel and Melissa Rodriguez, Navarro and Salada each pleaded guilty in March 2012 to one count conspiracy to commit health care fraud.
This case is being prosecuted by Assistant Chief Joseph S. Beemsterboer of the Criminal Division’s Fraud Section. The case was investigated by the FBI and HHS-OIG, 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 for the Southern District of Florida.
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.
Ralph Lauren Corporation (RLC), a New York based apparel company, has agreed to pay an $882,000 penalty to resolve allegations that it violated the Foreign Corrupt Practices Act (FCPA) by bribing government officials in Argentina to obtain improper customs clearance of merchandise, announced Mythili Raman, the Acting Assistant Attorney General for the Criminal Division, and Loretta E. Lynch, the United States Attorney for the Eastern District of New York.
According to the agreement, the manager of RLC’s subsidiary in Argentina bribed customs officials in Argentina over the span of five years to improperly obtain paperwork necessary for goods to clear customs; permit clearance of items without the necessary paperwork and/or the clearance of prohibited items; and on occasion, to avoid inspection entirely. RLC’s employee disguised the payments by funneling them through a customs clearance agency, which created fake invoices to justify the improper payments. During these five years, RLC did not have an anti-corruption program and did not provide any anti-corruption training or oversight with respect to its subsidiary in Argentina.
In addition to the monetary penalty, RLC agreed to cooperate with the Department of Justice, to report periodically to the department concerning RLC’s compliance efforts, and to continue to implement an enhanced compliance program and internal controls designed to prevent and detect FCPA violations. If RLC abides by the terms of the agreement, the Department will not prosecute RLC in connection with the conduct.
The agreement acknowledges RLC’s extensive, thorough, and timely cooperation, including self-disclosure of the misconduct, voluntarily making employees available for interviews, making voluntary document disclosures, conducting a worldwide risk assessment, and making multiple presentations to the Department on the status and findings of the internal investigation and the risk assessment. In addition, RLC has engaged in early and extensive remediation, including conducting extensive FCPA training for employees worldwide, enhancing the company’s existing FCPA policy, implementing an enhanced gift policy and other enhanced compliance, control and anti-corruption policies and procedures, enhancing its due diligence protocol for third-party agents, terminating culpable employees and a third-party agent, instituting a whistleblower hotline, and hiring a designated corporate compliance attorney.
In a related matter, the U.S. Securities and Exchange Commission today announced a non-prosecution agreement with RLC , in which RLC agreed to pay $$734,846 in disgorgement and prejudgment interest.
The case is being prosecuted by Trial Attorney Daniel S. Kahn of the Criminal Division’s Fraud Section and Sarah Coyne, Chief of the Business and Securities Fraud Section of the Eastern District of New York. The case was investigated by the FBI’s New York Field Office. The department acknowledges and expresses its appreciation for the assistance provided by the SEC’s Division of Enforcement.
Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.
Felony charges were filed today in the U.S. District Court for the Northern District of California in San Francisco against Mohammed Rezaian, of Novato, Calif. Rezaian is the 30th individual to plead guilty or agree to plead guilty as a result of the department’s ongoing antitrust investigations into bid rigging and fraud at public real estate foreclosure auctions in Northern California.
According to court documents, Rezaian conspired with others not to bid against one another, but instead to designate a winning bidder to obtain selected properties at public real estate foreclosure auctions in San Francisco and San Mateo counties, Calif . Rezaian was also charged with conspiring to use the mail to carry out schemes to fraudulently acquire title to selected properties sold at public auctions, to make and receive payoffs, and to divert to co-conspirators money that would have otherwise gone to mortgage holders and others. According to court documents, a forfeiture allegation was also included in the charges against Rezaian.
The department said Rezaian conspired with others to rig bids and commit mail fraud at public real estate foreclosure auctions in San Francisco and San Mateo counties beginning as early as July 2008 and continuing until about January 2011.
“As a result of this investigation, the Antitrust Division has thus far filed charges against 30 real estate investors in Northern California for their illegal activity at foreclosure auctions,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “The division will vigorously pursue the perpetrators of these fraudulent and anticompetitive schemes.”
The department said that the primary purpose of the conspiracies was to suppress and restrain competition and to conceal payoffs in order to obtain selected real estate offered at San Francisco and San Mateo County public foreclosure auctions at non-competitive prices. When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner.
“Not only is bid rigging at public foreclosure auctions illegal, it also severely undermines the integrity of a fair and competitive marketplace,” said David J. Johnson, FBI Special Agent in Charge of the San Francisco Field Office. “The FBI will continue to investigate and pursue those who commit fraudulent anticompetitive practices at foreclosure auctions and work with those who have fallen victim to such selfish crimes.”
A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victims if either amount is greater than $1 million. A count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine. The government can also seek to forfeit the proceeds earned from participating in the conspiracy to commit mail fraud.
The charges today are the latest filed by the department in its ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa and Alameda counties, Calif. These investigations are being conducted by the Antitrust Division’s San Francisco office and the FBI’s San Francisco office. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco office at 415-436-6660 , visit www.justice.gov/atr/contact/newcase.htm, or call the FBI tip line at 415-553-74 00.
Today’s charges were brought in connection with 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. 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 .
The guilty pleas were announced today by U.S. Attorney for the Eastern District of Virginia Neil H. MacBride, Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division and NASA Inspector General Paul K. Martin.
“These executives used their knowledge and experience to abuse a program created to ensure minority small business owners could compete for government contracts,” said U.S. Attorney MacBride. “They not only illegally obtained millions from the United States, they also victimized legitimate minority owners who didn’t get the bids.”
“Keith Hedman and his co-conspirators fraudulently obtained valuable government contracts intended for minority-owned small businesses, and pocketed millions of dollars for themselves,” said Acting Assistant Attorney General Raman. “They abused an important government program, and will now face the consequences.”
“This investigation confirmed that these executives repeatedly took actions that gave them a fraudulent advantage in the contracting process,” said NASA Inspector General Martin. “I commend the outstanding efforts of our agents and our law enforcement partners involved in this case in protecting the integrity of the 8(a) program.”
According to court documents, Keith Hedman, 53, of Arlington, formed an Arlington-based security service consulting company in approximately 2001. Hedman formed the company, listed as Company A in court filings, with an African-American woman who was listed as its president and CEO to enable the company to participate in the Small Business Administration’s (SBA) Section 8(a) program, which enables certain small businesses to receive sole-source and competitive-bid contracts set aside for minority-owned and disadvantaged small businesses. In 2001, Hedman’s company received approval to participate in the 8(a) program on the basis of the African-American president and CEO’s listed role, but when she left the company in 2003, Hedman became its sole owner and the company was no longer 8(a)-eligible.
Hedman admitted that in 2003 he created a shell company, listed as Company B in court records, to ensure he could continue to gain access to 8(a) contracting preferences for which Company A was not qualified. Prior to applying for the shell company’s 8(a) status, Hedman selected an employee, Dawn Hamilton, 48, of Brownsville, Md., to serve as a figurehead owner based on her Portuguese heritage and history of social disadvantage, when in reality the new company would be managed by Hedman and senior leadership at Company A. To deceive the SBA, they falsely claimed that Hamilton formed and founded the company and that she was the only member of the company’s management. They continued to mislead the SBA through 2012, even lying to the SBA to overcome a protest filed by another company accusing Hedman’s former company and the shell company of being inappropriately affiliated.
From Company B’s creation through February 2012, Hedman – not Hamilton – exercised ultimate decision-making authority and control over the company by controlling its finances, allocation of personnel and government contracting activities. Hedman nonetheless maintained the impression that Hamilton was leading the company, including through forgeries of signatures by Hamilton to documents she had not seen or drafted. Hedman also retained ultimate control over the shell business’s bank accounts throughout its existence. In 2011, Hedman withdrew $1 million in cash from Company B’s accounts and gave the funds in cash to Hamilton and three other co-conspirators. In total, Hedman and Hamilton secured through the shell company more than $31 million in government contract payments, which generated more than $6 million in salary and payments for the conspirators that they were not entitled to receive.
In addition, Hedman admitted that he agreed to pay a $50,000 bribe through the shell business to a U.S. government contracting official for the official’s help in securing contracts for Company B.
Hedman and Hamilton pleaded guilty on March 13 and March 15, 2013, respectively, in U.S. District Court for the Eastern District of Virginia to major government fraud and face a maximum penalty of 10 years in prison and a multimillion-dollar fine for that charge. Hedman also pleaded guilty to conspiracy to commit bribery, which carries a maximum penalty of five years in prison. Hedman agreed to forfeit more than $6.3 million, and Hamilton agreed to forfeit more than $1.2 million. Hedman is scheduled to be sentenced on June 21, 2013, before U.S. District Judge Gerald Bruce Lee. Hamilton’s sentencing is scheduled for June 21, 2013, before U.S. District Judge T. S. Ellis, III.
In addition, the following individuals have also pleaded guilty to major fraud or conspiracy to commit major fraud:
• David George Lux, 62, of Springfield, Va., pleaded guilty today before U.S. District Judge Leonie M. Brinkema. Lux served as the chief financial officer at Company A from 2007 through February 2012 and performed work for Company B throughout that time while officially on Company A’s payroll. He is scheduled to be sentenced on June 14, 2013, by Judge Brinkema.
• Joseph Richards, 51, of Arlington, pleaded guilty on March 14, 2013, before U.S. District Judge Brinkema in the Eastern District of Virginia. Richards served as the chief operating officer and chief of staff for Company A from 2005 through 2008 and then vice president from 2010 through February 2012. He also served as Company B’s chief of staff from 2008 through 2010. According to court documents, Richards performed work for Company B throughout his time at both companies. He is scheduled to be sentenced on June 14, 2013, by Judge Brinkema.
• David Sanborn, 60, of Lexington, S.C., pleaded guilty on March 13, 2013, before U.S. District Judge Claude M. Hilton in the Eastern District of Virginia. Sanborn served as vice president at Company A from 2001 through 2009 and the company’s president from 2010 through February 2012. According to court documents, Sanborn performed work for Company B from its inception while on Company A’s payroll. He is scheduled to be sentenced on June 28, 2013, by Judge Hilton.
This case was investigated by the NASA Office of the Inspector General (OIG), the SBA OIG, the Defense Criminal Investigative Service, the General Services Administration OIG and the Department of Homeland Security OIG. Assistant U.S. Attorneys Chad Golder and Ryan Faulconer, a former Trial Attorney for the Criminal Division’s Fraud Section, are prosecuting the case on behalf of the United States.