Former Berks County Recorder of Deeds Charged in Fraud Scheme

An indictment was filed today charging the former Berks County Recorder of Deeds, Elba Antoine, a/k/a Ellie, 68, of Bluffton, South Carolina, with defrauding the County of tens of thousands of dollars in fees paid to the Recorder of Deeds Office, announced United States Attorney Zane David Memeger. Antoine is alleged to have carried out the fraud while serving in the elected position between the years 2004 and 2007.

According to the indictment, a forensic auditor determined that for all but 10 days between December 1, 2004 and Decemeber 31, 2007, approximately $153,402.30 in cash was received at the Recorder Of Deeds Office that was not deposited into the office bank accounts. From at least December 2004 through in or about April 2008, defendant Antoine and her husband deposited cash and paid expenses with cash that was not explained by their income as reported on their federal tax returns.

The indictment alleges that Antoine established policies, procedures, and practices in the Recorder of Deeds Office that enabled her to receive fees paid to the office that were not cashiered or reported and that enabled her to convert the unreported fees paid to the office into cash. Antoine allegedly accumulated in her office safe the unreported fees and cash paid to the office. It is further alleged that Antoine devised a fee structure for the recording of official documents and deeds that did not refund overpayments to persons or businesses filing such documents and that she concealed these overpayments by establishing a system that falsely reported that the amount of overpayments had been refunded to filers as change. The overpayments were allegedly stored in envelopes in Antoine’s office safe.

The indictment further alleges that Antoine prohibited employees from attempting to independently verify the amount of money that the Recorder Of Deeds Office reported as having received from the office copying machines. Antoine allegedly directed employees who tried to verify the amount of money to stop their efforts and fired an employee who attempted to correlate the number of copies made each day with the copying fees the office collected.

Antoine is also charged in the indictment with not claiming those additional funds on her 2006 and 2007 federal income taxes. Antoine is charged with five counts of mail fraud and two counts of willfully filing a false federal income tax return.

If convicted of all charges, Antoine faces a maximum possible sentence of 106 years’ imprisonment, a fine of up to $1.75 million, three years’ supervised release, and a $700 special assessment.

The case was investigated by the Federal Bureau of Investigation, the Internal Revenue Service Criminal Investigation Division, and the Berks County District Attorney’s Office. It is being prosecuted by Assistant United States Attorney Sarah Grieb.

German Subsidiary of TRW Automotive Agrees to Plead Guilty to Price Fixing on Automobile Parts Installed in U.S. Cars

TRW Deutschland Holding GmbH, a Koblenz, Germany-based subsidiary of U.S.-based TRW Automotive Holdings Corp., has agreed to plead guilty for its involvement in a conspiracy to fix prices of seatbelts, airbags, and steering wheels sold to two German automobile manufacturers and installed in cars sold in the United States, the Department of Justice announced today. This is the second case filed relating to occupant safety systems sold to auto manufacturers as part of the department’s ongoing antitrust auto parts investigation.

TRW Deutschland has agreed to pay a $5.1 million criminal fine and to cooperate with the department’s ongoing investigation. The plea agreement is subject to court approval.

“By agreeing to fix the prices of seatbelts, airbags, and steering wheels, the conspirators eliminated competition for occupant safety parts in cars sold to U.S. consumers,” said Scott D. Hammond, Deputy Assistant Attorney General of the Antitrust Division’s criminal enforcement program. “As a result of the division’s close work with its law enforcement partners, more than $785 million in criminal fines have been imposed in this ongoing investigation.”

According to a one-count felony charge filed today in the U.S. District Court in Detroit, TRW Deutschland engaged in a conspiracy to rig bids for and to fix, stabilize, and maintain the prices of seatbelts, airbags, and steering wheels sold to automakers in the United States and elsewhere.
According to court documents, the defendant’s involvement in the conspiracy to fix prices of seatbelts, airbags, and steering wheels lasted from January 2008 until at least June 2011. The department said that the TRW Automotive subsidiary and its co-conspirators carried out the conspiracy by agreeing, during meetings and conversations, to allocate the supply of seatbelts, airbags, and steering wheels and sold the occupant safety parts at noncompetitive prices to automakers in the United States and elsewhere.

Including TRW Deutschland, seven companies and 10 individuals have been charged in the department’s ongoing investigation into price fixing and bid rigging in the auto parts industry. Furukawa Electric Co. Ltd., DENSO Corp., Yazaki Corp., G.S. Electech Inc., Fujikura Ltd., and Autoliv Inc. pleaded guilty and were sentenced to pay a total of more than $785 million in criminal fines. Additionally, seven of the individuals—Junichi Funo, Hirotsugu Nagata, Tetsuya Ukai, Tsuneaki Hanamura, Ryoki Kawai, Shigeru Ogawa, and Hisamitsu Takada—have been sentenced to pay criminal fines and to serve jail sentences ranging from a year and a day to two years each. Makoto Hattori and Norihiro Imai have pleaded guilty and await sentencing. Kazuhiko Kashimoto is scheduled to plead guilty on August 22, 2012.

TRW Deutschland is charged with price fixing in violation of the Sherman Act, which carries a maximum penalty of a $100 million criminal fine for corporations. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

Today’s prosecution arose from an ongoing federal antitrust investigation into price fixing, bid rigging, and other anticompetitive conduct in the automotive parts industry, which is being conducted by the Antitrust Division’s National Criminal Enforcement Section and the FBI’s Detroit Field Office with the assistance of the FBI headquarters’ International Corruption Unit. Anyone with information concerning the focus of this investigation is urged to call the Antitrust Division’s National Criminal Enforcement Section at 202-307-6694, visit www.justice.gov/atr/contact/newcase.htm or call the FBI’s Detroit Field Office at 313-965-2323.

House Passes "Red Tape Reduction and Small Business Job Creation Act"

The House of Representatives today passed a comprehensive regulatory reform bill to cut red tape and make the federal rulemaking process more friendly to job creators. The measure included several provisions previously passed by the House Committee on Oversight and Government Reform.

"The Obama Administration has issued some 106 rules in its first three years that collectively will cost taxpayers more than $46 billion annually in compliance and lost productivity. This is four times the number of major regulations and five times the cost of rules issued in the prior administration's first three years," Oversight and Government Reform Committee Chairman Issa said.

"In more than 30 hearings, examinations and public forums, our Committee has heard loud and clear from job creators across the country who tell us that red tape imposed by the federal government chokes economic expansion and hurts job creation. Nonpartisan research surveys report that the American public feels the same way—with an overwhelming majority saying federal regulations are a major reason why the economy is struggling. This bill helps unwind much of this unnecessary red tape and frees entrepreneurs and business owners to do what they do best: create jobs and opportunity," Issa added.

The Red Tape Reduction and Small Business Act (H.R. 4078) includes several key proposals:

• The bill imposes a freeze on economically significant regulations that harm the economy until the unemployment stabilizes at 6 percent or below;
• It permanently blocks administrations, during the "lame duck" post election period in which they are not serving a subsequent term, from issuing economically significant regulations. Administrations in this category have historically issued new rules at a 17 percent higher rate than non election years;
• The bill also ensures that parties impacted by government red tape have a right to intervene before agencies agree to binding legal settlements that mandate new regulations. This will ease the use of judicial decrees or settlement agreements to force new regulations outside the regular process;
• It also requires that independent federal agencies such as the Federal Communications Commission and National Labor Relations Board comply with the same review requirements as other agencies as well as increased public transparency concerning unfunded mandates imposed on state and local governments;
• Ease regulatory hurdles on federal construction projects. One survey found that some 350 energy projects were stalled because of red tape that, if expedited, could generate nearly 2 million construction jobs plus $145 billion in economic activity;
• The legislation also requires the Securities and Exchange Commission and the Commodity Futures Trading Commission to conduct more thorough cost-benefit analysis of proposed regulations. Last year the agencies had over 100 rules in the approval process.

Several of the red tape reduction measures included were also supported by President Obama's Job's Council; three of the provisions included in this legislation were earlier passed by the House Committee on Oversight and Government Reform as stand-alone bills, and were included as part of the larger Red Tape Reduction and Small Business Job Creation Act. The Committee recently released a comprehensive staff report documenting, in the words of job creators and business operators, the specific regulatory impediments they face that stifle job creation. A copy is available here.

President Obama's rulemaking and regulatory administrator Cass Sunstein has praised the Oversight Committee's "constructive and important work" on the issue of streamlining red tape and easing federal rules that hurt job creation.

St. Louis Building Inspector Indicted on Bribery Charges

A St. Louis City building inspector was arrested early this morning on bribery charges. Anthony D. Davis, age 47, was indicted by a federal grand jury on Wednesday on two felony bribery counts. The indictment remained sealed until the arrest of the defendant this morning.

Davis was indicted for soliciting and accepting bribes relating to his official duties of inspecting buildings and issuing permits for buildings located within St. Louis City. According to the indictment, Davis unlawfully accepted more than $2,000 in cash payments in connection with his duties as a building inspector. The indictment alleges two instances of Davis accepting bribe payments in July and August 2011.

If convicted, each count carries a maximum penalty of 10 years in prison and/or fines up to $250,000. In determining the actual sentences, a judge is required to consider the U.S. Sentencing Guidelines, which provide recommended sentencing ranges.

This case was investigated by the Federal Bureau of Investigation. Assistant United States Attorney Reginald Harris is handling the case for the U.S. Attorney’s Office.

As is always the case, charges set forth in an indictment are merely accusations and do not constitute proof of guilt. Every defendant is presumed to be innocent unless and until proven guilty.

Former Chief Information Officer for Wayne County Pleads Guilty to Accepting $70,000 in Bribes from a Private Contractor

Tahir Kazmi, the former chief information officer for Wayne County pleaded guilty today to taking bribes from a private contractor, United States Attorney Barbara L. McQuade announced today.

McQuade was joined in the announcement by Edward Hanko, Interim Special Agent in Charge of the Federal Bureau of Investigation (FBI).

During a hearing this afternoon before United States District Judge Stephen J. Murphy, III, Kazmi, 49 of Rochester Hills, Michigan, admitted that between 2009 and 2011, he accepted bribes from a private contractor in the form of cash; trips to Hawaii, Turkey, and Florida; and other things of value all totaling approximately $70,000. The private contractor who paid the bribes to Kazmi had multi-million-dollar technology contracts with Wayne County. During this period of time, Kazmi was responsible for approving and overseeing the private contractor’s work for Wayne County. Kazmi admitted that the bribes from the contractor influenced his decision-making as a county official. Kazmi also admitted that he obstructed justice during the course of the FBI’s investigation of his crimes. He faces a sentencing enhancement because of this obstruction.

Based on his guilty plea and felony conviction for accepting bribes, Kazmi is facing a maximum of 10 years in prison, a fine of up to $250,000, and up to three years of supervised release.

As part of his plea agreement with the government, Kazmi has agreed to cooperate fully with the federal authorities’ investigation of corruption within the Wayne County government.

United States Attorney McQuade said, “The citizens of our community deserve honest government, and we will continue to investigate corruption in city, county, state, or federal government. Public officials should be on notice that illegal conduct will be detected and prosecuted.”

Edward Hanko, Interim Special Agent in Charge of the FBI said, “Those trusted public officials who choose to abuse their power and influence in government by accepting illegal bribes and gifts must answer for their actions. Taxpayers of Wayne County deserve trustworthy leaders and the FBI-led Detroit Area Public Corruption Task Force remains committed to holding public officials accountable and rooting out corruption.”

The case was investigated by special agents of the FBI and Detroit Area Public Corruption Task Force. It is being prosecuted by Assistant United States Attorneys David A. Gardey and Gjon Juncaj.

Charter School Founder Dorothy June Brown Charged in $6 Million Fraud Scheme

Dorothy June Brown, 75, of Haverford, Pennsylvania, was charged by indictment with defrauding three charter schools of more than $6.5 million between 2007 and April 2011. Charged with Brown in a 62-count indictment are four current and former charter school executives: Joan Woods Chalker, 74, of Springfield, Pennsylvania; Michael A. Slade, Jr., 31, of Philadelphia, Pennsylvania; Courteney L. Knight, 64, of King of Prussia, Pennsylvania; and Anthony Smoot, 49, of New Castle, Delaware. The four executives are charged with conspiring with Brown to obstruct justice. The indictment was announced by United States Attorney Zane David Memeger, FBI Special Agent in Charge George C. Venizelos, and Department of Education Special Agent in Charge Steven Anderson with the Office of Inspector General’s Mid-Atlantic Regional Office.

The indictment alleges that Brown used her private management companies, Cynwyd and AcademicQuest, to defraud the Agora Cyber Charter School (“Agora”) and the Planet Abacus Charter School (“Planet Abacus”) soon after she founded the schools in 2005 and 2007, respectively. Brown is also charged with defrauding the Laboratory Charter School of Communication and Languages (“Laboratory”), a school she founded in 1997.

According to the indictment, Brown caused Agora to make fraudulent payments to Cynwyd totaling more than $5.6 million under a fabricated management contract that had never been approved by the Agora board of trustees. Similarly, the indictment alleges that Brown and Chalker, who was the CEO of Planet Abacus, caused Planet Abacus to make fraudulent payments to AcademicQuest totaling more than $700,000 under other fabricated contracts that had never been approved by the Planet Abacus board of trustees. In executing the schemes, it is alleged that Brown caused the creation of false documents, including false board meeting minutes and fabricated contracts to falsely make it appear as if the boards of the schools had held meetings to discuss and authorize contracts with Brown’s private companies. The indictment further charges that Brown caused signatures on the contracts to be forged and caused the contracts to be backdated. It is alleged that, in many instances, the individuals whose names Brown caused to be listed as members of the school boards in question never actually served on the boards.

It is further alleged that Brown caused over $160,000 in unauthorized payments to be paid to her and others from an Agora bank account in June 2007 and that she caused approximately $37,000 in fraudulent payments to be paid from a Laboratory account, in 2008 and 2009, to an employee she hired to work for Cynwyd.

In addition, all of the defendants are charged with conspiring to obstruct justice from August 2008 through April 2012. The indictment alleges they altered, destroyed, and falsified a large number of documents, including contracts, financial records, board meeting minutes, board resolutions, and an extensive number of other records belonging to the schools and Brown’s private companies, after federal grand jury subpoenas for records were served in 2008. The indictment alleges that Brown recruited others to join the conspiracy by rewarding them with high level administrative positions at the charter schools she controlled, by causing them to be paid high salaries and by enabling them to use school funds and resources for their own personal benefit. In one instance, it is alleged that Brown permitted her great nephew, Michael Slade, who was an employee of Laboratory at the time, to spend over $40,000 of funds belonging to Main Line Academy, a private school founded and controlled by Brown, on a truck for Slade’s own personal use. Brown allegedly later caused Slade to be named Acting CEO of another school she founded, the Ad Prima Charter School (“Ad Prima”), and then to be named as CEO of Laboratory. The indictment alleges that Brown also caused Knight to be named as CEO of Ad Prima and that she hired Smoot to be the business manager for all of the schools she controlled.

In April 2012, Brown allegedly engaged in witness tampering by attempting to prevent a witness from informing law enforcement officers that signatures had been forged on a backdated, fabricated contract between Planet Abacus and AcademicQuest.

“Public education is a cornerstone of American life which has provided many with the tools for future success,” said U.S. Attorney Zane David Memeger. “As our public schools are funded through dollars earned by hard working Americans, there is a reasonable expectation that their tax dollars will be used to actually educate students. The indictment in this case alleges that June Brown and her four co-conspirators used the charter school system to engage in rampant fraud and obstruction. My office will continue to vigorously investigate and pursue those charter school operators who defraud the taxpayers and deprive our children of funds for their education.”

“Charter schools are funded with public money that is intended to help educate children in our communities,” said Special Agent in Charge George C. Venizelos of the Philadelphia Division of the FBI. “When individuals misappropriate those funds, as this indictment today alleges, they trade our children’s education and our children’s future for their own illegal profit.”

“Today’s indictment alleges that these school officials chose to line their own pockets with federal education dollars instead of using those funds for the intended purpose—educating the students they promised to serve. That is unacceptable,” said Special Agent in Charge Steven Anderson, of the U.S. Department of Education’s Office of Inspector General’s Mid-Atlantic Regional office. “OIG will continue to investigate allegations of fraud to help ensure that education funds reach the intended recipients and protect these vital dollars from such calculated plunder. America’s students and taxpayers deserve nothing less.”

The charges of wire fraud, obstruction of justice, and witness tampering each carry a maximum possible sentence of 20 years in prison. The charges of conspiracy each carry a maximum possible sentence of five years in prison. If convicted, Brown, Chalker, Slade, Knight, and Smoot all face substantial terms of imprisonment and significant fines and other financial penalties.

This case was investigated by the Federal Bureau of Investigation and by the United States Department of Education-Office of Inspector General. It is being prosecuted by Assistant United States Attorney Anthony Kyriakakis.

An indictment or an information is an accusation. A defendant is presumed innocent unless and until proven guilty.

Belview Woman Charged with Embezzling Hundreds of Thousands from Minnwest Bank

Yesterday federal criminal charges were filed against a 47-year-old woman from the southwestern Minnesota community of Belview. Barbara Kaye Rechtzigel was charged with one count of embezzlement by a bank officer for allegedly stealing hundreds of thousands of dollars from the CD accounts of customers at Minnwest Bank, located in Marshall, Minnesota, where she worked.

The charges were filed via an information, which states that from 1998 through June of 2012, Rechtzigel embezzled the money for her personal use.

If convicted, Rechtzigel faces a potential maximum penalty of 30 years in prison. All sentences will be determined by a federal district court judge. This case is the result of an investigation by the Federal Bureau of Investigation and the Marshall Police Department, with assistance from the Federal Deposit Insurance Corporation-Office of Inspector General. It is being prosecuted by Assistant United States Attorney William J. Otteson.

A defendant, of course, is presumed innocent until he or she pleads guilty or is proven guilty at trial.

Williamsville Man Sentenced on Fraud Charges

U.S. Attorney William J. Hochul, Jr. announced today that Keith Furman, 45, of Williamsville, New York, who was convicted of wire fraud, was sentenced to 18 months by Chief U.S. District Judge William M. Skretny. The defendant was also ordered to pay restitution in the amount of $209,758.

Assistant U.S. Attorney Paul J. Campana, who handled the case, stated that the defendant operated a business called Digital Ad experience. In 2009 and early 2010, Furman received about $190,000 from investors, with the understanding the money would be used to buy digital advertising screens that would be installed in shopping malls to display advertising. The defendant assured the investors that he used all the money to pay for the screens but instead made only partial payment for the screens. Furman used the rest of the money for living expenses and for other businesses he was running.

The defendant also admitted that he fraudulently marketed more than $25,000 worth of VoIP telephones (voice over Internet protocol) through eBay in December 2010. Furman used an eBay account in the name of Oceana Matrix, a company for which he served as president. Furman could not fulfill the orders because he did not have the phones he was offering for sale. This loss was absorbed by eBay.

The sentencing is the result of an investigation by special agents of the United States Secret Service, under the direction of Special Agent in Charge Tracy Gast; and the Federal Bureau of Investigation, under the direction of Special Agent in Charge Christopher M. Piehota.

Former President of Maryland Corporation Pleads Guilty to Embezzling Over $885,000

Mark Chandler Goodnow, age 55, of Pasadena, Maryland, pleaded guilty today to wire fraud in connection with embezzling more than $885,000 from a corporation he controlled.
The guilty plea was announced by United States Attorney for the District of Maryland Rod J. Rosenstein and Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation.

“Corporate officers are fiduciaries for investors and other stakeholders,” said U.S. Attorney Rod J. Rosenstein. “A corporate executive cannot spend money for personal benefit and falsely report it as a business expense.”

According to his plea agreement, Goodnow was the president and chief executive officer of a national fast food franchise that maintained its principal office in Severna Park, Maryland. From 2006 to 2012, on more than 200 occasions, Goodnow spent a total of approximately $885,071 of the company’s money to pay three Texas women for telephone sex and their personal expenses and to pay prostitutes in Maryland. Goodnow concealed the unauthorized expenditures by reporting them in the company’s records as advertising expenditures.

Goodnow faces a maximum sentence of 20 years in prison and a fine of $250,000. U.S. District Judge Richard D. Bennett scheduled her sentencing for October 30, 2012, at 3:00 p.m.

This law enforcement action is part of 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.

United States Attorney Rod J. Rosenstein thanked the FBI for its work in the investigation and praised Assistant U.S. Attorney Martin Clarke, who is prosecuting the case.

Former Pastor of Greenwich Church Sentenced to Federal Prison for Obstructing Federal Investigation

David B. Fein, United States Attorney for the District of Connecticut, announced that Michael Moynihan, 59, a former pastor at St. Michael the Archangel Parish in Greenwich, was sentenced today by Senior United States District Judge Ellen Bree Burns in New Haven to five months of imprisonment, followed by two years of supervised release, for obstructing a federal investigation concerning his use of more than $300,000 in church funds. Moynihan also was ordered to perform 120 hours of community service and to pay $409,430 in restitution.

According to court documents and statements made in court, Moynihan was employed by the Roman Catholic Diocese of Bridgeport from 1993 to 2007 and, during that time, he served as the pastor at St. Michael the Archangel Parish in Greenwich. As pastor, Moynihan had responsibilities that included ensuring that money provided to St. Michael by parishioners be maintained for the benefit of the Parish and its parishioners and informing the Parish Finance Council of the existence of all bank accounts used to deposit monies provided to St. Michael.

When Moynihan began serving as the pastor of St. Michael, the Parish had maintained bank accounts, including a Building Fund account that had been established by his predecessor and was known to the Parish Council. In 2002, the Bridgeport Diocese directed each Parish to maintain only one operating bank account and to list this operating account on the general ledger of each Parish. Despite this directive, the Parish continued to use the Building Fund account without it being listed on the Parish general ledger.

In February 2004, Moynihan opened a bank account at Greenwich Bank and Trust (GB&T) in the name of St. Michael’s Church that also was not listed on the Parish general ledger.

In approximately July 2006, after being advised that the Federal Bureau of Investigation had requested information from the Diocese as part of a criminal investigation, Moynihan did not disclose to representatives of the Diocese the existence of the Building Fund account or the GB&T account. A review of these two accounts revealed that, from 2002 to 2006, more than $2 million provided to the St. Michael Parish was deposited into these accounts. While the majority of these funds were used for Parish-related expenses, approximately $300,000 of these funds were used to pay Moynihan’s credit card bills. Moynihan acknowledged these accounts only when confronted by the Diocese and questioned by the Diocese about why he used funds in those accounts for personal use.

In an effort to explain how he expended the funds from the undisclosed accounts and to demonstrate that funds from the accounts were used for Parish-related purposes, Moynihan provided false and misleading information to accountants retained by the Diocese. Specifically, Moynihan provided accountants with letters purportedly signed by two persons who indicated that they each had received funds from Moynihan.

Knowing that a federal grand jury was investigating whether he used Parish funds for his personal benefit, Moynihan met with FBI special agents to provide information about how the funds in the undisclosed accounts were expended. During the course of an interview in December 2010, Moynihan indicated to FBI agents that he had not forged a signature on a letter, although he knew that he had signed another person’s signature without authority to do so.

Judge Burns ordered Moynihan to pay $409,430 to the Diocese of Bridgeport for expenses the Diocese incurred as a result of Moynihan’s obstructive conduct.

On December 8, 2011, Moynihan pleaded guilty to one count of obstruction of an official proceeding. He has been ordered to report to prison on September 3, 2012.

This matter was investigated by the Federal Bureau of Investigation, with the assistance of the Roman Catholic Diocese of Bridgeport and its legal counsel. The case was prosecuted by Senior Litigation Counsel Richard J. Schechter.

Contractor Indicted on Fraud Charges

A military contractor with offices in Danville, Virginia, and Ontario, Canada, was indicted by a federal grand jury sitting in the U.S. District Court for the Western District of Virginia in Roanoke on charges that it falsely represented the level of protection provided by armored vehicles used by convoys in Iraq.

A grand jury has charged Armet Armored Vehicles and its president, William R. Whyte, 67, of Ontario, with three counts of major fraud against the United States, seven counts of wire fraud, and three counts of false, fictitious, and fraudulent claims.

“The Department of Justice has no higher priority than protecting our national security,” U.S. Attorney for the Western District of Virginia Timothy J. Heaphy said today. “We will work to ensure that the goods provided by contractors to the brave men and women of our military meet safety standards and contract specifications.”

According to the indictment, Armet entered a $4 million contract in April 2006 to provide the Department of Defense with 24 armored vehicles for use in Iraq. In June 2006, Armet entered a second contract to deliver an additional eight armored vehicles. These trucks were to be used as security vehicles to Iraqi “VIPs” who regularly traveled by motorcade through a “hostile and dangerous environment.”

Both contracts included specific requirements for the armoring of the vehicles, including that each vehicle be reinforced to a standard at which an armor-piercing bullet could not penetrate the passenger compartment and ceiling. In addition, the contracts required the undercarriage of each armored truck have mine plating protection that could withstand explosions underneath the vehicles. Finally, the contracts required the armored vehicles to have run-flat tires, plus one spare, so they could continue to operate should their tires be shot out or otherwise flattened.

Despite the requirement in the contract that the first 24 armored gun trucks be delivered by July 31, 2006, Whyte and Armet failed to ship a single vehicle by that deadline. Armet ultimately supplied seven armored vehicles after the contract deadline and was paid $ 2,019,454. Each of these vehicles was delivered with a “Material Inspection and Receiving Report” certifying it met the contract standards.

The indictment alleges that none of the armored gun trucks delivered by Armet and Whyte met the ballistic and blast protection requirements of the contracts, despite the defendant’s claims that the vehicles met the standards. Armet and Whyte knew that each of the six armored gun trucks failed to meet the required standards, that they were defective, and that they would not protect the officials they were intended to protect.

The investigation of the case was conducted by the Defense Criminal Investigative Service, the Special Inspector General for Iraq Reconstruction, the Department of Justice’s Fraud Section, and the FBI. Criminal Chief for the Western District of Virginia Stephen Pfleger, Trial Attorney for the Department of Justice’s Fraud Section Catherine Votaw, and Special Assistant U.S. Attorney Ramin Fatehi will prosecute the case for the United States.

A grand jury indictment is only a charge and not evidence of guilt. These defendants are entitled to a fair trial with the burden on the government to prove guilt beyond a reasonable doubt.

Former Florida State Senator Sentenced for Tax Evasion

Wifredo A. Ferrer, United States Attorney for the Southern District of Florida; José A. Gonzalez, Special Agent in Charge, Internal Revenue Service, Criminal Investigation (IRS-CI); and Jeffrey C. Mazanec, Acting Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, announce that Muriel Amanda Dawson, 55, formerly of Broward County, was sentenced to six months in prison, to be followed by two years of supervised release. Dawson pled guilty on April 23, 2012, to charges of felony tax evasion and failing to file a federal income tax return (counts two and five).

During her guilty plea hearing, Dawson admitted that in calendar years 2004 and 2005, she received substantial income from third parties. Nonetheless, Dawson failed to file income tax returns with the Internal Revenue Service during that period. Dawson also admitted that she failed to file federal personal income tax returns from 2006 through 2008.

At all relevant times, Dawson was a Florida State Senator representing portions of Broward and Palm Beach Counties. In particular, during three years in which Dawson served as a state senator, Dawson failed to file any federal income tax returns and failed to pay at least $29,000 in federal income taxes, excluding penalties and interest.

Mr. Ferrer commended the investigative efforts of IRS-CI and the FBI. This case is being prosecuted by Assistant U.S. Attorney Stephen Carlton.

A copy of this press release may be found on the website of the United States Attorney’s Office for the Southern District of Florida at www.usdoj.gov/usao/fls.

Madison Woman Charged with Wire Fraud for Embezzling Funds from Employer

Amy M. Shelby, age 38, of Madison, Illinois, was indicted by a grand jury and charged with two counts of wire fraud, the United States Attorney for the Southern District of Illinois, Stephen R. Wigginton, announced today. The offenses each carry a statutory maximum sentence of up to 20 years in prison.

The indictment alleges that Amy M. Shelby, from 2006 through May 2010, engaged in a scheme to defraud Oakmont Mini-Storage in Granite City, Illinois, while she was the manager. The Indictment alleges that she used a corporate credit card without authorization and used the corporate operating account to make payments on her personal credit card.

An indictment is a formal charge against a defendant. Under the law, a defendant is presumed to be innocent of a charge and is entitled to a fair trial at which the government must prove guilt beyond a reasonable doubt.

The indictment is the result of an investigation conducted by the Federal Bureau of Investigation. The prosecution is being handled by Assistant U.S. Attorney Norman R. Smith.

Former New York Employee of a Financial Institution Pleads Guilty for His Role in Fraud Conspiracy Involving Municipal Bonds

A former financial institution employee pleaded guilty today for his participation in a conspiracy related to municipal bonds, the Department of Justice announced.

According to the plea proceeding held today in the U.S. District Court in Manhattan, Alexander Wright, a resident of New York City, engaged in a fraud conspiracy in the municipal finance industry. According to court documents, the New York-based financial institution that employed Wright as a vice president of the municipal derivatives marketing group was a provider of investment agreements as well as other municipal finance contracts to public entities. Public entities seek to invest money from a variety of sources, primarily the proceeds of municipal bonds that they issue, to raise money for, among other things, public projects. Public entities typically hire a broker to conduct a competitive bidding process for the award of the investment agreements and often for other municipal finance contracts.

The department said in court documents that from approximately June 12, 2002, until approximately June 20, 2002, Wright participated in a fraud conspiracy with former executives from another financial institution, among others. One of the co-conspirators acted as the broker for a municipal finance contract, which was to be competitively bid. The co-conspirator gave Wright information about the prices or price levels of competitors’ bids, a practice known as a “last look.” The co-conspirator signaled Wright to change his bid to a specific number so that Wright’s employer could make more money. Wright and his co-conspirators represented to the municipal issuer that the bidding process was competitive when, in fact, it was not. The department said that, as a result of the bid manipulation, Wright’s employer won the contract at an artificially inflated price, which, since the issuer paid a higher price for the contract, deprived the municipal issuer of money and property.

“By engaging in non-competitive practices, such as sharing confidential bidding information, the co-conspirators undermined the integrity of the municipal bond market and deprived the bond issuer of a fair and competitive price,” said Scott D. Hammond, Deputy Assistant Attorney General of the Antitrust Division’s Criminal Enforcement Program. “Today’s guilty plea demonstrates our continued efforts to hold accountable those who subvert the competitive process in our financial markets.”

The conspiracy to commit wire fraud for which Wright is charged carries a maximum penalty of five years in prison and a $250,000 criminal fine. The maximum fine for this offense may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

“The type of bid-rigging scheme Wright and his co-conspirators participated in not only deprives the municipal issuer of a fair and just bidding process but weakens the public’s trust in the municipal bond market,” said Janice K. Fedarcyk, Assistant Director in Charge of the FBI in New York.

“Today’s guilty plea is proof of our continued determination to root out those whose business practices contribute to the deterioration of healthy competition in the financial markets.”

“This guilty plea is another step in our efforts to clean up the fraudulent practices in the municipal bond market,” said Internal Revenue Service-Criminal Investigation (IRS-CI) Chief Richard Weber.

“IRS Criminal Investigation will continue to provide financial investigative assistance to ensure individuals are held accountable for their criminal behavior.”

The charges announced today resulted from an ongoing investigation conducted by the Antitrust Division’s New York and Chicago Field Offices, the FBI, and IRS-CI. The division is coordinating its investigation with the U.S. Securities and Exchange Commission, the Office of the Comptroller of the Currency, and the Federal Reserve Bank of New York.

To date, 12 individuals and one company have pleaded guilty to charges stemming from the ongoing investigation. In May 2012, a federal jury in the Southern District of New York convicted Dominick Carollo, Steven Goldberg, and Peter Grimm of multiple counts involving similar fraud conspiracies after a four-week trial. Three other former executives of a financial institution were indicted on December 9, 2010, for participating in fraud schemes and conspiracies related to the bidding for investment agreements, and they are awaiting trial, which is scheduled to begin in Manhattan on July 30, 2012.

Today’s guilty plea 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 is 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.

Anyone with information concerning bid-rigging and related offenses in any financial markets should contact the Antitrust Division’s New York Field Office at 212-335-8000, the FBI at 212-384-5000 or IRS-CI at 212-436-1761, or visit www.justice.gov/atr/contact/newcase.htm.

Conspirator Sentenced in Scheme to Fraudulently Obtain Over $1.399 Million from Baltimore Housing Authority Account

U.S. District Judge William D. Quarles, Jr. sentenced Keith Eugene Daughtry, age 50, of Washington, D.C., today to 41 months in prison followed by five years of supervised release for conspiring to commit bank fraud in connection with a scheme to steal over $1.399 million from a Baltimore Housing Authority (BHA) bank account in just a few months. Judge Quarles also entered an order requiring Daughtry to forfeit and pay restitution of $1,399,700.

The sentence was announced by United States Attorney for the District of Maryland Rod J. Rosenstein and Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation.

According to his guilty plea, Daughtry agreed to provide his identity in a scheme to steal money from the BHA. In May 2010, co-defendant William Darden used Daughtry’s identity to obtain a fraudulent driver’s license in Daughtry’s name but bearing the co-conspirator’s photograph. The fraudulent driver’s license was made so that if law enforcement were to locate Daughtry through the fraudulent license’s use, Daughtry could claim that his identity had been stolen.

On May 25, 2010, Darden used the fraudulent driver’s license to open a bank account for an entity called Keith Daughtry Contracting LLC. Shortly thereafter, substantial amounts of funds illegally diverted by Daughtry’s conspirators from a BHA bank account were electronically transferred into the Daughtry LLC bank account, even though Daughtry LLC had never provided any services to the BHA requiring compensation. Investigators have determined that the conspirators were responsible for transferring at least $1,399,700 stolen from BHA’s account into Daughtry LLC’s account between July and September 2010.

The conspirators then drained the stolen funds from Daughtry LLC’s account by electronic transfers of funds onto debit cards in other individuals’ names, at least one of whose identity had been stolen; electronic transfers into accounts at other banks; and through in-person cash withdrawals from Daughtry LLC bank accounts and from ATMs in the Washington, D.C. area. Daughtry himself withdrew $38,550 from the fraudulent Daughtry LLC account from August 17 to September 9, 2010.

Daughtry admits that he is responsible for over $1 million in losses as a result of his participation in the conspiracy.

William Darden pleaded guilty to his role in the scheme and is awaiting sentencing.

This law enforcement action is part of 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.

United States Attorney Rod J. Rosenstein thanked the FBI for its work in the investigation and praised Assistant U.S. Attorneys Sujit Raman and Gregory R. Bockin, who prosecuted the case.

New Orleans City Councilman Pleads Guilty to Conspiracy

Jon Johnson, age 63, the New Orleans City Councilman for District E, was charged with and pled guilty today to a single count of conspiracy to commit theft of government funds and to submit false documents to a federal agency, announced U.S. Attorney Jim Letten.

According to court documents, Johnson controlled the operations and the finances of Ninth Ward Housing Development Corporation (“Ninth Ward”), a non-profit organization in New Orleans. Ninth Ward owned a building located at 1008 Jourdan Avenue, which was commonly referred to and known as “The Semmes Building.”

The Semmes Building, formerly a school, was flooded as a result of Hurricane Katrina on August 29, 2005. After the storm, Johnson caused Ninth Ward to apply for FEMA grant funds, which FEMA had made available to certain qualifying individual property owners, civic municipalities, and businesses whose properties and possessions had been damaged and destroyed during and because of Hurricane Katrina. Ninth Ward received these funds, known as Public Assistance Grants.

Jon Johnson, who was a candidate for Louisiana State Senate in District 2 for the election that took place on October 20, 2007, today admitted that he personally and exclusively directed the use and misuse of the federal funds received by Ninth Ward. Further, he admitted that the federal funds received from FEMA were used to make contributions to and pay expenses for his campaign for the Louisiana State Senate in the summer and fall of 2007 and for other expenditures unrelated to Ninth Ward.

Additionally, Jon Johnson admitted today that he arranged for $16,640 to be transferred from Ninth Ward to the New Orleans Health Clinic (NOHC). NOHC was another non-profit with which Jon Johnson was affiliated and over which he exerted executive control and influence. Once this Ninth Ward money was in the NOHC account, the NOHC funds received from Ninth Ward were used to make contributions to and pay expenses for his campaign for the Louisiana State Senate in the summer and fall of 2007 and for other expenditures unrelated to NOHC.

Johnson also admitted today that in applying for a disaster assistance loan from the SBA to help pay for expenses associated with repairing the damage his home had sustained during and as a result of Hurricane Katrina, he conspired to submit false documents to that federal agency.

Specifically, Jon Johnson, admitted that he conspired to submit to representatives of the SBA three false and fabricated contracts that he claimed to have entered into for repairs made to the defendant’s personal residence. Johnson admitted that he submitted these false and fabricated contracts to the SBA in an effort to document the manner in which he had spent a low-interest loan the SBA had provided to him. The contracts were created solely for submission to the SBA and did not represent or reflect the amounts he paid to the contractor for the work performed.

Johnson faces a maximum penalty of five years in prison along with a $250,000 fine.

Also charged today via bill of information were Roy Lewis and Asif Gafur. Lewis, charged with misprision of a felony, is alleged to have known about and concealed a conspiracy to commit theft of government funds. Gafur, charged with structuring financial transactions to evade a reporting requirement, is alleged to have participated in a scheme, at Johnson’s behest, to route federal funds that Ninth Ward had received to Johnson’s campaign. Gafur’s offense carries a maximum penalty of five years’ imprisonment and upwards of a $250,000 fine. Lewis’ charge carries a maximum penalty of three years’ imprisonment. United States Attorney Jim Letten reiterates that a bill of information is only an allegation of criminality and that all defendants charged with a crime are innocent until proven guilty.

Speaking on today’s guilty pleas, Michael J. Anderson, Special Agent in Charge of the FBI New Orleans Field Office, stated:

“As a new member of the New Orleans community still recovering from the aftermath of Hurricane Katrina, I applaud, both in my law enforcement capacity and as a citizen taxpayer, the partnership of the USAO, FBI, HUD-OIG, and DHS-OIG to hold Councilman Johnson fully accountable for his diversion of Katrina-related HUD funds for his own personal and political purposes.”

U.S. Attorney Jim Letten added, “As we continue to forge ahead in relentlessly addressing the corruption which has taken so much from our community and our citizens, we have once again demonstrated our zero tolerance policy for any violations of law and trust by our public servants. Today’s convictions are the product of that policy, together with the dedication of our U.S. Attorney’s Office staff and our federal law enforcement partners, and coupled with the public’s right and demand to have public officials who serve them, free from compromise and self-serving interests. We will continue.”

The cases were investigated by the Office of Inspector General for Housing and Urban Development, the Federal Bureau of Investigation, the Office of Inspector General for the Department of Homeland Security, and Small Business Administration-Office of Inspector General. The case was prosecuted by Assistant United States Attorneys Daniel P. Friel and Brian P. Marcelle.

Altus Healthcare & Hospice Settles Allegations of Inappropriate Use of Inpatient Hospice

Altus Healthcare & Hospice Inc., n/k/a AHH Historic Inc., of Atlanta, Georgia, has reached a $555,572 settlement with the United States to resolve allegations under the False Claims Act that it submitted false or fraudulent claims to Medicare and Medicaid for inpatient hospice services, United States Attorney Sally Quillian Yates for the Northern District of Georgia announced today. Altus was acquired by Halcyon Healthcare in December 2011.

“The hospice benefit is intended to provide end-of-life care to terminally ill patients,” said United States Attorney Sally Quillian Yates. “When a hospice bills Medicare and Medicaid for more expensive services than are warranted, it diverts funds that could be spent caring for patients who truly need that level of care. We will continue to protect health care dollars to care for those in need.”

Brian D. Lamkin, Special Agent in Charge, FBI Atlanta Field Office, stated, “Federally funded programs such as Medicaid and Medicare provide a crucial service to those in need, certainly those requiring the services of a hospice, and the funds associated with these programs need to be protected from those who would engage in fraud, waste, or abuse. The FBI, in working with its various law enforcement partners and federal prosecutors, is determined to provide that protection of these federal funds.”

“Altus Healthcare allegedly milked Medicare’s hospice benefit to increase their own profit as much as possible,” said Derrick L. Jackson, Special Agent in Charge of the U.S. Department of Health and Human Services, Office of Inspector General for the Atlanta region. “The Office of Inspector General is committed to eliminating this greed from our nation’s health care system.”

Medicare and Medicaid beneficiaries are entitled to hospice care if they have a terminal prognosis of six months or less to live. There are four levels of hospice care, each of which are reimbursed at four different per diem levels. General inpatient care provides the second highest level of reimbursement. To qualify for general inpatient care, a patient must need pain control or acute or chronic symptom management that cannot be managed in other settings. The government alleges that Altus submitted false claims to the Medicare and Medicaid programs for general inpatient hospice care for patients who did not qualify to receive that level of hospice care during the period from March 1, 2008 through October 29, 2010, for the Medicare program; and during the period from March 1, 2008 through October 23, 2011, for the Medicaid program.

The civil settlement resolves a lawsuit filed by David C. Boal under the qui tam, or whistleblower, provisions of the False Claims Act, which allow private citizens to bring civil actions on behalf of the United States and share in any recovery. The case, pending in the Northern District of Georgia, is filed under United States ex rel. Boal v. Altus Healthcare and Hospice Inc., Drew Anderson, and Nora Tucker, No. 1:10-cv-1380 (N.D. Ga. May 7, 2010). Mr. Boal will receive a share of the settlement payment that resolves the qui tam suit that he filed.

The United States’ settlement is part of the government’s emphasis on combating health care fraud. One of the most powerful tools in that effort is the False Claims Act, which the Justice Department used to recover approximately $2.4 billion nationwide in fiscal year 2011 in cases involving fraud against federal health care programs. The Justice Department’s total health care fraud recoveries under the False Claims Act since January 2009 have been over $7.7 billion.

This case was investigated by special agents of the Federal Bureau of Investigation and the Office of Inspector General of the U.S. Department of Health and Human Services.

The civil settlement was reached by Assistant United States Attorneys Lena Amanti and Christopher J. Huber.

Charter School’s Former Board President and Former CEO Sentenced for Fraud Scheme

Hugh C. Clark, 65, and Ina Walker, 59, both of Philadelphia, were sentenced for their respective roles in a scheme to defraud the Philadelphia-based New Media Technology Charter School (New Media) and the Wilmington Savings Fund Society. Clark, who pleaded guilty in April to conspiracy, wire fraud, bank fraud, and theft from a federally funded program, was sentenced to 24 months’ imprisonment and five year supervised release. Walker, who pleaded guilty in January, was sentenced to six months’ imprisonment and five years’ supervised release to include 1,00 hours of community service. U.S. District Court Judge Jan E. DuBois also ordered the defendants to pay restitution in the amount of $861,000 and a special assessment of $2,800.

Clark was a founder of New Media in 2004 and served as president of the New Media board of directors. Walker was a founder and served as CEO. Both were forced to resign effective December 31, 2009. The superseding indictment charged Clark and Walker with improperly using approximately $522,000 in New Media funds to (a) pay expenses at a small private school, Lotus Academy; (b) advance Clark and Walker’s personal business ventures, including the Black Olive health food store and the Black Olive restaurant; (c) benefit Tekhen, a web design and Internet access company that Clark owned and controlled; and (d) pay their own personal expenses. At least $309,000 was fraudulently diverted from New Media to Lotus Academy, often disguised as prepaid rent or bogus security deposits. Once the funds were deposited into Lotus Academy bank accounts, the defendants spent the money on the expenses of their private school and on their personal and business ventures.

As a result of the defendants’ improper and fraudulent use of funds, New Media failed to meet its expenses, such as employee payroll checks, monthly employee withholdings and quarterly employer contributions to the Pennsylvania School Employees Retirement System, payments to the school’s athletic coaches and payments to a textbook vendor.

Clark, without notice to or approval from the New Media Board of Directors, entered New Media into a written contact to purchase a school property for the sole purpose of benefitting Lotus Academy. Clark and Walker used $15,000 of New Media’s funds as part of the $45,000 deposit for purchase of the school property. When the sale did not close and the $45,000 deposit was returned to Lotus Academy, Clark and Walker did not return the $15,000 to New Media. Rather, Clark and Walker caused the entire $45,000 to be spent in various ways, including for Lotus Academy expenses (rent and payroll), payments to the Black Olive business ventures, and a cash deposit into defendant Walker’s personal bank account to pay Walker’s personal bills.

Clark and Walker also defrauded Wilmington Savings Fund Society (WSFS) by providing false documents to obtain a $357,500 loan from the bank in 2006. The loan, obtained in Walker’s name, was used to buy a commercial property at 22-24 E. Mount Airy Avenue, which housed the Black Olive restaurant. Walker ultimately defaulted on $339,000 of the debt.

The case was investigated by the United States Department of Education Office of Inspector General and the Federal Bureau of Investigation. The School District of Philadelphia’s Office of Inspector General provided assistance in the investigation. It was prosecuted by Assistant United States Attorney Joan E. Burnes.

Summit Oncologist, Madison Biller Plead Guilty to Health Care Fraud

Dr. Meera Sachdeva, 50, of Summit, Mississippi, and Monica Weeks, 40, of Madison, Mississippi, each pled guilty to charges of Medicare fraud, U.S. Attorney Gregory K. Davis, FBI Special Agent in Charge Daniel McMullen, and Mississippi Attorney General Jim Hood announced.

Sachdeva, who owned and operated Rose Cancer Center in Summit, pled guilty to submitting claims for chemotherapy services that were supposedly rendered when she was out of the country. Weeks, who owned and operated The Medical Billing Group in Madison, pled guilty to conspiracy to commit health care fraud by covering up false claims made by Sachdeva that were scheduled for an audit.

According to the indictment in this case, Sachdeva is alleged to have billed for more chemotherapy drugs than she actually purchased from drug suppliers from 2007 to 2011. During the plea hearing, the Assistant United States Attorney told the court that if the case had gone to trial, the government would have proven that “[t]he defendant would prepare...chemotherapy treatments by injecting the prescribed chemotherapy drugs into a bag of fluid that would then be connected to the patient via a ‘chest port.’ Each patient believed that they were receiving an amount of chemotherapy medicine that was equal to the amount being billed to their respective health care benefit programs. The defendant was not providing each patient with the fully prescribed dosage of many of the billed chemotherapy drugs.”

Both Sachdeva and Weeks are scheduled to be sentenced on October 1, 2012, by United States District Judge Daniel P. Jordan, III. Weeks faces a maximum of 10 years in prison, a $250,000 fine, and the forfeiture of a $19,549.52 money judgment. Sachdeva faces up to 20 years in prison, $750,000 in fines, and the forfeiture of almost $6,000,000 in illegal proceeds that were previously seized by the government, as well as the forfeiture of several parcels of real property located throughout the state.

The case was investigated by the United States Department of Health and Human Services Office of the Inspector General, the Medicaid Fraud Control Unit of the Mississippi Attorney General’s Office, and the Federal Bureau of Investigation.

Inver Grove Heights Man Indicted in Mortgage Fraud Scam

A federal indictment recently unsealed charges an Inver Grove Heights man in connection with soliciting buyers to purchase properties at inflated prices in a multi-million-dollar mortgage fraud scheme. On July 11, 2012, Christopher Jon Andrews, age 53, was charged with one count of conspiracy to commit mail and wire fraud, four counts of mortgage fraud through interstate wire, and three counts of mortgage fraud through mail. The indictment, which was filed on July 10, 2012, was unsealed following Andrews’s initial appearance in federal court.

The indictment alleges that from 2005 through 2008, Andrews conspired with others to defraud mortgage lenders out of money by providing false information in order to receive loans. To that end, Andrews recruited straw buyers to purchase homes at inflated prices, purportedly using much of the excess loan funds for their personal use.

In preparing mortgage loan applications on behalf of the straw buyers, Andrews allegedly concealed the true financial conditions of those buyers. Moreover, he reportedly failed to disclose that the buyers would receive cash kickbacks from the loan proceeds and that the buyers were often not the source of the “cash to close” the transactions.

More than 30 properties were purchased by Andrews and his close relatives during the course of this scheme, with Andrews allegedly receiving millions in loan proceeds. The majority of the residences bought through this scheme have been since foreclosed, with the victim lenders losing substantial amounts of money.

Andrews conducted business under several names, including ACL Homes, LMA Real Estate Services, and CNC Management. He worked with associated companies operated by indicted co-conspirators Daniel Boler, Susanne Mathis, and Lindsay Loyear. Boler, Loyear, and Mathis have all pleaded guilty for their actions.

If convicted, Andrews faces a potential maximum penalty of 20 years in prison on each count. All sentences will be determined by a federal district court judge.

This case is the result of an investigation by the United States Postal Inspection Service and the Federal Bureau of Investigation. It is being prosecuted by Assistant U.S. Attorney Tracy L. Perzel.

This law enforcement action is in part sponsored by the interagency Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated, and proactive attack on financial crimes. It 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, 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.

An indictment is a determination by a grand jury that there is probable cause to believe that offenses have been committed by a defendant. A defendant, of course, is presumed innocent until he or she pleads guilty or is proven guilty at trial.

Executives, Borrowers Indicted in Massive Fraud That Led to Collapse of Bank of the Commonwealth

Top executives and favored borrowers have been indicted by a federal grand jury in Norfolk, Virginia, accused of masking non-performing assets at the Bank of the Commonwealth for their own personal benefit and to the detriment of the bank. This long-running scheme allegedly contributed to the failure of the bank in 2011, which the Federal Deposit Insurance Corporation (FDIC) estimates will cost the FDIC deposit-insurance fund $268 million.

Neil H. MacBride, United States Attorney for the Eastern District of Virginia; John Boles, Special Agent in Charge of the FBI’s Norfolk Field Office; Rick A. Raven, Special Agent in Charge of the Internal Revenue Service Criminal Investigation’s Washington, D.C., Field Office; Christy L. Romero, Special Inspector General for the Troubled Asset Relief Program (SIGTARP); and Jon T. Rymer, Inspector General of the Federal Deposit Insurance Corporation (FDIC-OIG), made the announcement.

“The Bank of the Commonwealth’s high risk lending practices resulted in soaring losses after the 2008 financial crisis. Led by former CEO and Board Chairman Edward Woodard, these bank insiders and their favored borrowers allegedly conspired to hide the rapidly deteriorating financial condition of the bank through fraud,” said U.S. Attorney MacBride. “For more than 30 years, this community put their trust—and their money—in the Bank of the Commonwealth. These charges portray a bank leadership that betrayed that trust for their own profit at the detriment to their own bank, its shareholders, and the community it served.”

“The common qualities of the wide-ranging criminal acts alleged in the indictment are deceit, unfettered greed and breach of trust,” said FBI SAC Boles. “I want to thank the investigators and prosecutors for their hard work and persistence in revealing these misdeeds and serving the public trust.”

“IRS-Criminal Investigation takes particular interest in cases where individuals, for their own personal benefit, use deceit and fraud to line their pockets,” said IRS SAC Rave. “The illegal activity alleged in the indictment has had a negative and long lasting impact on the community. Honest and law abiding citizens are fed up with the likes of those motivated merely by greed. IRS-Criminal Investigation is proud to bring our forensic accounting skills to this investigation, putting a stop to this type of white collar fraud.”

“CEO Edward Woodard, his son Troy, and Executive Vice Presidents Simon Hounslow and Stephen Fields are charged today with lying and whitewashing in a fraud scheme that helped drive this community bank to fail,” said SIGTARP Special Inspector General Romero. “They allegedly used scheme after scheme to conceal past-due loans and remove foreclosed property from the bank’s books. Today’s charges allege that friends of the bank received sweetheart deals in return for helping mask the bank’s true financial position, and bank insiders personally benefitted. This type of fraud contributed to the economic crisis and left Tidewater citizens, who depended on this TARP applicant bank, to deal with the bank’s collapse. Whether it happens on Wall Street or Granby Street, SIGTARP and its law enforcement partners will hold accountable those who commit crimes related to TARP.”

“The FDIC Office of Inspector General is pleased to join our law enforcement colleagues in announcing indictments resulting from our investigation of alleged fraud that contributed to the failure of the Bank of the Commonwealth and the resultant loss to the Deposit Insurance Fund of more than $265 million,” said FDIC Inspector General Rymer. “We are particularly concerned when financial institution insiders allegedly abuse positions of trust to commit crimes. We are committed to continuing our efforts on this case and others throughout the country—to bring guilty parties to justice, help maintain public trust and confidence in the banking system, and protect the FDIC’s Deposit Insurance Fund from further losses.”

The 25-count indictment was returned on July 11, 2012, and made public today after the following individuals from Norfolk were taken into custody:

Edward J. Woodard, 69, served as the bank’s chief executive officer and chairman of the board for more than three decades until he was forced to step down as chairman in April 2010 and forced to retired from the bank in December 2010. Edward Woodard is charged with conspiracy to commit bank fraud, bank fraud, false entry in a bank record, multiple counts of unlawful participation in a loan, multiple counts of false statement to a financial institution, and multiple counts of misapplication of bank funds.

Simon Hounslow, 47, served as an executive vice president and chief lending officer until the bank closed in September 2011. Hounslow is charged with conspiracy to commit bank fraud, misapplication of bank funds, false statement to a financial institution, and multiple counts of false entry in a bank record.

Stephen G. Fields, 48, served as an executive vice president and commercial loan officer until he was terminated in December 2010. Fields is charged with conspiracy to commit bank fraud, multiple counts of false entry in a bank record, multiple counts of false statement to a financial institution, and multiple counts of misapplication of bank funds.

Troy Brandon Woodard, 35, the son of Edward Woodard, was employed by a wholly owned subsidiary of the bank as a vice president and mortgage loan specialist until he was terminated in January 2011. Brandon Woodard is charged with conspiracy to commit bank fraud, bank fraud, and multiple counts of unlawful participation in a loan.

Thomas E. Arney, 56, leased office space on the third floor of the bank’s headquarters and owned and operated a residential development company, several restaurants, rental properties, and a car restoration business. Arney is charged with conspiracy to commit bank fraud, bank fraud, unlawful participation in a loan, misapplication of bank funds, and multiple counts of false statement to a financial institution.

Dwight A. Etheridge, 47, owned and operated a residential and commercial development company, as well as an employment staffing company. Etheridge is charged with conspiracy to commit bank fraud, misapplication of bank funds, and multiple counts of false statement to a financial institution.

Each charge contained in the indictment carries a maximum penalty of 30 years in prison, if convicted. Criminal indictments are only charges and not evidence of guilt. A defendant is presumed to be innocent until and unless proven guilty.

According to the indictment, in 2006, leaders at the Bank of the Commonwealth began an aggressive expansion beyond its traditional focus on Norfolk and Virginia Beach to include branches in northeastern North Carolina and the Outer Banks. By December 2009, bank’s assets reached approximately $1.3 billion, built largely through brokered deposits, a financial tool that allows investors to pool their money and receive higher rates of return. Because of the high-volatility of these deposits, an institution must remain well-capitalized to accept and renew brokered deposits.

The indictment alleges that many of the bank’s loans were funded and administered without regard to industry standards or the Bankbanks own internal controls, and by 2008, the volume of the bank’s troubled loans and foreclosed real estate soared. From 2008 through 2011, bank insiders—Edward Woodard, Hounslow, and Fields—allegedly masked the bank’s true financial condition out of fear that the bank’s declining health would negatively impact investor and customer confidence and affect the bank’s ability to accept and renew brokered deposits.

To fraudulently hide the bank’s troubled assets, bank insiders allegedly overdrew demand deposit accounts to make loan payments, used funds from related entities—at times without authorization from the borrower—to make loan payments, used change-in-terms agreements to make loans appear current, and extended new loans or additional principal on existing loans to cover payment shortfalls.

In addition, the indictment alleges that bank insiders also provided preferential financing to troubled borrowers—including Arney, Etheridge, and others—to purchase bank-owned properties. These troubled borrowers were already having difficulty making payments on their existing loans; however, the financing allowed the bank to convert a non-earning asset into an earning asset, and the troubled borrowers obtained cash at closing to make payments on their other loans at the bank or for their own personal purposes.

The indictment also alleges that troubled borrowers purchased or attempted to purchase property owned by bank insiders and Brandon Woodard. These real estate loans were fraudulently funded by the bank.

According to the indictment, in November 2008, the Bank of the Commonwealth sent to the Federal Reserve an application requesting approximately $28 million from the Troubled Asset Relief Program (TARP). Based on its regulator’s concerns about the health of the bank, the Federal Reserve later requested that the bank withdraw its TARP application, which the bank did.

From 2008 up to its closing in 2011, the bank lost nearly $115 million. The indictment alleges that the bank’s failure will cost the federal government through the deposit insurance fund in excess of $260 million. The forfeiture notice in the indictment attributes at least $71 million as illegal proceeds of the fraud.

Others charged as part of this ongoing investigation include the following:

• Business partners Eric H. Menden, 53, of Chesapeake, Virginia, and George P. Hranowskyj, 47, of Chesapeake, Virginia, pled guilty to engaging in a $41 million bank fraud scheme that contributed to the failure of the Bank of the Commonwealth. They also pled guilty to a separate fraud involving a six-year historic tax credit scheme that cost state and federal governments over $12 million and investors more than $8 million. Menden faces a maximum penalty of five years in prison for each count of conspiracy to commit wire fraud, making false statements, and conspiracy to commit bank fraud when he is sentenced on September 26, 2012. Hranowskyj faces a maximum of 20 years in prison for conspiracy to commit wire fraud and a maximum of five years in prison for conspiracy to commit bank fraud when he is sentenced on October 15, 2012.
• Natallia Green, 29, of Norfolk, Virginia, and formerly employed by Menden and Hranowskyj, pled guilty to making a false statement on a loan application to the Bank of the Commonwealth. In January 2012, Green was sentenced to five years’ probation.
• Maria Pukhova, 30, of Virginia Beach, Virginia, and formerly employed by Menden and Hranowskyj, has been charged with making a false statement on a loan application to the Bank of the Commonwealth.
• Jeremy C. Churchill, 35, of Norfolk, Virginia, and a former vice president and commercial loan officer at the bank, pled guilty to conspiring with others to cause the bank to suffer millions of dollars in losses from loans meant to conceal financial problems at the bank and with one of its customers. Convicted of conspiracy to commit bank fraud, he faces a maximum penalty of five years in prison when he is sentenced on August 24, 2012.
• Recardo S. Lewis, 61, of Norfolk, Virginia, a former employee with by Tivest Development & Construction LLC, pled guilty to conspiring with others to defraud the Bank of the Commonwealth by submitting fraudulent draws on a multi-million-dollar construction project in Virginia Beach, Virginia. Convicted of conspiracy to commit bank fraud, Lewis faces a maximum penalty of five years in prison when he is sentenced on September 19, 2012.

This investigation is being conducted by the FBI’s Norfolk Field Office, IRS-CI, SIGTARP, and the FDIC-OIG. Assistant United States Attorneys Melissa E. O’Boyle, Katherine Lee Martin, and Uzo Asonye are prosecuting the case on behalf of the United States.

The investigation has been coordinated by the Virginia Financial and Securities Fraud Task Force, an unprecedented partnership between criminal investigators and civil regulators to investigate and prosecute complex financial fraud cases in the nation and in Virginia. The task force is an investigative arm of the President’s Financial Fraud Enforcement Task Force, an interagency national task force.

President Obama established the 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.

A copy of this press release may be found on the website of the United States Attorney’s Office for the Eastern District of Virginia at http://www.justice.gov/usao/vae.

Owner of Insulation Service Company Pleads Guilty to Million-Dollar Bid-Rigging and Fraud Conspiracies at New York City Hospital

The owner of a former New York City insulation service company pleaded guilty today to a three-count indictment charging him with conspiring to rig bids on contracts for re-insulation services to New York Presbyterian Hospital (NYPH), conspiring to defraud the Internal Revenue Service (IRS), and filing a false tax return, the Department of Justice announced.

David Porath pleaded guilty in the U.S. District Court in Manhattan to charges originally filed under seal on February 18, 2010. At the time of the indictment, Porath was living in Israel. He was extradited and returned to the United States on February 16, 2012. According to the indictment, between early 2000 and March 2005, Porath and his co-conspirators engaged in a bid-rigging conspiracy whereby they created the illusion of a competitive bidding process at NYPH by preparing and submitting fictitious, intentionally high bids so that Porath’s company would be awarded the contracts for re-insulation services for having the “low” bid.

“By submitting intentionally high, non-competitive bids, the co-conspirators deceived NYPH and distorted the competitive market,” said Acting Assistant Attorney General Joseph Wayland in charge of the Department of Justice’s Antitrust Division. “The division will continue to apprehend and bring to justice those who rig bids and thereby deprive the public of the benefits afforded by a truly competitive bidding process.”

The indictment further charged that between October 2000 and February 2005, Porath conspired with Andrzej Gosek, the owner of a Pennsylvania-based asbestos abatement company, and others to defraud the IRS and to subscribe to false tax returns. Porath gave Gosek checks made out to companies in Brooklyn, purportedly for work done at NYPH by the Brooklyn companies as sub-contractors to Porath’s company. However, the companies had not performed the work. The checks totaled approximately $229,100 in 2000; $1.19 million in 2001; $760,000 in 2002; $50,000 in 2003; and $125,000 in 2004.

The Brooklyn companies cashed the checks and Gosek delivered the cash, less approximately five percent, back to Porath. Based upon these checks to the Brooklyn companies, Porath took false deductions on his company’s and his personal federal tax returns, allowing Porath to fraudulently reduce his taxable income. The indictment also charged Porath with filing a false federal tax return on or about February 17, 2005, which substantially understated his income.

The bid-rigging charge carries a maximum penalty of 10 years in prison and a $1 million fine. The tax fraud conspiracy charge carries a maximum penalty of five years in prison and a $250,000 fine. The false subscription charge carries a maximum penalty of three years in prison and a $100,000 fine. The maximum fine for each of these charges may be increased to twice the gain derived from the crimes or twice the loss suffered by the victims of the crimes, if either of those amounts is greater than the statutory maximum fine.

Including Porath and Gosek, who pleaded guilty in November 2010, 15 individuals and six companies have been convicted of or pleaded guilty to charges arising out of this federal antitrust investigation of bid rigging, fraud, bribery, and tax-related offenses relating to the award of contracts by the facilities operations department of NYPH.

The investigation was conducted by the Antitrust Division’s New York Field Office with the assistance of the FBI and the Internal Revenue Service-Criminal Investigation’s New York Field Office. The Office of International Affairs in the Justice Department’s Criminal Division also provided assistance. Anyone with information concerning bid rigging, bribery, tax offenses, or fraud related at NYPH should contact the Antitrust Division’s New York Field Office at 212-335-8000, visit www.justice.gov/atr/contact/newcase.htm, or call the FBI’s New York Division at 212-384-1000.

Florida Federal Grand Jury Returns New Indictments and Sentencing Updates for Fraudulent Oil Spill Claims

A federal grand jury has returned four indictments charging residents of Northwest Florida with filing fraudulent claims with the trust fund established for Gulf Coast oil spill victims. The grand jury’s indictments charge Daniel Marlow, 45, of Panama City, Florida; Jakima T. McCorvey, 36, and April McKinney, 31, both of Pensacola; and Dana Dias, 49, of Destin, Florida. The indictments were announced today by Pamela C. Marsh, U.S. Attorney for the Northern District of Florida.

The indictment charging Marlow alleges that, in September 2010, Marlow submitted a fraudulent claim to the Gulf Coast Claims Facility, claiming lost earnings as a result of the Deepwater Horizon oil spill. According to the indictment, Marlow submitted documentation claiming that he lost work at Sharky’s Beachfront Restaurant and Tiki Bar as a result of the oil spill, when, in fact, Marlow was no longer employed at Sharky’s at the time of the spill. The indictment charges Marlow with wire fraud for his fraudulent claim. If convicted, he faces up to 20 years in prison, five years of supervised release, a fine of $250,000, and restitution. Marlow is scheduled for jury trial in Panama City before U.S. District Judge Richard Smoak on July 23, 2012.

The indictment charging McCorvey alleges that, between October and December 2010, McCorvey submitted multiple fraudulent claims to the Gulf Coast Claims Facility, claiming lost earnings as a result of the Deepwater Horizon oil spill. According to the indictment, McCorvey submitted a fraudulent letter from Howard Johnson Hotel claiming that she had worked as a housekeeper at Howard Johnson, when, in fact, McCorvey did not work for the hotel. The indictment charges McCorvey with both mail fraud and wire fraud for her fraudulent claims. If convicted, McCorvey faces up to 20 years in prison, five years of supervised release, a $250,000 fine, and restitution on each count. McCorvey is scheduled for jury trial in Pensacola before Senior U.S. District Judge Lacey Collier on September 4, 2012.

The indictment charging McKinney alleges that, in October 2010, McKinney submitted a fraudulent business claim to the Gulf Coast Claims Facility, claiming lost earnings as a result of the Deepwater Horizon oil spill. According to the indictment, McKinney misrepresented the extent to which she earned income from her cleaning business and the effect the oil spill had on her opportunities for work. The indictment charges McKinney with mail fraud for her fraudulent claim. If convicted, she faces up to 20 years in prison, five years of supervised release, a $250,000 fine, and restitution. McKinney is scheduled for jury trial in Pensacola before Senior U.S. District Judge Lacey Collier on August 6, 2012.

The indictment charging Dias alleges that, in October 2010, Dias submitted a fraudulent claim to the Gulf Coast Claims Facility, claiming lost earnings as a result of the Deepwater Horizon oil spill. According to the indictment, Dias submitted documentation claiming that he lost income as a manager at Dollar General as a result of the spill and that he was employed during 2009 by Extended Stay American Hotels, when, in fact, Dias was not a manager at Dollar General prior to the oil spill and had not been an employee during 2009 with Extended Stay American Hotels. The indictment charges Dias with wire fraud for his fraudulent claim. If convicted, he faces up to 20 years in prison, three years of supervised release, a $250,000 fine, and restitution. Dias is scheduled for jury trial in Pensacola before Chief U.S. District Judge Casey Rodgers on August 6, 2012.

An indictment is merely an allegation by a grand jury that a defendant has committed a violation of federal criminal law and is not evidence of guilt. All defendants are presumed innocent and entitled to a fair trial, during which it will be the government’s burden to prove guilt beyond a reasonable doubt at trial.

Updates on Previous Indictments

The indictments of three other Floridians were announced in February of this year for fraudulent claims made in 2010, following the aftermath of the Deepwater Horizon oil spill. All three defendants have since pleaded guilty. One has been sentenced and two others await sentencing later this summer.

Gabrielle Sawyer, 26, of Pensacola, was indicted last year for mail fraud and tampering with a witness. On March 26, 2012, Sawyer appeared before Senior U.S. District Judge Lacey A. Collier and pleaded guilty to both counts. In pleading guilty, Sawyer admitted that she submitted a fraudulent claim to the Gulf Coast Claims Facility, falsely claiming lost earnings at local convenience store. Sawyer further admitted to attempting to convince a witness to testify falsely before the grand jury after Sawyer learned she was being investigated. On June 12, 2012, Sawyer was sentenced to serve 12 months in prison, followed by three years of supervised release.

Jennifer J. Lee, 39, of Destin, was indicted last year for wire fraud as a result of her fraudulent Gulf Coast Claims Facility claim. On May 2, 2012, Lee pleaded guilty. In pleading guilty, Lee admitted that she submitted a fraudulent claim to the Gulf Coast Claims Facility, falsely claiming that she lost earnings at South Bay Ace Hardware & Lumber Company due to the oil spill. Lee faces up to 20 years in prison, five years’ supervised release, and a $250,000 fine. She will be sentenced by Chief U.S. District Court Judge M. Casey Rodgers on a date to be announced by the Court.

Robert Thayer, 38, of Santa Rosa Beach, Florida, was indicted for wire fraud as a result of his fraudulent Gulf Coast Claims Facility claim. On May 2, 2012, Thayer pleaded guilty. In pleading guilty, Thayer admitted that he submitted a fraudulent claim to the Gulf Coast Claims Facility, falsely claiming that he lost earnings at Destin West Resort due to the oil spill. Thayer faces up to 20 years in prison, five years’ supervised release, and a $250,000 fine. He will be sentenced by Chief U.S. District Court Judge M. Casey Rodgers on August 14, 2012.

Gov. Perry: Texas Will Not Expand Medicaid or Implement Health Benefit Exchange

Gov. Rick Perry, in a letter to U.S. Health and Human Services Secretary Kathleen Sebelius, today confirmed that Texas has no intention of implementing a state insurance exchange or expanding Medicaid as part of Obamacare. Any state exchange must be approved by the Obama Administration and operate under specific federally mandated rules, many of which have yet to be established. Expanding Medicaid would mandate the admission of millions of additional Texans into the already unsustainable Medicaid program, at a potential cost of billions to Texas taxpayers.

"If anyone was in doubt, we in Texas have no intention to implement so-called state exchanges or to expand Medicaid under Obamacare," Gov. Perry said. "I will not be party to socializing healthcare and bankrupting my state in direct contradiction to our Constitution and our founding principles of limited government.

"I stand proudly with the growing chorus of governors who reject the Obamacare power grab. Neither a "state" exchange nor the expansion of Medicaid under this program would result in better "patient protection" or in more "affordable care." They would only make Texas a mere appendage of the federal government when it comes to health care."

Gov. Perry has frequently called for the allocation of Medicaid funding in block grants so each state can tailor the program to specifically serve the needs of its unique challenges. As a common sense alternative, Gov. Perry has conveyed a vision to transform Medicaid into a system that reinforces individual responsibility, eliminates fragmentation and duplication, controls costs and focuses on quality health outcomes. This would include establishing reasonable benefits, personal accountability, and limits on services in Medicaid. It would also allow co-pays or cost sharing that apply to all Medicaid eligible groups - not just optional Medicaid populations - and tailor benefits to needs of the individual rather than a blanket entitlement.

Gov. Perry has consistently rejected federal funding when strings are attached that impose long-term financial burdens on Texans, or cede state control of state issues to the federal government. In 2009, Texas rejected Washington funding for the state's Unemployment Insurance program because it would have required the state to vastly expand the number of workers entitled to draw unemployment benefits, leading to higher UI taxes later.

In 2010, Gov. Perry declined "Race to the Top" dollars, which would have provided some up-front federal education funding if Texas disposed of state standards and adopted national standards and testing.

To view the governor's letter to Secretary Sebelius, please visit http://governor.state.tx.us/files/press-office/O-SebeliusKathleen201207090024.pdf.

Manhattan U.S. Attorney Announces Charges Against Additional Long Island Railroad Retiree for Participating in Massive Disability Fraud Scheme

Preet Bharara, the United States Attorney for the Southern District of New York, Martin J. Dickman, Inspector General of the Railroad Retirement Board (RRB-OIG), Janice K. Fedarcyk, the Assistant Director in Charge of the New York Office of the Federal Bureau of Investigation (FBI), and Barry L. Kluger, Inspector General of the New York State Metropolitan Transportation Authority (MTA-OIG), announced charges today against Donald Alevas, the former LIRR director of shop equipment, engineering, and environmental compliance, in connection with his participation in a massive fraud scheme in which Long Island Railroad (LIRR) workers allegedly claimed to be disabled upon early retirement so that they could receive disability benefits to which they were not entitled. Alevas was arrested this morning and will be presented in Manhattan federal court before U.S. Magistrate Judge Debra Freeman this afternoon. He is the 22nd person to be charged in connection with this scheme. Other defendants include two doctors and an office manager for one of the doctors who were allegedly involved in falsely diagnosing retiring LIRR workers as disabled; two “facilitators” who allegedly served as liaisons between retiring workers and the participating doctors; and 18 LIRR retirees, one of whom was also charged as a facilitator.

Manhattan U.S. Attorney Preet Bharara said, “As today’s arrest makes abundantly clear, our investigation of the massive fraud that was allegedly perpetrated on the LIRR and that cost it hundreds of millions of dollars in potentially fraudulent benefits is very much ongoing. It should also make clear that we will prosecute those against whom we believe we have the evidence to prove that they received benefits to which they were not entitled—Donald Alevas makes that number 22, and he will not be the last. We strongly encourage any LIRR retiree who lied to get disability benefits to come forward and participate in the voluntary disclosure program while they still have the chance.”

RRB-OIG Inspector General Martin J. Dickman said, “My office, in partnership with the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation, remains committed to the investigation and prosecution of individuals who have submitted false information to the U.S. Railroad Retirement Board. The recent arrest is a testament to the tireless commitment of the dedicated professionals assigned to this ongoing investigation. I applaud their outstanding efforts and thank them for their unwavering resolve.”

FBI Assistant Director in Charge Janice K. Fedarcyk said, “Mr. Alevas is the latest LIRR retiree to be charged with engineering a generous but fraudulent disability pension. He joins nearly two dozen others previously charged with serious crimes in connection with the ongoing investigation. We know he will not be the last. We encourage others to take advantage of the voluntary disclosure program rather than end up in handcuffs facing prison time.”

MTA-OIG Inspector General Barry L. Kluger said, “Once again, I wish to thank U.S. Attorney Bharara, his staff, and our other partners in this ongoing investigation and prosecution for their dedication to combating pension fraud. The voluntary disclosure program previously announced by the U.S. Attorney, the Long Island Railroad, and the federal Railroad Retirement Board, and extended today, remains a fair but still limited opportunity, in the public interest, for individuals who fraudulently obtained federal disability pensions to come forward, admit their wrongdoing, and thereby avoid the harsh reality of arrest and criminal prosecution. We again strongly advise all such individuals to do so now before their time runs out.”

The LIRR Disability Fraud Scheme

The following allegations are based on public filings in the LIRR cases, including the complaint against Alevas unsealed today, as well as statements made in open court:

The RRB is an independent U.S. agency that administers benefit programs, including disability benefits, for the nation’s railroad workers and their families. A unique LIRR contract allows employees to retire at the relatively young age of 50 if they have been employed by the LIRR for at least 20 years. It is the only commuter railroad in the United States that offers a retirement pension at that age. Eligible employees are entitled to receive a LIRR pension, which is a portion of the full retirement payment for which they are eligible at 65. At 65, they also receive an RRB pension. If an LIRR worker retires at 50, he or she will receive less than his or her prior salary and substantially lower pension payments than those to which they will be entitled at 65. However, an LIRR employee who retires and claims disability may receive a disability payment from the RRB on top of their LIRR pension, regardless of age. A retiree’s LIRR pension, in combination with RRB disability payments, can be roughly equivalent to the base salary earned during his or her career.

Hundreds of LIRR employees have exploited the overlap between the LIRR pension and the RRB disability program by pre-planning the date on which they would falsely declare themselves disabled so that it would coincide with their projected retirement date. These false statements, made under oath in disability applications, allowed LIRR employees to retire as early as age 50 with an LIRR pension, supplemented by the fraudulently obtained RRB disability annuity. From 2004 through 2008, 61 percent of LIRR employees who claimed an RRB benefit were between the ages of 50 and 55, and each received a disability award. In contrast, only 7 percent of employees at Metro-North who stopped working and received disability benefits during the same time period were between the ages of 50 and 55.

Three New York-area doctors accounted for 86 percent of the LIRR disability applications filed prior to 2008: Peter J. Ajemian, Peter Lesniewski, and a third unnamed doctor (“Disability Doctor-3”), who is recently deceased. Ajemian, his office manager, Maria Rusin, and Lesniewski used their respective medical practices as “disability mills,” preparing fraudulent medical narratives for LIRR retirees well before the employees’ planned retirement dates so that the narratives could be submitted to the RRB upon retirement. These medical narratives were fabricated or grossly exaggerated in order to recommend a set of restrictions that, if legitimate, would render it impossible for the LIRR employees to continue in their occupations. Many of the purportedly “objective” findings from the tests they conducted showed nothing more than normal degenerative changes one would expect to see in patients within the relevant age bracket.

Alevas’s Fraud

Donald Alevas was the director of shop equipment, engineering and environmental compliance at the LIRR. On or about November 1, 2008—roughly one month after his 50th birthday—Alevas retired from the LIRR, claiming that he had an occupational disability and that he had become disabled as of August 30, 2008. In so doing, Alevas ensured that each year he would receive tens of thousands of dollars in additional benefits. For example, in 2010, Alevas received approximately $55,590 in LIRR pension payments and approximately $33,600 in RRB disability payments, for a total of $89,190. Those payments nearly matched the salary he received in his final year working for the LIRR.

Alevas long planned to retire in November 2008, and it was only as that retirement date drew closer that he began seeing doctors or indicating that he had any disability affecting his work. At least as early as January 2007, Alevas asked for pension estimates based on a “planned retirement date” of November 1, 2008. Thereafter, Alevas exchanged e-mails with a co-conspirator about his plan to become disabled as of August 30, 2008, and asked how he should handle telling LIRR that he was disabled. Alevas also began consulting with Dr. Peter Ajemian in December 2007 and paid him to falsely claim that he suffered from a variety of disabilities, including hearing loss and neck and back pain. As further proof of Alevas’s deliberate scheme, the medical notes upon which he ultimately relied to claim his total disability were written in connection with a medical examination by Dr. Ajemian that never even occurred. Specifically, records from Ajemian’s medical practice include “notes” memorializing his examination of Alevas on October 28, 2008, at which time he described Alevas’s need to take disability leave because of “neck and back pain.” However, Ajemian had stopped working at that medical practice in September 2008, so the notes were a fiction that were timed to justify his planned retirement.

At the same time Alevas was developing a record to support his disability claim so that he could receive RRB disability benefits, he was also building a record that would qualify him for private disability insurance. Specifically, in August 2007, he submitted an application to a private insurer in which he stated that he was not disabled. He also informed a different doctor—at the same time he was seeing Ajemian—that he had “started side jobs in his home” including “handy-man and small construction work.” Alevas’s plan was to collect disability benefits from both the RRB and his private insurance policy.

Extension of the Voluntary Disclosure and Disposition Program

On May 22, 2012, the U.S. Attorney’s Office, in partnership with the RRB and the LIRR, announced a voluntary disclosure and disposition program. Under the program, the U.S. Attorney’s Office would agree not to prosecute, or file a civil action against, any LIRR retiree who voluntarily comes forward and admits that he or she obtained RRB disability benefits by making false and/or misleading statements to the RRB, and agrees to give up his or her right to certain RRB disability benefits. In addition, the RRB would agree not to commence any administrative proceedings seeking the repayment of any disability benefits that are the subject of this program, and the LIRR would agree not to seek forfeiture of LIRR Company Pension Plan(s) benefits. Under the Early Version of the program, any participating LIRR retiree would have to give up his or her right to future disability benefits, while under the Standard Version of the program, any participating LIRR retiree would have to give up not only future disability benefits, but 50 percent of the RRB disability benefits he or she has already received.

At the time of the original announcement, the deadline for participation in the Early Program was July 6, 2012. In light of continuing inquiries received by the U.S. Attorney’s Office, as well as the need to ensure that all eligible LIRR retirees have sufficient time to make an informed decision, the deadline for the Early Version of the program will now be September 14, 2012. The deadline for the Standard Version of the program will now be October 15, 2012.

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Alevas, 53, of Patchogue, New York, faces one count of conspiracy to commit mail fraud and health care fraud, and one count of mail fraud. Each charge carries a maximum sentence of 20 years in prison.

Manhattan U.S. Attorney Bharara praised the RRB-OIG, the FBI, and the MTA-OIG for their outstanding work in the investigation, which he noted is ongoing. He also acknowledged the previous investigation conducted by the New York State Attorney General’s Office into these pension fraud issues.

The Office’s Complex Frauds Unit is handling the case. Assistant U.S. Attorneys Edward A. Imperatore and Tatiana Martins are in charge of the prosecution.

Peter J. Ajemian, Peter Lesniewski, Maria Rusin, Marie Baran, Joseph Rutigliano, Joseph Rutigliano, Gregory Noone, Regina Walsh, Sharon Falloon, Gary Satin, Steven Gagliano, Richard Ehrlinger, Brian Delgiorno, Philip Pulsonetti, Gregory Bianchini, Franklin Plaia, Michael Stavola, Michael Dasaro, Karl Brittell, Kevin Nugent, Gary Supper, and Thomas Delalla were previously charged in connection with the LIRR disability fraud scheme. The charges against them remain pending and the defendants are presumed innocent unless and until proven guilty.