Securities and Investments All Freight Logistics Glyn Richards (Sentence: 360 months) Action Date: July 2, 2009 Location: Camden, NJ On July 2, 2009, Glyn Richards, the former president and CEO of All Freight Logistics, Inc., was sentenced to 360 months in federal prison on mail fraud and money laundering charges in connection with his Ponzi scheme to defraud investors of approximately $5.8 million. Richards has been held in federal custody since his capture in Tampa, Florida, on Feb. 9, 2009, after he fled while free on a $350,000 secured bond pending sentencing. In addition, a restitution hearing was set for September 28, 2009, to determine the appropriate amount of restitution Richards must pay to the victims of his scheme. On June 23, 2008, Richards made his first appearance in federal court and pleaded guilty before Judge Bumb to a two-count Information, which charged mail fraud and money laundering. As part of his plea, Richards agreed to pay restitution. At his plea hearing, Richards stated that prior to May 2005 he incorporated All Freight Logistics, Inc. in New Jersey and served as the company’s president and CEO. In May 2005, Richards began soliciting investments in the company and provided investors with a contract describing the nature of the investment in All Freight Logistics and the profits to the investors, he admitted. Richards admitted that the contract stated that All Freight Logistics was in the business of transporting military equipment for the U.S. Department of Defense. Furthermore, the contract stated that the investment funds were to be utilized to pay "up-front costs and expenses to overseas agents and steamship lines" in connection with the transportation of equipment, Richards admitted. Typically a contract provided for a 120-day investment of $25,000 in exchange for a 44% return on the investment, which was paid out over the next four months, Richards admitted. Richards admitted that as president of All Freight Logistics and individually, he executed contracts with investors. Richards also admitted that All Freight Logistics never transported military equipment for the Department of Defense. In regards to the money laundering count, Richards admitted that in connection with the fraudulent investment scheme, on March 24, 2006, he cashed a check from an investor in the amount of $25,000 at United Check Cashing in Clementon. Richards was first arrested on July 25, 2007, by investigators with the Camden County Prosecutor’s Office on state charges. The Government is represented by Assistant U.S. Attorneys Diana Vondra Carrig and Deborah Prisinzano Mikkelsen of the Criminal Division in Camden. BEEN FLEECED? Action Date: July 2, 2009 Location: West Palm Beach, FL Fraud Digest is compiling statements from fraud victims. Was your retirement plan to rely on the continued skill of Bernie Madoff? Did you buy into a business opportunity to invest in ATM machines, or public phones? Did you believe that you were loaning your money risk-free to a foreign bank? We will publish first-hand account, edited as necessary. When we have the top 100, we will send the compilation to lawmakers so the need for enforcement and regulation can be better documented. Please let us know if you wish to remain anonymous. Click on the email link at the bottom of the Home Page to submit your first-hand account. Health Care Fraud ABC Home Health Care, Inc. Carlos Castaneda Vanessa Estrada Florida Home Health Care Providers, Inc. Alex Hernandez Modesto Hildago Enrique Perez Alejandro Hernandez Quiros Vicenta Tellechea Javier Zambrana Gladys Zambrana Action Date: July 1, 2009 Location: Miami, FL On July 1, 2009, bond hearings were held in federal court in Miami, Florida, for eight Miami-area residents charged in a $22 million Medicare fraud scheme involving home health care agencies. Indictments in the case were unsealed on June 26, 2009. Gladys Zambrana, Javier Zambrana, Enrique Perez, Alejandro Hernandez Quiros aka Alex Hernandez, Vanessa Estrada, Vicenta Tellechea, Modesto Hidalgo and Carlos Castaneda were charged with conspiracy to commit health care fraud. Gladys Zambrana was also charged with four counts of health care fraud. Gladys Zambrana and Hernandez Quiros were charged with three counts each of paying health care kickbacks, while Perez, Hidalgo and Tellechea were charged with one count each of paying health care kickbacks. Gladys Zambrana, Perez, Alejandro Quiros, Tellechea and Castaneda were also charged with conspiracy to launder health care fraud proceeds. According to the indictment, Gladys Zambrana, Perez and Hernandez Quiros operated ABC Home Health Care Inc. (ABC), listing Javier Zambrana as the owner; and Gladys Zambrana and Castaneda operated Florida Home Health Care Providers Inc. (Florida Home Health), listing Tellechea as the owner. Both ABC and Florida Home Health purported to be home health agencies that catered to Medicare beneficiaries. The indictment alleges that at both agencies, beneficiaries were recruited and paid kickbacks and bribes to arrange for their Medicare beneficiary numbers to be used by their co-conspirators to file claims with Medicare for purported home health care services. The indictment alleges that the services were not provided and were not medically necessary. The indictment alleges that in addition to exerting ownership and control of the home health agencies, Hernandez Quiros and Castaneda acted as Medicare beneficiary recruiters for ABC and Florida Home Health, respectively; and Hidalgo, a medical assistant, falsified medical tests and records to make it appear that the services were needed. The indictment alleges that ABC billed more than $17 million to the Medicare program for services provided from January 2006 through December 2008 that were medically unnecessary and were not actually provided. During that time frame, Medicare paid more than $11 million on those fraudulent claims submitted by ABC. The indictment also alleges that from October 2007 through March 2009, Florida Home Health billed more than $5 million to the Medicare program for services that were medically unnecessary and not actually provided. During that time frame, Medicare paid more than $4 million on those fraudulent claims submitted by Florida Home Health. The charge of conspiracy to commit health care fraud carries a maximum prison sentence of 10 years. Each charged count of health care fraud carries a maximum prison sentence of 10 years and each count of paying health care kickbacks carries a maximum prison sentence of five years. Conspiracy to launder health care fraud proceeds carries a maximum prison sentence of 10 years per count. In conjunction with the criminal case, on June 24, 2009, the U.S. Attorney’s Office filed a civil complaint for injunctive relief under the fraud injunction statute and obtained a temporary restraining order freezing the assets of ABC, Florida Home Health, Gladys Zambrana, Javier Zambrana, Perez, Hernandez Quiros, Castaneda and Tellechea. In addition, that temporary restraining order also freezes certain financial assets of four other companies the defendants owned or controlled and allegedly used to launder money fraudulently obtained from Medicare. The temporary restraining order is intended to preserve the remaining proceeds of the fraud for recovery by the United States as part of the criminal case and any related civil proceedings. “Health care fraud schemes in South Florida range from simple billing schemes and fly-by-night durable medical equipment providers, to more sophisticated frauds, including infusion fraud, fraud on the Medicare Advantage Program, and now fraud in the delivery of home health services,” said Acting U.S. Attorney Jeffrey H. Sloman. “Today’s coordinated criminal and civil action delivers an effective one-two punch to health care fraudsters: they were not only caught and criminally charged, but they are also being stripped of their illegal proceeds.” The criminal case is being prosecuted by Trial Attorney N. Nathan Dimock and Deputy Chief Kirk Ogrosky of the Criminal Division’s Fraud Section. The civil case is being handled by Assistant U.S. Attorney Ted L. Radway of the U.S. Attorney’s Office for the Southern District of Florida. The case was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and Acting U.S. Attorney Sloman of the Southern District of Florida. Since strike force operations began in March 2007, 115 cases including 257 defendants have been indicted. Collectively, these defendants are alleged to have fraudulently billed the Medicare program for more than $600 million. Securities and Investments James H. Park Wealth Pools International, Inc. Action Date: July 1, 2009 Location: Orlando, FL On July 1, 2009, the SEC filed a civil injunctive action in federal court in Orlando, Florida, against James H. Park of Orlando, Florida for his alleged role in a fraudulent pyramid scheme called Wealth Pools International, Inc. ("Wealth Pools"), which raised at least $132 million from more than 10,000 investors. Wealth Pools purported to be a multi-level marketing company selling a language tutorial DVD through a network of members around the world. The Commission alleged that, in reality, it was a fraudulent pyramid scheme premised on the sale of memberships and thus destined to collapse, leaving the majority of investors with substantial losses. On December 6, 2007, the Commission obtained a temporary injunction and the appointment of a receiver over Wealth Pools, bringing the scheme to a halt. The SEC's complaint alleges that Park established the telemarketing sales force at Wealth Pools, headed the customer service department, and solicited investors into the fraudulent pyramid scheme. The complaint also alleges that while offering and selling Wealth Pools's securities, Park misled investors about Wealth Pools' business structure, the safety of the Wealth Pools investment, and the dilutive effect on the commissions from the addition of new investors. The complaint further alleges Park failed to disclose to investors his role in a similar pyramid scheme, which ended in bankruptcy after two years. Finally, the complaint alleges that Park illegally operated as an unregistered broker-dealer. The SEC's complaint charges Park with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and with aiding and abetting Wealth Pools's violations of Section 10(b) and Rule 10b-5. The SEC seeks a permanent injunction, disgorgement with prejudgment interest, and civil money penalties against Park. Corporate Accounting Beazer Homes Michael T. Rand Action Date: July 1, 2009 Location: Sandy Springs, GA On July 1, 2009, the SEC filed a civil complaint against Michael T. Rand, of Sandy Springs, Georgia. The Commission charged Rand, the former chief accounting officer of Atlanta-based home builder Beazer Homes, USA, Inc., for conducting a multi-year fraudulent earnings management scheme and misleading Beazer’s outside auditors and internal Beazer accountants in order to conceal his wrongdoing. The Commission alleged that Rand fraudulently decreased Beazer’s reported net income by recording improper accounting reserves during certain periods between 2000 and 2005 in order to meet or exceed analysts’ expectations for Beazer’s diluted earnings per share (EPS) and maximize yearly officer and senior employee bonuses. Rand began reversing these improper reserves beginning in the first quarter of fiscal year 2006 in order to offset Beazer’s declining financial performance. The Commission’s Complaint also alleges that in fiscal year 2006 and the first two quarters of fiscal year 2007, Rand improperly recognized revenue from the sale and leaseback of certain model homes on Beazer’s financial statements and used secret side agreements in order to hide his misconduct from Beazer’s outside auditors. Cumulatively, Rand’s actions caused Beazer to understate its income in SEC filings by approximately $63 million during fiscal years 2000 to 2005, representing approximately 7 percent of Beazer’s cumulative actual restated net income of $955 million for the period. Rand’s fraudulent actions caused Beazer to overstate its income and understate its loss by a total of $47 million during fiscal 2006 and the first two quarters of fiscal 2007, representing 20 percent of Beazer’s cumulative actual restated net income of $232 million for the period. The Commission’s complaint charges Rand with violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and, with aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder, and seeks a permanent injunction, disgorgement of Rand’s ill-gotten gains plus prejudgment interest, and a financial penalty. Health Care Fraud Karen Arakelyan Juana Aranda Ronald Luis Bradshaw (Sentence: pending) Glenmountain Medical Group Star Medical Supply Co. Action Date: July 1, 2009 Location: Los Angeles, CA On June 30, 2009, a federal jury in Los Angeles convicted a physician assistant for his role in a $7.7 million Medicare fraud scheme. After a seven-day trial in federal court in Los Angeles, a jury found Ronald Luis Bradshaw, 59, guilty on all charged counts, including conspiracy to commit health care fraud, multiple counts of health fraud and aggravated identity theft for prescribing medically unnecessary durable medical equipment to hundreds of Medicare beneficiaries under the stolen identity of a doctor. According to the evidence presented at trial, Bradshaw worked as a licensed physician assistant at a Los Angeles clinic, Glenmountain Medical Group (Glenmountain), allegedly under the supervision of a doctor. Evidence at trial established that from approximately April 2005 to April 2008, Bradshaw prescribed hundreds of motorized wheelchairs and custom-fitted orthotics to Medicare beneficiaries under the apparent authority and supervision of a doctor. Bradshaw also ordered diagnostic tests for these beneficiaries under the same doctor’s apparent authority. The doctor, whose unique physician identification number had been used by the defendant to forge medically unnecessary prescriptions, testified that he never worked at Glenmountain and that he never authorized the defendant to use his number. The total amount billed under this doctor’s name for medical equipment and tests prescribed by the defendant was $7,708,069. Several beneficiaries testified at trial that they were recruited by patient recruiters to be examined at Glenmountain. Some beneficiaries testified that they were enticed by the promise of a free exam, while others were promised free, expensive medical equipment. Juana Aranda, a professional patient recruiter who previously pleaded guilty in connection with this scheme, testified that she was paid cash for bringing Medicare beneficiaries to Glenmountain and that she was paid more if the beneficiary was prescribed a motorized wheelchair. Each of the beneficiaries who testified at trial stated that they had no difficulties walking and that they did not complain about any difficulties during their respective examinations. After their examinations, however, each received a motorized wheelchair delivered to them by Star Medical Supply Inc., a durable medical equipment company owned and operated by Karen Arakelyan, who previously pleaded guilty in connection with this scheme. Arakelyan testified that he paid a Glenmountain representative $1,200 per prescription. Arakelyan admitted he then delivered a motorized wheelchair to the beneficiary and filed a fraudulent claim with Medicare based on the bogus prescription that he purchased from Glenmountain. At sentencing, scheduled for Nov. 12, 2009, Bradshaw faces a maximum penalty of 10 years in prison on each of the four health care fraud counts as well as the conspiracy to commit health care fraud count for which he was convicted. In addition, he faces a mandatory two-year prison sentence on the aggravated identity theft count, which must be served consecutive to the sentence on the fraud counts. The case was prosecuted by Trial Attorney Steven Kim of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Christopher K. Lui, with the investigative assistance of the HHS Office of the Inspector General and the FBI. Health Care Fraud BJB Pharmacy Discount, Inc. Marbe Distribution Corporation Ihosvanny Anaya Martinez Padrino Services, Inc. Barbara Ramantol Action Date: June 30, 2009 Location: Miami, FL On June 30, 2009, Ihosvanny Anaya Martinez of Miami-Dade County, Florida was arrested and an indictment was unsealed charging Martinez with money laundering offenses relating to health care fraud. On June 25, 2009, a federal grand jury in Miami returned an eleven-count Indictment charging Martinez with conspiracy to commit money laundering, in violation of Title 18, United States Code, Section 1956(h), and numerous substantive money laundering offenses, in violation of Title 18, United States Code, Sections 1956(a)(1)(B)(i) and 1957. According to the Indictment, Martinez was the president of Marbe Distribution Corporation and Padrino Services, Inc. He is alleged to have opened three bank accounts in the names of his companies and a fourth bank account in his own name. The Indictment alleges that from February 2006 through December 2008, approximately $1.2 million was deposited into Martinez’s four bank accounts from BJB Pharmacy Discount, Inc. BJB Pharmacy Discount, Inc. was purportedly in the business of providing durable medical equipment (DME) to Medicare beneficiaries. Barbara Ramentol, the owner and president of BJB Pharmacy, previously pled guilty in May 2009 in a separate health care fraud case and admitted receiving more than $3 million from Medicare based on false claims. The Indictment lists numerous large cash withdrawals and other transactions from Martinez’s accounts, resulting in the money laundering charges. If convicted, Martinez faces a maximum sentence of twenty years’ imprisonment on the money laundering conspiracy charge and on each of the substantive money laundering violations of Title 18, United States Code, Section 1956(a)(1)(B)(i), and ten years’ imprisonment on each of the substantive money laundering violations of Title 18, United States Code, Section 1957. This case is being prosecuted by Assistant U.S. Attorney Christopher J. Hunter. Tax Fraud Daron Keith Stalvey (Sentence: pending) Stalvey Construction Company Action Date: June 29, 2009 Location: Florence, SC On June 26, 2009, Daron Keith Stalvey pled guilty in federal court in Florence, South Carolina, to income tax evasion and to knowingly hiring at least ten illegal Mexican immigrants. Stalvey owned and operated Stalvey Construction Company, a concrete company. According to the indictment, returned in March, 2009, Stalvey skimmed nearly $660,000 from his business from 2003 through 2006, and failed to report these funds as income, for a tax loss of nearly $200,000. Seven search warrants were issued in 2007 for Stalvey's home, business and storage sheds. At that time, Stalvey's workplace was also seized and 13 illegal immigrant employees were detained and deported. Stalvey used these workers as concrete workers and paid them in unreported cash payments. This case was prosecuted by Assistant U.S. Attorney William Day II. Securities and Investments Bernard Madoff (Sentence: 150 years) Action Date: June 29, 2009 Location: New York, NY On June 29, 2009, Bernard Madoff was sentenced in federal court in New York to 150 years in prison. Madoff pled guilty to 11 felonies related to the largest Ponzi scheme in U.S. history. Madoff claimed to be an expert in money management and investing, but actually issued phony account statements to thousands of investors for many years. Madoff defrauded institutions, charities, mutual funds, hedge funds and individual investors in his $65 billion scheme. Health Care Fraud Alexis Carrazana (Sentence: 72 months) Alexis Dagnesses (Sentence: 90 months) Carmen del Cueto Carlos Garrido (Sentence: 37 months) Midway Medical Center Gonzalo Nodarse (Sentence: 78 months) Roberto Rodriguez (Sentence: 97 months, Restitution/Fines/Penalties/Settlements Paid: $9,000,000) Action Date: June 29, 2009 Location: Miami, FL On June 29, 2009, Miami physician Roberto Rodriguez, 54, was sentenced in federal court to 97 months in prison for his role in a Medicare fraud scheme involving HIV infusion services. Rodriguez was also ordered to pay more than $9 million in restitution. Rodriguez pled guilty on March 23, 2009, to conspiracy to commit healthcare fraud. In his guilty plea, Rodriguez admitted that he was a co-owner of and practicing physician at Midway Medical Center Inc. (Midway), a Miami clinic that purported to specialize in the treatment of HIV patients. Rodriguez admitted that, while at Midway, he and his co-conspirators routinely billed the Medicare program for services that were medically unnecessary and in many instances were never provided. Rodriguez further admitted that he purchased only a small fraction of the drugs that were purportedly administered to patients at the clinic. Most of the services allegedly provided to patients at Midway were billed to the Medicare program as treatments for thrombocytopenia, a disorder involving a low count of platelets in the blood. According to the plea documents, none of Midway’s patients actually had low blood platelet counts. Rodriguez admitted that to make it appear that the patients actually had low platelet levels, he and his co-conspirators used chemists to manipulate the blood samples drawn from Midway’s patients before the blood was sent to a laboratory for analysis. In his plea, Rodriguez admitted to ordering that patients at Midway receive medications designed to treat thrombocytopenia despite knowing that the laboratory results had been falsified and that the patients did not actually have that condition. Midway was not the only clinic where Rodriguez purported to treat HIV patients with injection and infusion therapies. In his plea, Rodriguez admitted that he was listed as medical director and practicing physician for five other Miami-area HIV infusion clinics between October 2003 and February 2005, where he engaged in similar criminal activity. Specifically, Rodriguez admitted that he and his co-conspirators at these other clinics billed the Medicare program for HIV injection and infusion services that Rodriguez knew were medically unnecessary and in some instances were never provided. Rodriguez admitted to causing more than $20 million in false claims to be submitted to the Medicare program at all of his clinics, including Midway. A number of Rodriguez’s co-defendants have already been sentenced for their roles at Midway and related clinics. On June 5, 2009, in a sentencing hearing before Judge Huck, chemist Alexis Dagnesses, 44, was sentenced to 90 months in prison; medical assistant Gonzalo Nodarse, 38, was sentenced to 78 months in prison; medical assistant Alexis Carrazana, 41, was sentenced to 72 months in prison; and physician Carlos Garrido, 69, was sentenced to 37 months in prison. Rodriguez’s co-defendant Carmen del Cueto, a physician, is scheduled to be sentenced on Sept. 11, 2009. The case was prosecuted by Trial Attorney John K. Neal of the Criminal Division’s Fraud Section and investigated by the HHS Office of the Inspector General and the FBI. The case was brought as part of the Medicare Fraud Strike Force, supervised by Deputy Chief Kirk Ogrosky of the Criminal Division’s Fraud Section and Acting U.S. Attorney Sloman of the Southern District of Florida. Federal prosecutors have indicted 115 cases with 257 defendants in Miami, Los Angeles and Detroit since the inception of strike force operations in March 2007. Collectively, these defendants are alleged to have fraudulently billed the Medicare program for more than $600 million. Tax Fraud Premium Tax Evasion Action Date: June 26, 2009 Location: West Palm Beach, FL On June 26, 2009, this is the question the Editors of Fraud Digest are researching: Have certain insurance companies evaded taxes and assessment on at least $20 million (conservatively) over the past 5 years, somewhat ironically, by not paying taxes and assessments on the amounts collected (primarily from PEOs) as taxes and assessments? This is more than a technical matter. States have allowed certain workers' compensation insurance companies to pass-through the costs of taxes and assessments to their policyholders AND TO BILL SEPARATELY FOR THESE PASS-THROUGHS. This usually occurs on large policies, especially those issued to PEOs. (The PEOs often, in turn, separately pass these tax and assessment costs to their clients.) In doing so, the states did not anticipate that insurance companies would not include the amounts collected as taxes and assessments when paying their own taxes. States also did not anticipate that certain companies might use charges for taxes and assessments improperly as a profit item. Who oversees these charges to make sure that the insurance companies are correctly charging for taxes and assessments, accounting for these items properly, and including these moneys as premium when paying their own taxes and assessments? This seems to be an issue that Examiners do not yet understand. Tax Fraud Juan Rene Caro (Sentence: 18 years, Restitution/Fines/Penalties/Settlements Paid: $11,250,000) La Bamba Check Cashing Action Date: June 24, 2009 Location: Miami, FL On June 23, 2009, Juan Rene Caro was sentenced in federal court in Miami, Florida, to 18 years in prison. Caro was the mastermind of a $132.7 million tax and insurance fraud scheme and the most prominent figure in the underground economy or "cash-under-the-table" schemes prosecuted to date. Caro, 42 years old, was formerly the president of La Bamba Check Cashing stores in Miami. In court, Caro wept and begged U.S. District Court Judge Joan Lenard to show leniency so that he would not be separated from his wife and five children. ''I'm asking you for a second chance; I will not disappoint you... please don't take my kids away from me,'' said Caro. Over 100 friends and family members attended the sentencing in support of Caro, who asked for house arrest. The Judge was unmoved. Judge Lenard described Caro's business as "a shadow banking industry to commit crime." She told Caro that La Bamba check cashing caused great harm to American taxpayers and ordered that he pay restitution of $11 million. Construction subcontractors used Caro's business to cash checks made to fictitious companies and conceal the true recipient of the funds. The cash from these transactions was used to pay construction workers off-the-books, in order to evade payroll taxes and workers' compensation insurance. In February, 2009, Caro was convicted of conspiracy and 15 counts of filing false currency transaction reports in one of the biggest IRS undercover cases in South Florida. Caro received a commission of 3% to 5% for each check cased at La Bamba. La Bamba had grown so big and provided services at so many construction sites that it used a fleet of check cashing trucks to deliver payroll to these sites. This case was prosecuted by Assistant U.S. Attorney Wilfredo Hernandez. Securities and Investments Michael C. Regan (Sentence: pending) Action Date: June 24, 2009 Location: Brooklyn, NY On June 24, 2009, Michael C. Regan, an investment pool manager based in Massachusetts, pled guilty in federal court in Brooklyn, New York, to a felony count of securities fraud in connection with a Ponzi scheme to defraud investors in the River Stream Fund of $8.9 million. The guilty plea proceedings were held before United States Magistrate Judge Lois Bloom. When sentenced, the defendant faces a maximum statutory sentence of 20 years’ incarceration, a fine of $5,000,000 and an order requiring the payment of restitution to all of the victims of his crimes. According to the charging information, Regan was the sole manager of the River Stream Fund, which had more than 70 investors and which, Regan claimed before the fund’s April 2008 collapse, more than $18 million under management. Starting in or about 2001, Regan gave investors fraudulent account statements showing that the fund had annual returns of approximately twenty percent. River Stream actually lost money or achieved minimal returns from 2001 through April 2008. Regan paid more than $9 million in redemption requests to investors by using new investor funds and took more than $2.5 million in performance fees from River Stream even though he never achieved the minimum twelve percent annual return required for him to be entitled to the fees. By the time River Stream collapsed, it had only $101,600 under management instead of the $18 million Regan reported to his investors. The total cumulative investor losses exceed $8.9 million. “Investment advisors who breach their clients’ trust and commit criminal acts in order to line their own pockets should be on notice that we will aggressively investigate and prosecute them,” stated United States Attorney Campbell. Mr. Campbell thanked the United States Securities & Exchange Commission for its assistance. The government’s criminal case is being prosecuted by Assistant United States Attorney James McMahon. Health Care Fraud Monika Blacio Juan Carraiero Alyd Dazza Ricco Dazza Ramon Fonseca Vicente Gonzalez Michel De Jesus Huarte Orlin Tamayo Action Date: June 23, 2009 Location: Miami, FL On June 23, 2009, Jeffrey H. Sloman, Acting United States Attorney for the Southern District of Florida, announced that defendants Michel De Jesus Huarte, 38, Ramon Fonseca, 45,Vicente Gonzalez, 38, Alyd Dazza, 45, Monika Blacio, 41, Ricco Dazza, 41, Orlin Tamayo Quinonez, 35, and Juan Carralero, 56, all residents of Miami, FL, were indicted on June 18, 2009, on Medicare and other fraud-related charges. More specifically, defendants Vicente Gonzalez, Alyd Dazza, Rico Dazza, and Monika Blacio were charged with conspiracy to commit Medicare fraud and/or conspiracy to commit money laundering. Two other defendants, Michel De Jesus Huarte and Ramon Fonseca, were charged with conspiracy to commit Medicare fraud, Medicare fraud, conspiracy to commit money laundering, money laundering, and aggravated identity theft. Defendants Orlin Tamayo Quinonez and Juan Carralero, were both charged with conspiracy to commit Medicare fraud. They have not yet been arrested and remain at large. The Indictment also seeks the forfeiture of the fraud proceeds. The 20-count Indictment charges two separate Medicare fraud conspiracies. The first conspiracy charges that defendant Michel De Jesus Huarte and unindicted conspirators controlled and operated six purported medical clinics in Miami-Dade County: Zigma Medical Care, Inc.; Tender Loving Care Medical Center, Inc.; Professional Medical Health, Inc.; Metro Med Care, Inc.; San Diego Medical & Rehab Center, Inc.; and Eulogia's Diagnostic Medical Center, Inc. According to the Indictment, these clinics submitted at least $50.2 million in false claims to Medicare for infusion therapy, injection therapy, and other expensive medical treatments designed to treat patients suffering from, among other illnesses, cancer, HIV, AIDS, chronic pain, and varicose veins. Infusion therapy medications are administered by insertion of a needle into a patient's vein. As a result of these fraudulent infusion claims, Medicare paid Huarte and his conspirators at least $19.2 million. To conceal his involvement in this scheme, Huarte and his conspirators recruited nominee owners for each company, and paid them large sums of cash to sign the corporate records, bank records, and other business documents. One such nominee owner, Madelin Machado of Zigma Medical, was indicted in the Southern District of Florida in January 2008 (Case No. 08-20033-HUCK), and remains a fugitive. The second Medicare fraud conspiracy charges defendants Michel De Jesus Huarte, Ramon Fonseca, Vicente Gonzalez, Monika Blacio, Ricco Dazza, Orlin Tamayo Quinonez, and Juan Carralero in a five-state Medicare Advantage fraud scheme. This conspiracy charge alleges that Huarte and Fonseca controlled and operated eight (8) medical clinics purportedly operating in Florida, Georgia, Louisiana, North Carolina, and South Carolina. These companies are alleged to have collectively submitted at least $19.8 million in false claims to various private insurance companies that offered coverage to Medicare beneficiaries through Medicare Advantage programs. The Medicare Advantage Program, formerly known as “Part C” or “Medicare+Choice,” provides Medicare beneficiaries with the option of receiving their Medicare benefits through private managed care plans, including health maintenance organizations (HMOs), provider sponsored organizations (PSOs), preferred provider organizations (PPOs), and private fee-for-service plans (PFFs), rather than through traditional Medicare (Parts A and B). Based on the false claims received, these companies paid the defendants approximately $4.6 million. Once again, a substantial portion of the fraudulent billings were for expensive cancer and HIV infusion medications. The Indictment further alleges that defendants Vicente Gonzalez and others formed and managed the two purported clinics in New Orleans: Fast Cure and Best Cure. Defendants Monika Blacio, Ricco Dazza, and Orlin Tamayo Quinonez allegedly formed and managed Ziallet Services, Inc. in North Carolina, and Magestic Group Services, Inc., in South Carolina. Juan Carralero allegedly served as the titular owner of two Georgia clinics, Comprehensive Medicare Care Services, Inc. and Best Care Solutions Corp., and helped manage and operate both companies. The Indictment alleges that Huarte and Fonseca deposited fraud proceeds from their clinics at two Miami-area check cashing stores, Universal MoneyFast and Rapid Trans Solutions. These check cashing stores were owned by defendants Alyd Dazza and Monika Blacio, respectively. Defendants Alyd Dazza and Blacio would accept delivery of Medicare Advantage insurance company checks from Huarte and Fonseca as often as three to four times per week. Thereafter, Dazza and Blacio would deposit the checks into the corporate bank accounts for their respective check cashing stores, wait for the checks to clear, and then deliver the cash to Huarte and/or Fonseca. The typical cash deliveries ranged from between $30,000 and $80,000 multiple times per week. This conduct resulted in the money laundering conspiracy charges against defendants Huarte, Fonseca, Gonzalez, Blacio, and Dazza. Acting U.S. Attorney Jeffrey H. Sloman stated, “With new Medicare fraud cases being indicted in the Southern District of Florida every week, it is easy to become numb to otherwise egregious fraudulent conduct and staggering loss amounts. This case is remarkable, not only in terms of the amounts stolen from Medicare, but also in terms of its sophistication and geographic breadth. These defendants attempted to steal approximately $100 million from the elderly, blind and disabled by using multiple store-front clinics in five different states and then laundered their profits through local check cashing stores. The U.S. Attorney’s Office will continue to devote significant prosecutorial resources to aggressively eliminate these abuses, and to send the perpetrators to jail.” This case is being prosecuted by Assistant U.S. Attorney Ryan Stumphauzer. Securities and Investments Luis Giro (Sentence: pending) Action Date: June 23, 2009 Location: Miami, FL On June 22, 2009, Luis Giro, a former Miami-based investment manager, pled guilty to one count of securities fraud stemming from his 2003 Indictment. Giro had been a fugitive from justice until May 2009, when he was arrested by Venezuelan authorities and turned over to the custody of the FBI. At sentencing, Giro faces a maximum sentence of ten years’ imprisonment. Sentencing is scheduled for September 2, 2009, before U.S. District Court Judge Patricia A. Seitz. At the change of plea hearing, Giro admitted that in approximately March 1997, he incorporated Giro Investments Group, Inc. (“Giro Investments Group”), which had as its principal place of business at Giro’s residence in Miami Springs, FL. Giro Investments Group held itself out as an “investment company” and “asset management firm” that traded in securities and foreign exchange contracts on behalf of its investors. Giro was the owner, President, and Chief Investment Officer of Giro Investments Group. Starting at least as early November 1997, Giro began soliciting investors to invest money with Giro Investments Group in return for “guaranteed” annual yields or interest payments to investors of between 15% and 30%. Giro provided some prospective investors with at least one of several versions of an offering document that described Giro Investments Group as engaging in a “private offering for venture capital investment in Giro Investments Group.” The offering documents falsely represented that deposits with Giro Investments Group were either insured up to $100,000 by the FDIC or that deposits were insured up to $500,000 with a Financial Institution Bond. The offering documents also falsely assured investors that Giro Investments Group took a “conservative” approach to investing in the securities markets. In furtherance of the fraudulent scheme, Giro falsely represented to prospective investors that investing with Giro Investments Group was “safe,” a “sure thing,” and involved “no risk.” Giro further falsely represented to prospective investors that Giro Investments Group acted as a “market maker” for TD Waterhouse, whereby TD Waterhouse provided Giro Investments Group with daily “contracts” to sell securities on behalf of TD Waterhouse. Giro falsely told investors that Giro Investments Group earned a guaranteed profit from these contracts regardless of whether the stock market increased or decreased in value on any given day. On occasion, Giro also falsely represented to investors that Giro Investments Group owned a seat on the New York Stock Exchange and that, as a result, he had inside information concerning the securities industry that he could use to benefit Giro Investments Group and its investors. From approximately November 1997 through October 2001, Giro and Giro Investments Group received approximately $2,000,000 from around 15 investors. Giro would usually deposit the investors’ money in two bank accounts maintained by Giro Investments Group at Commercial Bank of Florida and Barnett Bank in Miami, FL. On several occasions, however, Giro deposited investors’ money into his personal bank account at Commercial Bank of Florida, which he then used to pay for personal expenses. Giro used a portion of the money he and Giro Investments Group received from investors to speculate in securities trading using a brokerage account in Giro Investments Group’s name at TD Waterhouse, a securities brokerage firm registered with U.S. Securities and Exchange Commission. However, Giro’s securities trading activity was largely unsuccessful and he lost at least $600,000 of investors’ money trading securities through the TD Waterhouse account. Giro did not disclose these losses to investors. In fact, he misrepresented to investors during the course of the scheme that he was making money trading securities. In addition, of the approximately $2,000,000 received from investors, Giro misappropriated approximately $400,000 by making payments to third parties for a variety of business and personal expenses including, among other things, payments for employee salaries, taxes, health care insurance, car payments, and credit card expenses. Giro did not disclose to investors that he was using their funds to pay for these expenses incurred on behalf of himself and Giro Investments Group. In furtherance of this scheme, Giro mailed investors monthly account statements and register reports specifying the purported balance of the investors’ accounts with Giro Investments Group and the purported monthly interest that their accounts had earned. These monthly account statements were false in that they showed that investors were earning a positive return on the money that they had entrusted to Giro Investments Group. In fact, however, Giro was steadily losing their money trading securities through the TD Waterhouse account and otherwise misappropriating their money. In October 2001, Giro’s scheme fell apart when he ran out of funds having lost or misappropriated what remained of the investors’ funds. Shortly after the collapse of Giro Investments Group, Giro and his family left Miami and re-located to Venezuela, where he was recently arrested by the Venezuelan authorities and turned over to the custody of the FBI. The criminal case is being prosecuted by Assistant United States Attorney Harold E. Schimkat. Securities and Investments Bull Trade, LLC Isaac Niego Profitas Capital Investments Action Date: June 23, 2009 Location: Miami, FL On June 23, 2009, Isaac Niego was indicted in federal court in Miami, Florida, on charges of defrauding thirty three (33) investors in a $2.5 million Ponzi scheme, resulting in substantial losses to the investors. Specifically, Niego was charged with conspiracy to commit wire fraud, in violation of Title 18, United States Code, Section 1349, and with substantive counts of wire fraud, in violation of Title 18, United States Code, Section 1343. If convicted, he faces a maximum sentence of 20 years’ imprisonment on each count. According to the Indictment, Niego, along with a coconspirator, solicited individuals to invest funds with Bull Trade, LLC, and Profitas Capital Investments, both located in Coral Gables, FL. To attract investors, Niego and his co-conspirator allegedly falsely represented to investors that their monies would be invested in the stock, commodities, futures and currencies markets, that their investments would be risk-free, that their returns would be guaranteed, and that they would earn returns of several hundred percent. In fact, however, Niego invested only a small fraction of the funds, diverting the majority of investor funds for his personal use. In addition, in classic Ponzi scheme fashion, Niego used later investors’ funds to pay back on the principal and returns owed to earlier investors. The case is being prosecuted by Assistant U.S. Attorney Lois Foster Steers. Securities and Investments Bernard Madoff Investment Securities Cohmad Securities Maurice J. Cohn Marcia B. Cohn Robert M. Jaffe Bernard Madoff Action Date: June 22, 2009 Location: New York, NY On June 22, 2009, the SEC charged Cohmad Securities Corporation, a New York-based broker-dealer, as well as its chairman Maurice J. Cohn, chief operating officer Marcia B. Cohn, and registered representative Robert M. Jaffe alleging that they collectively raised billions of dollars from investors for Bernard L. Madoff's Ponzi scheme. In a complaint filed in U.S. District Court for the Southern District of New York, the SEC charged the defendants for actively marketing investment opportunities with Madoff while knowingly or recklessly disregarding facts indicating that Madoff was operating a fraud. The SEC previously charged Madoff and Bernard L. Madoff Investment Securities LLC (BMIS) as well as their auditors with committing securities fraud through a Ponzi scheme perpetrated on advisory and brokerage customers of BMIS. The SEC's complaint against the Cohmad defendants alleges that while bringing investors to Madoff, they ignored and even participated in many suspicious practices that clearly indicated Madoff was engaged in fraud. For example, the SEC's complaint alleges that the Cohns and Cohmad filed false Forms BD and FOCUS reports that concealed Cohmad's primary business of bringing in investors for BMIS. This referral business comprised as much as 90 percent of Cohmad's revenue in some years, brought in more than 800 accounts, and billions of dollars into BMIS' advisory business, for which BMIS paid them more than $100 million. The SEC's complaint also alleges that the compensation arrangement between BMIS and Cohmad indicated fraudulent conduct at BMIS. Cohmad was paid an annual percentage of the funds its representatives (except Jaffe) brought into BMIS offset by any withdrawals from those investor accounts. This compensation arrangement indicated to Cohmad and the Cohns that BMIS was not providing any real returns to investors. For example, where the client's principal investment had been $10,000, Cohmad stopped receiving fees if a client withdrew $15,000 from an account, even if under BMIS' management the account had purportedly grown to $100,000. In Cohmad's internal records, such an account was designated with a negative $5,000 number. The SEC alleges that Jaffe also participated in Madoff's fraud by soliciting investors and bringing more than $1 billion into BMIS. The Complaint alleges, among other things, that Madoff compensated Jaffe with outsized returns in Jaffe's personal accounts that he knew, or was reckless in not knowing, were manufactured by BMIS employees entering fictitious, backdated trades onto trade confirmations and account statements for his personal accounts at BMIS. The SEC's complaint against the Cohmad defendants specifically alleges that Cohmad violated Section 17(a) of the Securities Act, Sections 10(b), 15(b)(1), 15(b)(7), and 17(a) of the Exchange Act and Rules 10b-5, 15b3-1, 15b7-1 and 17a-3 thereunder and aided and abetted violations of Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-3 thereunder; that the Cohns violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder and aided and abetted violations of Sections 10(b), 15(b)(1), 15(b)(7), and 17(a) of the Exchange Act and Rules 10b-5, 15b3-1, 15b7-1 and 17a-3 thereunder and Sections 206(1), 206(2) and 206(4) of the Advisers Act of 1940 and Rule 206(4)-3 thereunder; and that Robert Jaffe violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and aided and abetted violations of Sections 10(b), 15(b)(7), and 17(a) of the Exchange Act and Rules 10b-5, 15b7-1 and 17a-3 thereunder and Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-3 thereunder. Among other things, the SEC's complaint seeks injunctions, financial penalties and a court order requiring Cohmad, the Cohns, and Jaffe to disgorge their ill-gotten gains. Securities and Investments Stanley Chais Action Date: June 22, 2009 Location: Nw York, NY On June 22, 2009, the SEC charged Stanley Chais, a California-based investment adviser who acted as adviser to, and general partner of, three funds that invested all of their assets with Bernard Madoff (Madoff), with fraud for misrepresenting his role in managing the funds' assets and for distributing account statements that he should have known were false. As alleged in the complaint filed today in federal court in Manhattan, for the last 40 years, Chais has held himself out as an investing wizard who managed hundreds of millions of dollars of investor funds in three partnerships, the Lambeth, Popham and Brighton Companies (the Funds). Chais made a number of misrepresentations over the years to the Funds' investors indicating that he formulated and executed the Funds' trading strategy. In reality, Chais was an unsophisticated investor who did nothing more than turn all of the Funds' assets over to Madoff, while charging the Funds well over $250 million in fees for his purported "services." Despite the fact that Chais turned all of the Funds' assets over to Madoff, many of the Funds' investors had never heard of Madoff before the collapse of his Ponzi scheme, and had not known that Chais invested with Madoff until Chais informed them after Madoff's arrest. The SEC also alleges that Chais ignored red flags indicating that Madoff's reported returns were false. For example, Chais told Madoff that Chais did not want there to be any losses on any of the Funds' trades. Madoff complied with Chais's request, and from 1999 to 2008, despite reportedly executing thousands of trades on behalf of the Funds, Madoff did not report a loss on a single equities trade. Chais however, with the assistance of his accountant, prepared account statements for the Funds' investors based upon the Madoff statements, and continued to distribute them to the Funds' investors even though he should have known they were false. According to the complaint, Chais also opened and exercised control over approximately 60 other accounts at Madoff's firm on behalf of his family members and related entities. Taking all of these accounts collectively, between 1995 and 2008, Chais and his family members and related entities withdrew more than $500 million more than they actually invested with Madoff. The SEC's complaint specifically alleges that Chais violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Among other things, the SEC's complaint seeks financial penalties and a court order requiring Chais to disgorge his ill-gotten gains. Securities and Investments R. Allen Stanford Stanford International Bank Action Date: June 19, 2009 Location: Fredericksburg, VA On June 19, 2009, R. Allen Stanford was taken into custody by FBI agents who were waiting outside his girlfriend's house in Fredericksburg, Virginia. Stanford is accused of running a massive Ponzi scheme in an indictment unsealed in Houston, Texas. The SEC filed a civil lawsuit against Stanford and business associates in February, 2009, accusing them of running a massive fraud through Stanford International Bank, based in Antigua. Stanford has repeatedly asserted his innocence. He is one of the world's richest men. A grand jury in Houston also is expected to level criminal charges against Stanford's associate, Laura Pendergest-Holt, chief investment officer for Stanford Group Company. Tax Fraud Underground Economy Action Date: June 19, 2009 Location: Boston, MA On June 19, 2009, the Massachusetts Joint Task Force on the Underground Economy and Employee Misclassification is expected to release a report on its first year of operations. In the past year, the task force has collected more than $1.4 million in unpaid taxes and fines and has launched investigations into more than 500 worker complaints. Governor Deval Patrick named the task force last year to compel state agencies to jointly crack down on workplace fraud and employee misclassification that allowed employers to evade wage and labor laws. Seventeen state agencies now investigate workers’ complaints, which include failure to pay minimum wage and improper classification of workers as independent contractors. As a result of the task force investigations, the state collected $737,439 in new unemployment insurance taxes that employers had previously failed to pay. Much of the focus has been on exploitation of immigrant workers who make up 17 percent of the Massachusetts workforce. Some employers deduct taxes from the paychecks of immigrant workers, but fail to pay the taxes over to the government. Others transport workers significant distances, but do not pay for the time spent traveling to these worksites. California has previously taken the lead in confronting the many problems caused by the underground economy which drives down wages, creates harsh working conditions, and undercuts legitimate businesses to a point where they can no longer fairly compete and provide well-paying jobs. Typically, businesses that operate in the underground economy avoid licensing requirements which makes them harder to find and bring into compliance with state and local laws; they pay wages in cash, which allows them to avoid payroll taxes that fund unemployment insurance, disability insurance, personal income tax, paid family leave; they fail to carry workers' compensation insurance; they avoid minimum worker and workplace safety requirements; and they employ vulnerable workers, new immigrants, children, and economically disadvantaged individuals. In the past two years, there have been increasing prosecutions of construction and maintenance companies, but the problem of unreported cash payments also is prevalent in garment manufacturing, restaurants, hotels & motels, car washes and nursing homes. The IRS maintains a website that reports on investigations and prosecutions of employment tax cases that can be found by searching: FY2009 Examples of Employment Tax Fraud. Payroll tax evasion prosecutions are expected to increase. For examples in the Fraud Digest database, search Vitali Popkov (21 months); Pedro Villalpando (12 months, 1 day); Mario Turcotte (60 months); Lucky Mata (10 years); Aimee King McElroy (78 months); and Richard Rosenbaum (10 years).