Securities and Investments Deutsche Bank AG Goldman Sachs Group Merrill Lynch & Company Action Date: August 22, 2008 Location: New York, NY On August 22, 2008, the SEC reached an $8.5 billion dollar agreement with Merrill Lynch & Company to settle allegations that Merrill Lynch misled investors who purchased market auction-rate securities from Merrill Lynch. Under the terms of the SEC agreement, Merrill must buy back up to $7 billion in securities from individual investors, small businesses and charities and take steps to cover their losses. The bank must also use best efforts to help other businesses and institutional clients sell about $1.5 billion in frozen debt. On August 21, 2008, Merrill Lynch reached a similar agreement with New York Attorney General Andrew Cuomo, who also settled with Goldman Sachs and Deutsche Bank AG. Cuomo settled with eight firms that he had accused of misleading investors by fraudulently marketing the long-term securities as easy to buy and sell. Under the Cuomo agreement, Merrill will pay $125 million in fines and buy back as much as $12 billion in securities. The auction-rate securities market, which has been estimated to be $330 billion, collapsed in February, 2008. Until that time, auction-rate securities were touted by sellers as safe investments that were as liquid as cash. Many banks were accused by Cuomo and the SEC of continuing to promote these investments long after the banks themselves suspected that the market was on the verge of collapse. Securities and Investments Patrick Haxton Royal Forex Management, LLC Action Date: August 22, 2008 Location: Dallas, TX On August 20, 2008, the Securities and Exchange Commission filed an action in Dallas federal court to halt an alleged unregistered and fraudulent offering of securities by Patrick H. Haxton of Carrollton, Texas, and his company Royal Forex Management, LLC ("Royal"). The securities were investment contracts involving the trading of foreign currencies on the Forex market. On August 21, 2008, United States District Judge Sam A. Lindsay entered a temporary restraining order suspending the offering and orders freezing the defendants' assets, requiring sworn accountings, prohibiting any alteration or destruction of documents and expediting discovery. The court set a hearing for September 4, 2008 to consider the Commission's application for preliminary injunctive relief. Tax Fraud Leroy Edward Felt, Jr. (Sentence: pending) James Monahan Northeast Custom Builders Anthony Sauls William Stephens Woody's Construction, Inc. Action Date: August 22, 2008 Location: Miami, FL On August 22, 2008, Leroy Edward Felt, Jr., formerly of Palm Beach County, Florida, pled guilty for his participation in a long-term federal payroll tax evasion scheme in the operation of his business, Woody’s Construction, Inc. Specifically, Felt pled to Count 1 of an Indictment, dated February 28, 2008, which charged him with conspiring to evade payroll taxes and to cause financial institutions to file false currency transaction reports (“CTRs’), in violation of Title 18, United States Code, Section 371. A sentencing date has not yet been scheduled. Felt faces a maximum term of five years’ imprisonment. According to documents filed in court and statements made during the plea, Felt was the owner of Woody’s Construction, Inc. (“Woody’s”), previously located at 5301 NW 15th Street Unit D25 Margate, FL 33063. From 1997 through at least 2003, Felt conspired with others, including William Stephens and James Monahan, to defraud the IRS by paying cash wages to many of Woody’s employees, causing financial institutions to file false CTRs with the IRS, and under-reporting Woody’s payroll tax liability to the IRS. To execute the fraud, Felt issued corporate checks to various individuals and entities, including Anthony Sauls and Northeast Custom Builders, for fictitious subcontracting expenses. These individuals/entities would, in turn, cash the corporate checks at financial institutions, retaining a portion of the cash as a check cashing fee, and return the remaining cash to Felt for use in paying wages. When cashing the checks, the individuals/entities did not disclose to the banks that the checks were being cashed for the benefit of Woody’s, causing the financial institutions to file CTRs that did not contain accurate information about the purpose of the checks. Between 1997 and 2003, Felt failed to report to the Internal Revenue Service that Woody’s had paid $14,521,082.39 in actual payroll wages. As a result of this understatement, Felt knowingly failed to pay at least $2,178,162 in federal payroll taxes to the Internal Revenue Service. U.S. Attorney Acosta stated, “When a company engages in tax evasion, it not only defrauds the public fisc, but also gains an unfair business advantage over law-abiding competitors. By paying cash wages, Woody’s illegally saved millions of dollars in payroll taxes, and avoided corporate responsibility for its employees. The U.S. Attorney’s Office will continue to enforce the tax laws and help ensure a level playing field for all businesses.” Michael E. Yasofsky, Special Agent in Charge of the IRS’s South Florida Office, said, “Employers are required by law to withhold employment taxes from their employees. Paying employees in cash in order to evade payroll taxes is a violation of federal law, and employers who practice this method of paying salaries will be prosecuted.” This case is being prosecuted by Assistant United States Attorney Stephen Carlton. Mr. Acosta commended the investigative efforts of the IRS-CID for their work on this case. Money Laundering China Rose Massage Zhong Yan "Lucky" Liu (Sentence: pending) Hongmei Madole (Sentence: pending) Cheng Tang (Sentence: pending) Ling "Cherry" Xu (Sentence: pending) Action Date: August 21, 2008 Location: Kansas City, MO On August 21, 2008, three owners and operators of Asian massage parlors in Johnson County, Kansas, pled guilty in federal court to engaging in human trafficking by coercing their employees, whom they recruited from China, to engage in prostitution. "Human trafficking is a modern-day form of slavery that reaches from the other side of the globe to the suburban Midwest," John F. Wood, U.S. Attnrey, Western District of Missouri, said. "Chinese women were recruited to travel to Kansas City, then coerced to work as prostitutes at massage parlors. These businesses have been shut down and the owners brought to justice. We have also provided social services to assist their victims." "Victims of human trafficking are deceived, coerced or threatened by their captors," said Gary Hartwig, special agent in charge of the ICE Office of Investigations in Chicago. "ICE will work closely with our law enforcement partners to identify and protect the victims, and prosecute their captors." Hartwig oversees a six-state area, which includes: Missouri, Illinois, Indiana, Kansas, Kentucky and Wisconsin. Ling Xu, also known as "Cherry," 46, Zhong Yan Liu, also known as "Lucky," 36, and Cheng Tang, also known as "Tom," 22, all citizens of China residing in Overland Park, pled guilty in separate appearances before U.S. District Judge Fernando J. Gaitan. Each of the defendants pled guilty to coercing persons to travel across state lines and national borders to engage in prostitution and illegal sexual services. They also pled guilty to money laundering by wiring more than $500,000 from the proceeds of that unlawful activity to China. Xu also pled guilty to aggravated identity theft for using the passports and identification of her female workers to make most of those wire transfers. All three defendants remain in federal custody. Xu and Liu are married to other persons, with whom they have limited contact, and were living together with Xu's son, Tang. Xu, Liu and Tang were involved in operating massage parlors, including: "China Rose Massage" and "China Villa Massage/Lin Dynasty" in Overland Park; and, at the times charges were filed, they were preparing to open "Victoria Square" in Overland Park. They also operated a nearby residence that was used for prostitution. Co-defendant Hongmei Madole, also known as Hongmei Zho, pled guilty April 24, 2008, to coercing persons to travel across state lines and national borders to engage in prostitution and illegal sexual services. Madole owned "Asian Touch Massage." Xu, Liu and Tang recruited female Asians to travel to the Kansas City area to work as masseuses. They facilitated the women's travel, including, but not limited to, booking and purchasing the flights for the women. They would fly the women into the Kansas City, Mo., International Airport and then transport or have them transported to the businesses. Xu and Tang signed massage therapy license applications, as the manager of the businesses, for the females to obtain massage therapy licenses. Xu, Liu, and Tang placed ads in the Kansas City magazine, The Pitch, which stated the massage parlors offered, for example, "The most elegant environment and the most comfortable atmosphere in town. With free table shower and free Sauna!" The ads stated that the massage parlors were open seven days a week, from 9 a.m. to 11 p.m. Tang also posted and maintained ads for the business at ASPD.net, a website where male customers posted reviews of the sexual services offered by China Rose and China Villa Massage/Lin Dynasty. The female Asians who worked for Xu, Liu, and Tang worked from 9 a.m. to 11 p.m. seven days a week and lived inside the massage parlors. Xu, Liu and Tang operated surveillance cameras inside the massage parlors to monitor the female Asian workers. Inside the massage parlors, the female Asian workers were forced to perform sexual services on male patrons in exchange for money. Xu, Liu, and Tang also used a nearby apartment, within walking distance of one of the massage parlors, to have the female Asian workers provide extended sexual services to some male patrons. Xu and Liu purchased supplies to be used in the prostitution activities, including bulk orders of condoms that were provided to the females for use while engaging in the prostitution activities. Xu, Liu, and Tang used businesses, such as 888 Market and Ho's Oriental Market, to wire at least $452,500 in proceeds from the prostitution businesses, via Western Union, to several locations in China. Xu wired at least $343,600 in this manner from 2005 to 2006. Of this amount, Xu wired $318,600 by illegally taking and using her female worker's passports and identification. Liu wired at least $74,500 and Tang wired at least $34,400. Xu was the head of these businesses, as the lead owner and operator. Xu also employed and paid Liu and Tang for their work and assistance in committing the offenses. By pleading guilty, Xu, Liu, and Tang also agreed to forfeit to the government $452,500, which represented the proceeds of the unlawful activity, as well as $60,497 that was seized by the FBI during the execution of federal search warrants at the defendants' residences and businesses. Xu is a native and citizen of China. She has resided legally in the United States pending adjudication of immigration benefits. Liu entered the United States on a visitor's visa which expired in 2001. He remained in the United States illegally thereafter. Madole is a native of China who is a conditional resident alien in the United States based upon marriage to a U.S. citizen. Under federal statutes, Xu, Liu, and Tang are each subject to a sentence of up to 40 years in federal prison without parole. Xu is also subject to an additional mandatory term of two years in federal prison without parole for aggravated identity theft, which must be served consecutively to her sentence on the other offenses. Madole could be subject to a sentence of up to 20 years in federal prison without parole. Sentencing hearings will be scheduled after the U.S. Probation Office completes its presentence investigations. Securities and Investments Jesus Bonilla-Valdez Allen Buntin Ranko Cucuz James Jarrett Ronald Lee Kozakowski William D. Shovers Action Date: August 20, 2008 Location: Detroit, MI On August 20, 2008, a federal jury in Detroit, Michigan, returned a verdict in the SEC’s favor on securities fraud charges against Ranko Cucuz, the former Chief Executive Officer of automobile parts manufacturer Hayes Lemmerz International, Inc., and William D. Shovers, the former Chief Financial Officer of the company. The verdict followed a two-week jury trial in Detroit, Michigan, before the Honorable Arthur J. Tarnow, United States District Judge for the United States District Court for the Eastern District of Michigan. The Commission’s complaint, filed on April 25, 2006, alleged that Hayes, acting through former senior officers and employees, engaged in a fraudulent scheme to achieve corporate earnings targets and mask declining operating results. The complaint alleged that as a result of the fraudulent accounting scheme, Hayes made materially false filings with the Commission in fiscal years 1999 and 2000 and for the first quarter of 2001, including the company's annual report on Form 10-K for the fiscal year ending January 31, 2001, and the quarterly reports on Forms 10-Q for the quarterly periods ended April 30, 2000, July 31, 2000, October 31, 2000 and April 30, 2001. The complaint also alleged that, upon learning of the fraudulent accounting scheme, Cucuz and Shovers made affirmative misrepresentations to the company's outside independent auditor about Hayes' financial statements and caused Hayes to make Commission filings containing material misrepresentations. The complaint further alleged that Cucuz and Shovers took affirmative steps to conceal information about the improper accounting practices from Hayes' outside independent auditor and Hayes' Audit Committee and Board of Directors. Finally, the complaint alleged that Cucuz and Shovers made material misrepresentations about Hayes' financial condition in connection with a $300 million Rule 144A bond offering by Hayes in June 2001. The jury found that Shovers violated: (i) the antifraud provisions of both the Securities Act of 1933 (Section 17(a)(3)) and the Securities Exchange Act of 1934 (Section 10(b) and Rule 10b-5 thereunder); (ii) the internal controls and books and records provisions of the Exchange Act (Section 13(b)(5) and Exchange Act Rule 13b2-1); and (iii) the lying-to-auditor provision of the Exchange Act (Rule 13b2-2). The jury also found that Shovers aided and abetted violations of the issuer reporting, books and records, and internal control provisions of the Exchange Act (Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1, and 13a-13). Finally, the jury found Cucuz liable for violations of the antifraud provisions of the Securities Act (Section 17(a)(3)). Cucuz was found not liable on the other claims against him. Remedies against Cucuz and Shovers will be determined by Court. Cucuz and Shovers are the last two remaining defendants in this action. Previously, the Commission reached settlements with the company, Ronald Lee Kolakowski (the former President of Hayes’ North American Wheel Group), and Jesus Bonilla-Valdez (former Vice President of Hayes’ Aluminum Wheel Group). Moreover, in previously settled related administrative proceedings, the Commission issued Orders Instituting Administrative Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions against three other former Hayes employees: Allen Buntin, James Jarrett, and Greg Jones. Immigration Fraud A Plus Planning Services, Inc. A Plus Senior Planning Services, Inc. Wilfredo Ngo Teresa Ngo Gicela Sarabia Action Date: August 20, 2008 Location: Santa Ana, CA On August 20, 2008, a Filipino man and his former wife, who own an employment agency that provides personnel to elder care facilities throughout Orange County, California, were indicted by a federal grand jury following an investigation by U.S. Immigration and Customs Enforcement (ICE) into allegations they knowingly hired illegal aliens, primarily from the Philippines, to fill the jobs. Wilfredo Ngo and his ex-wife, Teresa Ngo were named in a four-count indictment charging them with inducing aliens to reside in the United States; knowingly employing illegal aliens; knowingly harboring illegal aliens; and counseling persons to engage in marriage fraud. The Ngos were scheduled to be arraigned by U.S. Magistrate Judge Marc L. Goldman August 25. n. The Ngos own A-Plus Senior Planning Services, Inc., an employment agency based in Lake Forest, California. The firm provides caregivers to at least 10 major elder care facilities in Orange County as well as workers for individual in-home care. Also indicted today was Gicela Sarabia, the office manager for A-Plus Senior Planning Services. Sarabia is charged with inducing aliens to reside in the United States and knowingly hiring illegal aliens. The charges against the three stem from an undercover probe that began in December 2007 after ICE received a lead involving an alien with an expired visa who turned out to be employed by A-Plus Planning Services. The ensuing investigation revealed that at least 40 of the agency's workers were in the United States illegally. Most of them arrived as visitors and overstayed their visas. "The allegations in this case are disturbing when you consider that the illegal alien workers hired by these defendants were entrusted with caring for the infirm and elderly," said Robert Schoch, special agent in charge for the ICE office of investigations in Los Angeles. "People who enter the United States on visitor visas do not undergo the same degree of scrutiny as individuals who are coming into the country as legal foreign workers or immigrants." According to court documents filed in the case, the Ngos counseled their illegal workers to enter into fraudulent marriages with U.S. citizens so they could remain in the country legally. The defendants allegedly told their employees to seek out potential spouses at Leisure World and on eHarmony.com. The three defendants were arrested and freed on bond. The Ngos, both natives of the Philippines, are legal permanent residents of the United States. Sarabia, who is also a Filipino citizen, is in the country illegally. ICE received substantial assistance in the investigation from the California Employment Development Department. ICE also coordinated closely with the California Department of Social Services Senior Care Program to ensure patients' welfare was not compromised during the probe. Since ICE was established in March 2003, it has dramatically enhanced its efforts to combat the unlawful employment of illegal aliens in this country. In the first 11 months of this fiscal year, ICE made more than 1,000 criminal arrests tied to worksite enforcement investigations. Of the 1,022 individuals criminally arrested, 116 are owners, managers, supervisors or human resources employees facing charges including harboring or knowingly hiring illegal aliens. The remaining workers criminally arrested are facing charges including aggravated identity theft and Social Security fraud. ICE has also made more than 3,900 administrative arrests for immigration violations during worksite enforcement operations. Tax Fraud Reed H. Barker (Sentence: pending) Dennis B. Evanson (Sentence: 120 months, Restitution/Fines/Penalties/Settlements Paid: $2,774,133) Brent Metcalf (Sentence: pending) Stephen F. Peterson (Sentence: pending) Graham R. Taylor (Sentence: pending) Action Date: August 15, 2008 Location: Salt Lake City, UT On August 15, 2008, Attorney Dennis B. Evanson of Sandy, Utah, was sentenced by U.S. District Judge Tena Campbell in Salt Lake City to 120 months in prison and 36 months supervised release. The court also ordered that Evanson forfeit four pieces of real property, a Hummer and a Toyota Tundra, and entered a money judgment in the amount of $2,774,133.04. A federal jury convicted Evanson of conspiracy to commit mail and wire fraud, tax evasion and assisting in the filing of false tax returns charges in February 2008, following a two week trial. Evidence introduced during trial showed that Evanson’s scheme cost the U.S. Treasury more than $20 million in taxes. Evanson’s fraud scheme took multiple forms, including the use of false documentation for fictitious currency transaction losses, false insurance expense deductions and bogus capital losses, all for the purpose of fraudulently offsetting taxable income for clients. The scheme utilized, among other things, offshore companies, offshore bank accounts in the Cayman Islands and Nevis, the services of offshore nominees and opinion letters that purported to give legal authority to the fraudulent transactions. According to the evidence, Evanson, along with his co-defendants, conspired between 1996 and April 2005 to conceal portions of his clients’ income from the IRS and to create false deductions for the purpose of reducing the income tax paid by clients. Evidence presented at trial showed that Evanson and his co-conspirators knew that the deductions on the tax returns were false and fraudulent. Evanson and a co-conspirator were paid a fee for their services that was typically equal to 30 percent of the tax evaded by the clients. "As today’s sentence demonstrates, professionals, such as Evanson, who promote fraudulent tax schemes and assist others in participating in these schemes, will be investigated, indicted, tried, convicted and incarcerated," said Nathan J. Hochman, Assistant Attorney General of the Justice Department’s Tax Division. "Those who participate and promote fraudulent tax scams and schemes do so with eyes wide open to the severe consequences of their illegal conduct, including long prison sentences, steep fines and loss of real and personal property." Four other defendants associated with the scheme pleaded guilty to conspiring to defraud the United States. Accountant Brent Metcalf of Cottonwood, Utah, pleaded guilty to conspiracy and aiding in the filing of a false tax return on Jan. 25, 2008. Attorney Graham R. Taylor of Tiburon, Calif., pleaded guilty on Jan. 24, 2008. Certified Public Accountants Stephen F. Petersen of Coalville, Utah, and Reed H. Barker of Littleton, Colo., pleaded guilty to tax fraud on January 18, 2008. Petersen also pled guilty to aiding in the preparation of a false tax return on behalf of a client. All four defendants are awaiting sentencing before Chief Judge Campbell. Securities and Investments Steven Byers Joseph Shereshevsky WexTrust Capital, LLC Action Date: August 11, 2008 Location: New York, NY On August 11, 2008, two owners of WexTrust Capital, LLC, were indicted in federal court in New York and also sued by the SEC. Steven Byers and Joseph Shereshevsky were charged with operating a $225 million Ponzi scheme. WexTrust was a Chicago-based real estate investment firm. The defendants were accused of defrauding over 1,200 investors since 2005. The scheme allegedly targeted members of Chicago's orthodox Jewish community. Mr. Shereshevsky pleaded guilty to one felony count of bank fraud in June 2003 and was sentenced to time served. Health Care Fraud City of Angels Medical Center Metropolitan Healthcare, LLC Estill Mitts Rudra Sabarathnam Wilshire Healthcare Holdings, LLC Action Date: August 11, 2008 Location: Los Angeles, CA On August 11, 2008, Estill Mitts pled not guilty in federal court in Los Angeles, California, to charges set forth in a 21-count indictment filed August 8, 2008. Prosecutors charged that Mitts ran an assessment center in a section of Los Angeles which had many homeless persons to defraud Medicare and Medi-Cal, using homeless people. Mitts is charged with four counts of receiving kickbacks, six counts of money laundering and two counts of tax evasion for allegedly failing to report $479,000 in income in 2005 and more than $620,000 in income in 2006. Since at least 2004, thousands of homeless people were paid $20 to $30 to be transported, via an ambulance company associated with Mitts, to a hospital owned by co-defendant Rudra Sabarathnam, where they received unnecessary medical treatment, for such conditions as dehydration, yeast infections, exhaustion, chest pains and fatigue. Doctors and hospitals involved in the scheme would bill Medicare and Medi-Cal for those treatments, some of which were never actually performed. Prosecutors allege Mitts was paid up to $4,000 a month by City of Angels to recruit 25 to 30 homeless people per month as patients. Mitts also was allegedly paid $20,000 a month by Los Angeles Metropolitan Medical Center to fill unused beds, and $20,000 by Tustin Hospital to recruit 40 to 50 patients per month, according to a civil lawsuit filed by Los Angeles City Attorney Rocky Delgadillo against both facilities and City of Angels. Sabaratnam and others associated with him paid Mitts illegal referral fees by writing checks to two Wilshire Boulevard companies Mitts had established, Metropolitan Healthcare LLC and Wilshire Healthcare Holdings LLC. The indictment alleges that Mitts attempted to conceal the illegal kickbacks by executing sham consultant contracts between his companies and Sabaratnam's hospital. Securities and Investments Larry P. Nardelli Michael A. Tringali John A. Yanchek Action Date: August 11, 2008 Location: Tampa, FL On August 11, 2008, a trial date was set in federal court in Tampa, Florida in the case of Michael A. Tringali, John A. Yanchek and Larry P. Nardelli. Trial was scheduled for the term commencing October 6, 2008. The men are accused of operating an $82 million bank fraud scheme in Sarasota and Manatee counties. Yanchek, who was charged in 35 counts of a 47-count indictment, filed a motion earlier in the week seeking permission to travel outside of the United States on August 16, 2008, to attend and judge a cat show in New Zealand. The motion described Yanchek as "a recognized international feline judge." According to the motion, Yanchek "has been an All Breed Training and Teaching Judge for United Feline Organization for the last eight years. Additionally, he is a Director at Large for the organization. Defendant breeds Oriental Shorthairs and Somalis. Over the years, he has had many National titles, including Best Altered Cat, Best Kitten and Best Companionship Cat." The government opposed the motion. Insurance Premium Fraud Robert J. Anderson James M. Kernan Marlene M. Kernan Monument Agency Oriska Insurance Company Action Date: August 7, 2008 Location: Syracuse, NY On August 7, 2008, the government filed a Proposed Order seeking a Preliminary Order of Forfeiture from three defendants in an insurance fraud case filed in Syracuse, New York. The government sought forfeiture of $865,417 from defendant Robert J. Anderson, who pled guilty to Count 12 of an indictment involving the activities of Oriska Insurance. In the same case, a superceding indictment was filed on July 30, 2008, adding Marlene M. Kernan, the wife of CEO and co-defendant James K, Kernan. Marlene Kernan operated Monument Agency, an insurance agency in Utica, New York, which shared offices with Oriska Insurance, her husband's company. The superceding indictment alleged that Oriska Insurance sold workers' compensation insurance to various employee leasing companies, including Pay Source, Inc.; A.M. Personnel Partners, Inc.; Total Benefit Management, Inc.; All Staffing, Inc.; Power P.E.O., Inc.; and U.S. Management, Inc. The government alleged that the policies sold by Oriska were invalid because Oriska sold policies in states where it was not authorized to do business and sold policies with large deductible endorsements when it had not been approved to write such policies. According to the indictment, Oriska attempted to conceal the fact that it was not authorized to write large deductible policies by not providing the policies to the purchasing PEOs in a timely manner. Kernan allegedly also instructed the client PEOs to obtain a New York mailing address to conceal the fact that Oriska was issuing policies in states where it was not authorized to do business. Anderson was previously convicted in California in 1988 and 1996 of federal crimes relating to insurance fraud and employee leasing. As a convicted felon, he was disqualified to engage in certain insurance transactions. The superceding indictment alleged that Marlene Kernan allowed Anderson to engage in insurance activities, knowing that he was not allowed to do so. James Kernan allegedly made false statement to New York examiners regarding payments made by Oriska. Kernan also allegedly made false statements regarding the direct written premiums of Oriska for 2002, claiming that the premiums collected by Oriska were $14,150,750 when they were actually much less. According to an examination of Insurance Company of the Americas, a subsidiary company, Monument Agency received premium from policyholders for the company until August 15, 2003, without ever establishing a trust account, as required by Florida Statute. In 2002, premium collected through Monument Agency was transmitted to the parent company, instead of to the company issuing the policies. After the 2003 examination, Insurance Company of the Americas was required to increase its losses by $4.3 million, increased taxes ands fees by $2.7 million, and increased ceded reinsurance premiums by $1.7 million for a total increase in liabilities of over $8.8 million. The Company needed approximately $15 million in collateral and held only $3 million (plus $250,000 collateral for unanalyzed small deductibles). Therefore, according to examiners, the Company had approximately $12 million in unfunded collateral needs as of December 31, 2003. Because of the superceding indictment, the trial, originally scheduled t begin August 14, 2008, will be delayed at least 90 days. Tax Fraud AEM Frank L. Amodeo AQMI Strategy Corporation Common Paymaster Corp. Mirabilis Ventures, Inc. Nexia Strategy Corporation Presidion Corporation Presidion Solutions VI, Inc. Quantum Delta Enterprises Sunshine Companies Wellington Capital Group Action Date: August 6, 2008 Location: Orlando, FL On August 6, 2008, an indictment was unsealed in federal court in Orlando, Florida, charging Frank L. Amodeo with 27 felony counts including wire fraud, conspiracy, failure to pay employment taxes and obstructing an investigation. Amodeo once bragged, "By the year 2012, I expect I will have offices within one hour of every human alive everywhere." Amodeo was not arrested because he was reportedly in a psychiatric facility. In June, 2008, a court declared Amodeo to be mentally incompetent and appointed a guardian for him. Amodeo is accused of stealing $182 million in payroll taxes, primarily through the operation of employee leasing companies he had acquired through Mirabilis Ventures, a private equity fund, from Orlando, Florida. He began Mirabilis in Nevada, 2004. In December, 2004, he acquired five subsidiaries from Presidion Corporation, a large Florida employee leasing company. From the beginning of Mirabilis in 2004, it was questionable whether Mirabilis ever had any money or transferred any money to Presidion. According to an 8-K Report filed by Presidion with the SEC (while it was still bothering to file required SEC reports), Mirabilis became a senior creditor to Presidion Solutions on December 8, 2004. Mirabilis supposedly transferred title to approximately 58,000 ounces of "precious metal concentrate" having an appraised net market value of not less than $25 million as of the date of the closing. The "precious metal concentrate" was supposedly stashed away in Nevada. In return, Mirabilis acquired all of the client service agreements, accounts receivables, bank accounts, and other mutually agreed upon agreements and cause of actions of Paradyme, Inc., d/b/a Presidion Solutions VI, Inc., a wholly owned subsidiary of Presidion Solutions, Inc. as well as Sunshine Staff Leasing, Inc., Sunshine Companies, Inc., Sunshine Companies, II Inc., Sunshine Companies III, Inc. and Sunshine Companies, Inc. IV. Paradyme was a well-respected PEO - but was never paid for as agreed according to civil litigation filed by the forer owners. The Sunshine Companies, on the other hand, were employee leasing companies which were deeply in debt to the IRS. Sunshine also was involved in a failed health care trust, which left thousands of Floridians without health insurance they believed they had purchased. The organizer of that failed health trust, Steve Edwards, was subsequently sentenced to 12 and a half years in federal prison. Essentially, Sunshine was sold to Presidion, and Mirabilis acquired a significant interest in Presidion. This arrangement allowed the companies to continue to operate despite very considerable debt. According to prosecutors, Amodeo diverted employment taxes from his client companies to fund his own businesses. He became a star in the Orlando area, purchasing a LearJet, and several beautiful homes. He was able to continue operations even after it was discovered that over $10 million in letters of credit given by Presidion to its workers' compensation insurance company were worthless fakes. Presidion claimed to have been duped by the scheme. Prosecutors alleged that a number of companies were involved in the Mirabilis tax diversion scheme, including AEM, AQMI Strategy Corp., Common Paymaster Corp., Nexia Strategy Corp., Presidion Corp., Presidion Solutions, Quantum Delta Enterprises and Wellington Capital Group. Towards the end of its operations, Mirabilis went on a buying spree, purchasing several large employee leasing companies, but never coming up with the payments, causing Mirabilis to become mired in litigation. Amodeo was a disbarred lawyer and a convicted felon from Georgia when he started Mirabilis Ventures. No explanation was given as to why Mirabilis, Presidion and Amodeo were allowed to continue to operate long after they had stopped paying taxes or filing SEC reports. Identity Theft Dzmitry Burak Hung-Ming Chiu Delpiero Albert Gonzalez Sergey Pavolvich Christopher Scott Sergey Storchak Aleksandr "Johnny Hell" Suvorov Damon Patrick Toey Zhi Zhi Wang Maksym "Maksik" Yastremskiy Action Date: August 5, 2008 Location: Boston, MA On August 5, 2008, Attorney General Michael B. Mukasey, U.S. Attorney for the District of Massachusetts Michael J. Sullivan, U.S. Attorney for the Southern District of California Karen P. Hewitt, U.S. Attorney for the Eastern District of New York Benton J. Campbell and U.S. Secret Service Director Mark Sullivan announced that eleven perpetrators allegedly involved in the hacking of nine major U.S. retailers and the theft and sale of more than 40 million credit and debit card numbers have been charged with numerous crimes, including conspiracy, computer intrusion, fraud and identity theft. The scheme is believed to constitute the largest hacking and identity theft case ever prosecuted by the Department of Justice. Three of the defendants are U.S. citizens, one is from Estonia, three are from Ukraine, two are from the People’s Republic of China and one is from Belarus. One individual is only known by an alias online, and his place of origin is unknown. In an indictment returned on Aug. 5, 2008, by a federal grand jury in Boston, Albert "Segvec" Gonzalez, of Miami, was charged with computer fraud, wire fraud, access device fraud, aggravated identity theft and conspiracy for his role in the scheme. Criminal informations were also released today in Boston on related charges against Christopher Scott and Damon Patrick Toey, both of Miami. The Boston indictment alleges that during the course of the sophisticated conspiracy, Gonzalez and his co-conspirators obtained the credit and debit card numbers by "wardriving" and hacking into the wireless computer networks of major retailers — including TJX Companies, BJ’s Wholesale Club, OfficeMax, Boston Market, Barnes & Noble, Sports Authority, Forever 21 and DSW. Once inside the networks, they installed "sniffer" programs that would capture card numbers, as well as password and account information, as they moved through the retailers’ credit and debit processing networks. The indictment alleges that after they collected the data, the conspirators concealed the data in encrypted computer servers that they controlled in Eastern Europe and the United States. They allegedly sold some of the credit and debit card numbers, via the Internet, to other criminals in the United States and Eastern Europe. The stolen numbers were "cashed out" by encoding card numbers on the magnetic strips of blank cards. The defendants then used these cards to withdraw tens of thousands of dollars at a time from ATMs. Gonzalez and others were allegedly able to conceal and launder their fraud proceeds by using anonymous Internet-based currencies both within the United States and abroad, and by channeling funds through bank accounts in Eastern Europe. Gonzalez was previously arrested by the Secret Service in 2003 for access device fraud. During the course of this investigation, the Secret Service discovered that Gonzalez, who was working as a confidential informant for the agency, was criminally involved in the case. Because of the size and scope of his criminal activity, Gonzalez faces a maximum penalty of life in prison if he is convicted of all the charges alleged in the Boston indictment. Also today, indictments were unsealed in San Diego against scheme participant Maksym "Maksik" Yastremskiy, of Kharkov, Ukraine, and Aleksandr "Jonny Hell" Suvorov, of Sillamae, Estonia. The indictments charge the defendants with crimes related to the sale of the stolen credit card data that Gonzalez and others illegally obtained, as well as additional stolen credit card data. Suvorov is charged with conspiracy to possess unauthorized access devices, possession of unauthorized access devices, trafficking in unauthorized access devices, identity theft, aggravated identity theft, and aiding and abetting. Yastremskiy is charged with trafficking in unauthorized access devices, identity theft, aggravated identity theft and conspiracy to launder monetary instruments. The indictment also contains a forfeiture allegation. In addition, an indictment against Hung-Ming Chiu and Zhi Zhi Wang, both of the People’s Republic of China, and a person known only by the online nickname "Delpiero," was also unsealed in San Diego today. Chiu, Wang and Delpiero are charged with conspiracy to possess unauthorized access devices, trafficking in unauthorized access devices, trafficking in counterfeit access devices, possession of unauthorized access devices, aggravated identity theft, and aiding and abetting. Also in San Diego, Sergey Pavolvich, of Belarus, and Dzmitry Burak and Sergey Storchak, both of Ukraine, were charged in a criminal complaint with conspiracy to traffic in unauthorized access devices. All are believed to be foreign nationals residing outside of the United States. The San Diego charges allege that Yastremskiy, Suvorov, Chiu, Wang, Delpiero, Pavolvich, Burak and Storchak operated an international stolen credit and debit card distribution ring with operations from Ukraine, Belarus, Estonia, the People’s Republic of China, the Philippines and Thailand. The indictments allege that each of the defendants sold stolen credit and debit card information for personal gain. For example, the indictment of Yastremskiy alleges that he received proceeds exceeding $11 million from this criminal activity. These indictments and complaints are the result of a three-year undercover investigation conducted out of the San Diego Field Office of the U.S. Secret Service. In May 2008, Gonzalez, Suvorov and Yastremskiy also were charged in a related indictment in the Eastern District of New York. The New York charges allege that the trio was engaged in a sophisticated scheme to hack into computer networks run by the Dave & Buster’s restaurant chain, and stole credit and debit card numbers from at least 11 locations. Specifically, the indictment alleges that the defendants gained unauthorized access to the cash register terminals and installed at each restaurant a "packet sniffer," a computer code designed to capture communications on a computer network. The packet sniffer was configured to capture credit and debit card numbers as this information was processed by the restaurants. At one restaurant location, the packet sniffer captured data for approximately 5,000 credit and debit cards, eventually causing losses of at least $600,000 to the financial institutions that issued the credit and debit cards. Gonzalez is currently in pre-trial confinement on the New York charges. Based upon the San Diego charges, Turkish officials apprehended Yastremskiy in July 2007 in Turkey when he travelled there on vacation. He has been in confinement since then in Turkey, pending the resolution of related Turkish charges, and the United States has made a formal request for his extradition. At the request of the Department of Justice, Suvorov was apprehended by the German Federal Police in Frankfurt in March 2008 on the San Diego charges when he travelled there on vacation. He is currently in confinement pending the resolution of extradition proceedings. "So far as we know, this is the single largest and most complex identity theft case ever charged in this country," said Attorney General Mukasey. "It highlights the efforts of the Justice Department to fight this pernicious crime and shows that, with the cooperation of our law enforcement partners around the world, we can identify, charge and apprehend even the most sophisticated international computer hackers." Securities and Investments Ad Surf Daily, Inc. ASD Cash Generator Andy Bowdoin Action Date: August 5, 2008 Location: Quincy, FL On August 5, 2008, Secret Service Agents served search warrants at the home of Andy and Faye Bowdoin in Quincy, Florida. Bowdoin is the president of several web-based businesses including Ad Surf Daily and ASD Cash Generator. The Secret Service has jurisdiction to investigate crimes involving the internet. Many complaints have been filed with the FTC and other agencies asserting that ASD is a Ponzi scheme operating as an advertising company. ASD’s website stated Friday afternoon that, under the direction of the U.S. Attorney’s Office of the District of Columbia, it could not move funds in or out of company accounts. The organization would resolve the problem and return to normal operations, the website stated. Tax Fraud Edward Barrier (Sentence: 30 months) Action Date: August 5, 2008 Location: St. Louis, MO On August 5, 2008, in St. Louis, Mo., Edward Barrier was sentenced to 30 months in prison for tax evasion. According to court documents, during the years 2002 through 2005, Barrier was self-employed as a project manager supervising the development of high-end residential property in the St. Louis area. Barrier also identified properties for development, and was paid substantial sums of money for these services during each of these years. His total income for those four years was $2.46 million. However, Barrier did not file any federal income tax returns for those years. The total tax liability for the four years after allowing for expenses and deductions totaled $796,514. Barrier was audited by the IRS and additional taxes were assessed against him for tax years 1987 through 1994. Barrier failed to pay the taxes due and quit filing tax returns. After the audit, the IRS sent Barrier numerous notices regarding his tax liabilities; however, he did not pay any of the taxes or dispute the assessment. Instead, according to the U.S. Attorney, Barrier attempted to evade the payment of these taxes by doing business in cash; not acquiring any assets in his own name; residing with his mother; titling vehicles in the name of an unregistered business entity and limiting his use of bank accounts. The total tax due, including the unpaid liabilities for the years 2002 and 2005, and the liabilities assessed for the years 1987 through 1994 totaled $1 million. Barrier also began structuring his cash transactions in 2002 to prevent detection of his income by the IRS. He took the checks he earned from his property and construction management services to the bank on which the check was drawn and obtained a combination of cash and cashiers checks from that bank. Barrier usually obtained an amount of cash under $10,000 and structured over $700,000 in these types of transactions between August 2002 and January Money Laundering Atlas Mortgage Anthony G. Christou (Sentence: 117 months, Restitution/Fines/Penalties/Settlements Paid: $14,300,000) Action Date: August 4, 2008 Location: Atlanta, GA On August 4, 2008, in Atlanta, Ga., Anthony G. Christou was sentenced to 117 months in prison, to be followed by three years of supervised release, and ordered to pay $14.3 million in restitution. Christou was found guilty of wire fraud and money laundering following a two week trial in February 2008. According to evidence presented in court, from approximately the late 1990s through 2005, Christou solicited over $30 million from almost 100 people, as part of what turned out to be a phony real estate financing business. At the time, Christou operated a mortgage brokerage firm, Atlas Mortgage. According to the testimony or statements introduced from several victims, Christou told them that he would use their money to fund specialized short term “bridge” loans at high rates of interest, to real estate developers and others who needed such financing. He lured this investment by offering extraordinary interest rates – often as high as 5 percent in 20-30 days. He claimed he could pay these rates because he was earning even higher rates of interest on the bridge loans he was making. Christou claimed that his bridge loan financing business grew out of his brokerage experience and contacts. However, Christou never made any short term loans or used any of the victims’ money for any business purpose. Instead, he used the money for himself. Among other things, evidence at trial showed that he spent more than $7 million alone gambling in just two years. Christou was operating what is often referred to as a “Ponzi” scheme. He paid the money due each month to his investors, not through any actual earnings, but by luring more people to invest every month. He used new investor’s money to immediately pay returns promised to earlier investors; and when the time came to pay the new investor, he would lure new investment money from someone else. In 2004 and 2005 alone, he cycled more than $20 million through his bank account to and from victims. In the end, over 20 victims lost more than $14 million. Money Laundering John Bruno John V. Cotona (Sentence: 108 months, Restitution/Fines/Penalties/Settlements Paid: $1.275 million) Action Date: August 4, 2008 Location: Trenton, NJ On August 4, 2008, in Trenton, N.J., John V. Cotona, aka John Bruno, owner of a defunct Red Bank auto body shop, was sentenced to 108 months in prison for his leadership role of a million-dollar automobile insurance fraud, bank fraud and money laundering scheme. He was also ordered to pay $1.275 million in restitution and to serve five years of supervised release upon the completion of his prison term. On January 10, 2008, Cotona pleaded guilty to charges of conspiracy to commit mail fraud, conspiracy to launder money and bank fraud. At his plea hearing, Cotona stated that between January 2001 and June 2005, he operated Perfect Touch Auto Body in Red Bank. During this time period, Cotona conspired and agreed with others to submit false automobile property damage claims to various insurance companies. Cotona admitted that the false insurance claims included information that the subject vehicles suffered damage resulting from fictitious accidents. Cotona further admitted that, in addition to making claims for purported repairs, many of the cars involved in the fictitious accidents were actually owned by him and titled in the names of other people or various shell companies that he controlled. Cotona also admitted that he agreed to launder the proceeds of the scheme through bank accounts of the shell companies, which he controlled. In addition, Cotona admitted that from May through June 2005, he defrauded Commerce Bank of approximately $154,950 by depositing bad checks into accounts he controlled and then withdrawing the proceeds of the checks before the checks were returned for insufficient funds. Securities and Investments Central Financial Services Travis Correll (Sentence: 144 months) Horizon Enterprise Joshua Tree Group Neulan Midkiff (Sentence: pending) Action Date: August 1, 2008 Location: Minneapolis, MN On August 1, 2008, a jury in federal court in Minneapolis, Minnesota, convicted Neulan Midkiff of 21 counts of mail fraud, wire fraud and tax evasion. Assistant U.S. Attorney Tim Rank then asked that Midkiff be taken into custody immediately because he was a flight risk, and U.S. District Judge Michael Davis agreed. Midkiff was a preacher from Forest Lake, Minnesota. Midkiff recruited his family and friends to invest in Horizon Enterprise, which turned out to be a high yield investment fraud. Midkiff also operated Central Financial Services and Joshua Tree Group, which were also pyramid schemes. Midkiff's defense was that he was duped by his partner, Travis Correll, and did not know the scheme was illegal. Correll previously pled guilty to charges against him and was sentenced to 12 years in prison. Prosecutors argued that the scheme brought in over $30 million and defrauded over 515 investors. Sentencing was set for October 1, 2008. Telemarketing Fraud BBC Corp. HTC Holdings Sean McVicar (Sentence: pending) Steven Winter (Sentence: pending) Action Date: August 1, 2008 Location: East St. Louis, MO On August 1, 2008, Steven Winter and Sean McVicar pled guilty in federal court in East St. Louis, Missouri, to charges of conspiracy to commit mail fraud and wire fraud. Prosecutors charged that the defendants operated companies which used high-pressure tactics to dupe consumers into paying fees of $149 to $400 for items such as supposed credit-card protection services. Prosecutors said that Winter was the mastermind who set up and controlled the telemarketing operations in Canada, the U.S. and Belize under various corporate names, including HTC Holdings - an acronym for "Hide the Cash" - and BBC Corp., which stood for "Billionaire Boys Club." As part of the scheme, according to the indictment, telemarketers made 925,000 to 1.85 million telemarketing calls to the United States. Sentencing was set for November 2, 2008. Immigration Fraud Action Rags USA Cirila Barron Mabarik Kahlon Valerie Rodriguez Action Date: July 31, 2008 Location: Houston, TX On July 31, 2008, a federal grand jury in Houston, Texas, indicted the owner of Action Rags USA and two managers on various charges of violating federal immigration laws. This indictment was announced by U.S. Attorney Don DeGabrielle, Southern District of Texas, and Robert Rutt, special agent in charge of the Houston Office of Investigations for U.S. Immigration and Customs Enforcement (ICE). Action Rags USA is an exporter and grader of used clothing. Mabarik Kahlon, 45, Valerie Rodriguez, 34, and Cirila Barron, 38, were all charged in count one of the Indictment with conspiracy to harbor illegal aliens and to induce illegal aliens to come to the United States. Count two of the Indictment charged them with inducing aliens to enter the United States for commercial advantage. Both counts carry a maximum term of 10 years imprisonment, a $250,000 fine or both. A third manager, Mayra Herrera-Gutierrez, 32, was charged the previous week by “Criminal Information” with conspiracy to harbor illegal aliens and to induce illegal aliens to come to the United States. ICE began its investigation into Action Rags, an east Houston plant, following complaints in May 2007. According to the criminal complaint previously filed in this case, investigators located and interviewed a number of former and current plant employees. The yearlong investigation revealed the company did not properly complete the required I-9 forms to verify eligibility for employment. The investigation also determined that the company knowingly hired illegal aliens, and reportedly paid them in cash until they were able to purchase fraudulent identity and social security cards from local flea markets. The investigation ultimately led to ICE agents executing a search warrant at Action Rags. During the search warrant execution, ICE agents discovered about 200 persons employed at the plant who worked a single shift from 7 a.m. to 3:30 p.m. daily on June 25, 2008. ICE agents administratively arrested more than 150 illegal aliens, most from Mexico, who were discovered working at the plant. The Indictment alleges that illegal aliens made up roughly 85 percent of the Action Rags workforce, and that the defendants engaged in acts that openly flouted federal immigration law. All four defendants are expected to appear in federal court next week. Two managers, Barron and Herrera-Gutierrez, who are illegal aliens themselves, remain in custody due to ICE immigration detainers lodged against them. Kahlon and Rodriguez remain on bond. This case was investigated by ICE; it is being prosecuted by Assistant U.S. Attorneys Doug Davis and Ryan D. McConnell, Southern District of Texas. A criminal indictment is a formal accusation of alleged criminal conduct, not evidence. A Criminal Information is when a defendant waives their Constitutional right to be indicted by a federal grand jury on a felony charge. Each defendant is presumed innocent unless convicted through due process of law.