Fraud Digest - Online Fraud Magazine

Securities and Investments

Brian Brunette (Sentence: 12 months)
Lawrence Kaplan (Sentence: 36 months)
Steven Luscko (Sentence: 60 months)
Justin Medlin (Sentence: 72 months)
Gregory Neu (Sentence: 60 months)
Phillip Windom Offill, Jr. (Sentence: pending)
Kenneth Owen (Sentence: pending)
Michael Saquella (Sentence: 120 months)
David Stocker (Sentence: pending)
Anthony Tarantola (Sentence: 6 months)
Henry Zemla (Sentence: 3 months)

Action Date: January 28, 2010
Location: Alexandria, VA

On January 28, 2010, Phillip Windom Offill, Jr., a securities attorney, was convicted by a federal jury in Alexandria, Va., for participating in multi-million dollar pump-and-dump stock manipulation schemes. Offill was indicted on March 12, 2009. He was found guilty of one count of conspiracy to commit registration violations, securities fraud and nine counts of wire fraud. “It is a sad day when a former U.S. Securities and Exchange Commission (SEC) attorney uses what he learned in the government to later defraud the investing public,” said Assistant Attorney General Lanny A. Breuer of the Criminal Division. “As this case shows, individuals who illegally manipulate our securities markets to line their own pockets will be brought to justice.” “As a former SEC lawyer, Mr. Offill knew the law – and he intentionally broke it and tried to hide his crimes,” said U.S. Attorney Neil H. MacBride of the Eastern District of Virginia. “He and his co-conspirators made millions while innocent investors were left with stock in worthless companies. We are committed to pursuing these cases aggressively to protect the public and the integrity of the securities market.” According to court records and evidence at trial, Offill, an attorney in Dallas and a former attorney with the SEC, was retained by David Stocker, a Phoenix attorney who pleaded guilty in March 2009 in the Eastern District of Virginia to conspiracy to commit securities fraud. According to the indictment, from approximately March 2004 through October 2004, Offill and Stocker evaded federal securities registration requirements and provided co-conspirators with millions of unregistered and “free-trading” shares of nine companies’ common stock that the co-conspirators could not have otherwise legally obtained. Many of the shares were subsequently sold by co-conspirators to investors in the general public. By evading the registration requirements, the co-conspirators were able to hide from the investing public the actual financial condition and business operations of the companies. The companies included Emerging Holdings Inc.; MassClick Inc.; China Score Inc.; Auction Mills Inc.; Custom-Designed Compressor Systems Inc.; Ecogate Inc.; Media International Concepts Inc.; Vanquish Productions Inc.; and AVL Global Inc. In connection with Emerging Holdings, MassClick and China Score, evidence at trial showed that Offill knowingly participated in a conspiracy known as a “pump-and-dump” scheme to manipulate the price of these companies’ securities. Co-conspirators falsely manipulated the price and volume of some of the companies’ stock by making materially false and misleading statements in press releases and in spam e-mails to tens of millions of e-mail addresses throughout the United States in an effort to create artificial demand for the three companies’ stock. After fraudulently “pumping” the market price and demand for the companies’ stock, co-conspirators “dumped” shares by selling them for large profits to the general investing public in the over-the-counter market through listings on Pink Sheets, an inter-dealer electronic quotation and trading system. These shares were purchased by unsuspecting investors, including investors in the Eastern District of Virginia, and were often rendered virtually worthless. Offill, who was immediately remanded by U.S. District Judge Liam O’Grady, faces a maximum penalty of five years in prison on the conspiracy charge and 20 years in prison for each charged count of wire fraud. He will also be subject to up to $15 million in forfeiture. Sentencing has been scheduled for April 16, 2010, at 9 a.m., before Judge O’Grady. Ten other defendants have pleaded guilty and eight of them have been sentenced in federal court in Alexandria, Va., for their roles in related stock manipulation schemes. David B. Stocker will be sentenced on March 8, 2010. Kenneth Owen pleaded guilty to conspiracy to commit securities fraud and will be sentenced in federal court in Los Angeles on Aug. 25, 2010. Michael R. Saquella was sentenced to 10 years in prison; Justin Medlin was sentenced to six years in prison; Steven P. Luscko and Gregory A. Neu were each sentenced to five years in prison; Lawrence Kaplan was sentenced to three years in prison; Brian G. Brunette was sentenced to a one year in prison; Anthony Tarantola was sentenced to six months in prison; and Henry “Hank” Zemla was sentenced to three months in prison. he case is being prosecuted by Trial Attorney Patrick Stokes of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Ed Power of the Eastern District of Virginia.

Mortgage Fraud

Michael Hershkowitz (Sentence: 48 months, Restitution/Fines/Penalties/Settlements Paid: $27,184,750)
Kingsland Group

Action Date: January 28, 2010
Location: New York, NY

On January 28, 2010, Manhattan real estate developer Michael Hershkowitz was sentenced to four years in prison for his participation in a $27 million Ponzi scheme involving fraudulent loans secured by nonexistent mortgages. According to the documents filed in the case in Manhattan federal court: Hershkowitz, working through a Manhattan real estate development company, The Kingsland Group, Inc., and related entities, fraudulently induced approximately 100 individuals to lend the Kingsland Group over $27 million to fund the renovation of approximately sixteen multi-family apartment buildings located in upper Manhattan. Hershkowitz and a co-conspirator, Ivy Woolf-Turk, falsely represented that the lenders would hold, as collateral for the loans, interests in bona fide first mortgages in the various properties in which they thought they were investing. In truth and in fact, Hershkowitz did not record mortgages on behalf of the lenders. Some interest was paid to some of the defrauded lenders with loans made by other victims, and Hershkowitz or Woolf-Turk made false statements to investors about the status of their loans. Ultimately the principal on the loans was not repaid when due, and the lenders learned that they did not have valid first mortgages on the properties in question, as had been falsely promised to them. Hershkowitz, 53, of New York, New York, previously pled guilty to one count of conspiracy to commit mail and wire fraud. He was sentenced by United States District Judge P. KEVIN CASTEL. In addition to the four-year prison term, Judge CASTEL ordered forfeiture of $27,184,750, representing the funds obtained through the fraud. Woolf- Turk, of Port Washington, New York, previously pled guilty to a related charge and was sentenced on November 23, 2009, to five years in prison and restitution of $27,184,750. This prosecution is being handled by the Complex Frauds Unit of the United States Attorney's Office. Assistant United States Attorney HARRY A. CHERNOFF is in charge of the prosecution.

Mortgage Fraud

AIG
Deutsche Bank National Trust Company
Federal Reserve Bank of NY

Action Date: January 27, 2010
Location: New York, NY

On Jaunary 27, 2010, Treasury Secretary Tim Geithner will testify before the House Oversight and Government Reform Committee. The House Committee is investigating the AIG bailout and the role Geithner played, as head of the New York Federal Reserve Bank. The specific issue of greatest concern is whether AIG and the NY Fed concealed bailout facts. According to a story in Financial Times, the question is whether the efforts of Geithner amounted to "nothing less than a backdoor bail-out of AIG's creditors, including Goldman Sachs, Merrill Lynch, Societe' General and Deutsche Bank." For homeowners with homes in securitized investment trusts who are facing foreclosure, the question is also: did my mortgage holder already receive a payout for my defaulted mortgage from an insurance policy? Banks bought insurance for the pools of subprime mortgages, insuring that they would be paid even if there was widespread default. When the widespread default actually occurred, however, many of the insurance companies did not have the funds they needed to pay-out the policies they had issued. The largest of such insurers without sufficient funds was AIG. In an early development, one such insurer, Security Capital Assurance, a Bermuda-based bond insurer, negotiated a pay-out with its policyholders of 14 cents on the dollar. But the banks insured by AIG received a much better deal, receiving a 100% payout because the Fed provided most of the $62 billion in financing needed so that AIG could meet its obligations to the banks. Arguably, the payouts by AIG kept the banks, and the financial system, from collapsing. If the payout had been less than 100%, the rating agencies would have downgraded AIG, triggering even more claims. Why did the banks get 100% from AIG instead of a negotiated settlement such as the 14% from Security Capital Assurance? And what did the Fed get in return? In most cases, the banks were allowed to keep the assets. The assets the Fed did receive were placed into a Special Purpose Vehicle (another trust) called Maiden Lane III, named afer the Fed's location in NYC. The government has stipulated that the assets held in Maiden Lane III will not be revealed until 2018. Despite the payouts on the default insurance, the banks, as trustees of the securitized trusts they had created, continued to pursue the assets in the trusts - the subprime mortgages, resulting in the continued widespread foreclosure crisis. Because of the secrecy, homeowners in foreclosure cannot determine whether the bank has already been paid for its investment in the homeowner's mortgage - or even whether the mortgage is secretly part of the assets transferred to Maiden III. The foreclosure crisis cannot be resolved until these questions are answered and banks are prevented from making a double recovery: claiming both the funds from the insurance proceeds and the the funds recovered through foreclosure.

Corporate Accounting

Assurant Solutions
Assurant, Inc.

Action Date: January 22, 2010
Location: New York, NY

On January 21, 2010, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of New York charging Assurant, Inc., a publicly-traded insurance company, with violating corporate reporting, books and records and internal controls provisions of the Securities Exchange Act of 1934 ("Exchange Act"). Assurant has offered to settle the charges by consenting, without admitting or denying the allegations in the complaint, to the entry of a final judgment permanently enjoining Assurant from violating these Exchange Act provisions and imposing a civil penalty in the amount of $3.5 million. The Commission's complaint alleges that Assurant improperly accounted for a $10 million recovery it obtained under a reinsurance policy in the aftermath of the 2004 Florida hurricane season. The complaint alleges that Assurant booked the $10 million payment as a bona fide reinsurance recovery when, in fact, the payment was, and should have been booked as, the return of a deposit under Generally Accepted Accounting Principles ("GAAP"). As a result, Assurant materially overstated the net income that it reported for the quarter ended September 30, 2004 to the public and in Commission filings. The Commission's complaint specifically alleges as follows: Assurant failed to properly account for $10 million that one of its business segments (Assurant Solutions) obtained from American Re-Insurance Company ("Am Re"), a private reinsurer, in the third quarter of 2004 under a reinsurance policy that originated in 1992 and was renewed annually through 2004. The arrangement between Assurant (through its subsidiaries that comprise Assurant Solutions) and Am Re consisted of the formal reinsurance treaty documents (i.e. the written policy contract) and an oral side-agreement, which the parties referred to as their "handshake" agreement. Although the terms of the written treaty transferred the risk of certain losses from Assurant Solutions to Am Re under certain conditions, the terms of the so-called "handshake" agreement negated the transfer of risk. Pursuant to this handshake agreement, Assurant Solutions agreed that if the total amount of claims paid by Am Re exceeded the total amount of premiums paid by Assurant Solutions over the life of the treaty, Assurant Solutions would reimburse Am Re for the difference. In return, Am Re agreed that if the total amount of premiums paid by Assurant Solutions exceeded the total amount of claims paid by Am Re, Am Re would return the difference to Assurant Solutions. Assurant accounted for the Am Re treaty improperly by using principles of reinsurance accounting instead of deposit accounting. Under reinsurance accounting, the reinsured is permitted to offset relevant losses in the amount of the probable recovery under a reinsurance agreement, which reduces the impact of those losses on the reinsured's income statement. Under deposit accounting, the payment by the reinsurer is treated as the return of a loan or deposit and cannot be used to offset losses on the income statement. Because the "handshake" agreement between Assurant and Am Re, and in particular its pay-back provision, negated risk transfer, GAAP required the use of deposit accounting and not reinsurance accounting for the premiums paid and any recoveries made under this particular treaty. After the 2004 Florida hurricane season, Assurant booked a $10 million claim payment made by Am Re as a reinsurance recovery rather than the return of a deposit, thereby reducing the adverse impact of the hurricane losses incurred by Assurant Solutions on Assurant's reported financial results. By improperly booking the $10 million payment using reinsurance accounting instead of deposit accounting, Assurant overstated its net income for the quarter ended September 30, 2004 by $6.41 million, or 9.4%. Assurant misstated its financial results for the third quarter of 2004 to the public in two Forms 8-K, filed on November 4 and December 22, 2004, and in a Form 10-Q filed on November 12, 2004. Assurant is charged in the SEC's complaint with violating Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13. In offering to settle these charges, Assurant has consented, without admitting or denying the allegations in the complaint, to the entry of a final judgment permanently enjoining it from violating the foregoing Exchange Act provisions and imposing a civil penalty in the amount of $3.5 million. The determination of this penalty amount took into account, among other things, the company's failure fully to comply with Commission subpoenas on a timely basis. The proposed settlement is subject to court approval.

Mortgage Fraud

Bonnie Helt (Sentence: pending)
Thomas Parenteau
Dennis Sartain (Sentence: pending)

Action Date: January 21, 2010
Location: Columbus, OH

In January 21, 2010, Dennis G. Sartain of Hilliard, Ohio; and Bonnie Helt, of Columbus, Ohio, pled guilty to conspiring to commit mortgage fraud, money laundering and obstruction of justice, the Justice Department and Internal Revenue Service (IRS) announced. Sartain, the accountant for co-defendant Thomas Parenteau, pled guilty to one count of conspiring to defraud the United States by impeding and impairing the IRS, one count of conspiring to commit money laundering and one count of conspiring to obstruct justice. Helt, a real estate agent for co-defendant Parenteau, pled guilty to one count of conspiring to commit bank and wire fraud and one count of conspiring to obstruct justice. Parenteau is scheduled to begin trial on March 8, 2010. In April 2009, Sartain, Helt and Parenteau were charged with tax fraud, bank and wire fraud, money laundering, and obstruction of justice in a superseding indictment. According to the indictment and statements made at the plea hearing, Sartain conspired with Parenteau and others to file false individual income tax returns for Pamela McCarty with the IRS for the tax years 2000 through 2003. These four tax returns falsely reported substantial losses and generated tax refunds from the IRS and state of Ohio of over $800,000 in total. McCarty, who was Parenteau’s mistress, gave a substantial portion of the fraudulent tax refunds to Parenteau or his nominees. According to the indictment and statements made at the plea hearing, Sartain conspired with Parenteau, McCarty and others to prepare a $4.5 million fictitious loan application to refinance to improve a 30,000 square foot home. As a result of the fraudulent loan documents, McCarty obtained nearly $4.5 million from one bank and an additional $1.5 million from a second bank, and she transferred the money to Parenteau. From March 2004 through September 2006, Parenteau and Sartain dispersed in excess of $1 million of the loan proceeds back to McCarty by disguising the payments as payroll checks from Your Home Source (YHS) and JSS Investments, rental payments and consulting payments from YHS and other miscellaneous payments. On Jan. 31, 2007, Parenteau and his wife refinanced the 30,000 square foot property and received a $12 million loan, which was used in part to pay off McCarty's existing obligations at the two banks. According to the indictment and statements made at the plea hearing, Helt admitted that from 2005 through 2007, she, Parenteau, and others negotiated and participated in real estate deals in which they sold luxury homes for a falsely inflated purchase price from the builder in exchange for an undisclosed or disguised kickback. In many of the transactions, the buyers misrepresented their income and assets in order to obtain financing of the inflated purchase price. The buyers and sellers in the transactions attempted to justify the inflated purchase prices by creating false work change orders and addendums which created the appearance that the inflated price represented additional substantial work to be completed on the homes. No such agreement was actually intended by any party. Further, those documents were not disclosed to the lenders. The object of each transaction was to use the loan proceeds in excess of the actual purchase price in order to fund hundreds of thousands of dollars in kickback payments to the buyers. The loans associated with several of the real estate purchases have gone into default. According to the indictment and statements made at the plea hearing, both Sartain and Helt admitted to conspiring with Parenteau and others to obstruct the IRS criminal investigations of Sartain, Parenteau and others. Sartain and Helt admitted to altering or destroying records as well as lying to federal and local law enforcement agents. The U.S. District Court Judge Michael H. Watson has not scheduled sentencing date. Sartain faces a maximum sentence of 30 years in prison and a maximum fine of $1 million or twice the monetary loss or gain from the offense. Helt faces a maximum sentence of 35 years in prison and a maximum fine of $1.25 million or twice the monetary loss or gain from the offense. John DiCicco, Acting Assistant Attorney General for the Justice Department’s Tax Division, commended the special agents of the IRS Criminal Investigation for the investigation, as well as Tax Division trial attorneys Richard Rolwing, Sean O’Connell and Jessica Nuzzelillo who are prosecuting the case.

Tax Fraud

Thomas George (Sentence: pending)

Action Date: January 20, 2010
Location: Newark, NJ

On January 20, 2010, the chief executive officer of Sterling Seafood Corporation located in Cresskill pled guilty to importing falsely labeled fish from Vietnam and evading over $60 million in federal tariffs, as well as selling over $500,000 in similarly misbranded fish purchased from another importer in the United States. Thomas George, 61, of Old Tappan, made his first appearance in federal court and pled guilty before U.S. Magistrate Judge Patty Shwartz to a two-count Information charging him with one count of importing falsely labeled goods into the United States and one count of selling falsely labeled fish in the United States with the intent to defraud. Sentencing is scheduled for April 28, 2010 before U.S. District Judge Faith S. Hochberg. An investigation by Special Agents with the U.S. Immigration and Customs Enforcement revealed that from January, 2003 to June, 2006, George maintained a business relationship through Sterling Seafood with a seafood distribution company located in Vietnam. As part of that business relationship, Sterling Seafood regularly purchased a type of fish product in the catfish family, specifically Pangasius hypophthalmus, sometimes referred to as Vietnamese catfish. Sterling Seafood would then resell the Vietnamese catfish in the United States. In the interest of fairly regulating commerce in the U.S., the U.S. Department of Commerce (“DOC”) establishes antidumping duties or tariffs on certain imported products. In January, 2003, an antidumping duty or tariff was placed on all imports of Vietnamese catfish into the United States because the Vietnamese catfish was being marketed at a significantly lower price than was market rate at the time. That initial antidumping order imposed a duty of up to 63.88 percent on all catfish subject to the order, and was adjusted at various later dates based on market conditions. At his plea hearing, George admitted that from 2004 to 2006, he agreed with the Vietnamese distribution company to engage in a scheme to falsely identify and declare the purchase and importation of the Vietnamese catfish in order to evade the applicable antidumping duties. George stated that he specifically instructed the Vietnamese company to fraudulently identify the Vietnamese catfish as “grouper” on commercial contracts, purchase orders, and other documents because grouper was not subject to antidumping duties. George further admitted that, based upon these false statements and fraudulent documents, he, through Sterling Seafood, avoided over $60 million in antidumping duties. Additionally, George admitted that from 2004 to 2005 he purchased over $500,000 of similarly misbranded Vietnamese catfish that was imported from Vietnam by a Virginia corporation and then sold that misbranded Vietnamese catfish throughout the United States.

Insurance Premium Fraud

Jerry Brewer
Regency Insurance of the West Indies

Action Date: January 14, 2010
Location: Jacksonville, FL

On January 10, 2009, Jerry Brewer was returned to the United States, to Jacksonville, Florida, after unsuccessfully attempting to avoid extradition from England. Brewer was brought back to the United States by two U.S. Marshals and will remain in the custody of the Marshals at least until January 15, 2010, when a detention hearing is scheduled before United States Magistrate Judge Howard T. Snyder. Brewer was indicted in April, 2007, for his involvement with a fake workers' compensation insurance scheme. Policies were sold nationwide through employee leasing companies, supposedly issued by Regency Insurance of the West Indies. The defendants merely used the name of this offshore, non-operational insurance company to collect millions of dollars in insurance premiums. The scheme operated primarily from 2000 to 2004. In a 21-count indictment, Brewer was charged with conspiracy, wire fraud, mail fraud and money laundering. Fourteen individuals, including PEO owners, insurance agents and third-party administrators were previously convicted in the scheme. Sentences ranged from 18 months to 22.5 years. A key defendant, Tom Brown, testified in two trials, but committed suicide before he himself reported for sentencing. Over $4 million was recovered and distributed to injured workers whose claims had gone unpaid for years. The cases were all prosecuted by Assistant U.S. Attorney Mark Devereaux.

Bank Fraud

Diego Hernandez
Robert Sacks

Action Date: January 9, 2010
Location: Trenton, NJ

On January 11, 2010, the trial is scheduled to begin of a Miami Beach, FL, man and his driver for their roles in a telemarketing fraud and identity theft scheme that attempted to defraud financial institutions and their account holders throughout the United States of millions of dollars through the unauthorized and fraudulent debit of customer bank accounts. Jury selection is scheduled to start on Monday, January 11, at 9:30 before U.S. District Judge Garrett E. Brown, Jr., in the federal courthouse in Trenton. Opening statements are schedule to begin on Wednesday, January, 13 at 9:30 a.m. Robert Sacks, 50, and his driver, Diego Hernandez, 32, a Venezuelan citizen residing in Miami, were arrested on December 10, 2008, along with seven additional defendants and were arraigned on a 42-count Superseding Indictment before Judge Brown, on October 13 and October 8, 2009, respectively. Sacks and Hernandez are the final two remaining defendants out of 17 charged in connection with an international bank fraud ring busted for attempting to debit well over 100,000 customer accounts for more than $40 million. The other 15 co-conspirators from Canada, New Jersey, Florida, Colorado and Michigan have already pleaded guilty for their participation in the conspiracy.

Tax Fraud

Jose Franklin Duarte (Sentence: 78 months)

Action Date: January 9, 2010
Location: New York, NY

On January 7, 2010, Jose Franklin Duarte was sentenced in federal court in New York City to 78 months in prison for his role in a scheme to fraudulently obtain millions of dollars in federal tax refund checks and then to steal the checks from the U.S. mail. According to the Superseding Information filed in Manhattan federal court, to which Duarte previously pleaded guilty, as well as other documents filed in the case and statements made during his guilty plea and sentencing proceedings, DUARTE was charged as part of a two-year investigation by law enforcement into a scheme to use stolen Social Security numbers and other identity information to submit fraudulent state and federal tax returns. As part of the scheme, members of the conspiracy electronically filed tens of thousands of fraudulent federal tax returns, and fraudulently obtained tens of thousands of dollars of tax returns and stimulus checks. The co- conspirators targeted Social Security numbers assigned to residents of the Commonwealth of Puerto Rico because residents of Puerto Rico whose income derives solely from Puerto Rican sources were generally not required to file federal tax returns with the Internal Revenue Service ("IRS"). This minimized the risk that a legitimate federal tax return was already filed by the owner of the Social Security number. In 2008, DUARTE recruited a co-conspirator ("CC-1"), who was a letter carrier employed by the U.S. Postal Service who delivered mail in the Bronx, to participate in the scheme and to give DUARTE addresses to which fraudulently obtained tax refund checks could be addressed. From August 2008 to February 2009, DUARTE's co-conspirators filed over 9,000 U.S. Individual Income Tax Returns (Forms 1040) for tax years 2007 and 2008 with the IRS that contained information connected to the stolen Social Security numbers of Puerto Rican residents. These returns were filed electronically from the Dominican Republic. The false returns sought refunds totaling over $91 million dollars to be sent in the form of U.S. Treasury checks via U.S. mail. The checks were to be sent to addresses on CC-1's route and began to arrive in the fall of 2008. Throughout the later part of 2008, DUARTE and/or co- conspirators paid CC-1 cash in exchange for the mail containing the fraudulently-obtained U.S. Treasury checks addressed to the buildings on CC-1's route. DUARTE and others were arrested in February 2009 after law enforcement agents placed "decoy" checks in CC-1's mail. The actual amount of tax refund checks stolen by DUARTE and his co-conspirators during tax year 2008 was over $807,000. DUARTE was also ordered to pay restitution of over $807,000 to the IRS. This case is being prosecuted by the Office's Complex Frauds Unit. Assistant United States Attorney DANIEL W. LEVY is in charge of this prosecution.

Tax Fraud

Teddy Gatamba (Sentence: 81 months)
Romeo Mwambutsa

Action Date: January 9, 2010
Location: Dallas, TX

On January 7, 2010, Teddy Gatamba was sentenced in federal court in Dallas, TX, to 81 months in federal prison following his conviction in September 2009. Specifically, Gatamba was convicted on four counts of a superseding indictment charging conspiracy to defraud the government with respect to claims, two counts of wire fraud, and one count of aggravated identity theft. That indictment also charged Romeo Mwambutsa with the conspiracy and related charges; Mwambutsa remains a fugitive. “It is our hope that this sentence will send a strong message that tampering with the integrity of our nation's tax system can result in jail time. This is also a good time to remind taxpayers that they should be very careful when choosing a return preparer,” said Bridget Marchetta, Acting Special Agent in Charge, IRS-Criminal Investigation-Dallas Field Office. “Use the same high standards you would in selecting a doctor or lawyer. It is important to know that even if someone else prepares your return, you are ultimately responsible for all the information on the tax return.” According to an order entered by the Court in May 2009 detaining Gatamba, evidence showed that Gatamba is a citizen of either Rwanda or Burundi, and was ordered deported in 1999. At the time of his arrest, Gatamba was in possession of two fake driver’s licenses, a fake passport, and multiple credit cards issued to persons other than himself. At trial, the government presented evidence that Gatamba, who used the names of Grand Place Management, UST Tax Service, and Dendy Tax Service to obtain electronic filing identification numbers, obtained the names and social security numbers of numerous individualsand used that personal information to prepare false income tax returns, without the knowledge or consent of the individuals. Gatamba prepared the returns using bogus employer names and making bogus claims of overpayment of taxes, and then filed the returns electronically. Refund Anticipation Loans, in the form of checks and Refund Anticipation Value Cards, were issued, based on the false income tax returns, in the names of the individuals on the bogus tax returns. Gatamba and others cashed the checks and withdrew funds from ATMs using the Refund Anticipation Value Cards. Evidence presented at trial showed that there was an intended loss of more than $2 million. The case was investigated by the IRS - Criminal Investigation (IRS-CI) and prosecuted by Assistant U.S. Attorneys Errin Martin and Steve Fahey.

Government Contractor Fraud

Genevieve Coley (Sentence: 15 months)

Action Date: January 9, 2010
Location: Richmond, VA

On January 8, 2010, Genevieve Coley was sentenced to 15 months in prison for mail fraud committed in connection with her business. According to court documents, in 2002, Coley incorporated as GAD Associates, Inc., a Virginia corporation, for the purpose of wholesaling industrial supplies to the United States as a minority-owned business under the small business set aside program. Coley was the corporate President, Treasurer, and Secretary. GAD would obtain the supplies from Blackmer, a corporation which contracts a portion of its government business with minority owned businesses. In acting as a Blackmer’s sales representative to the U.S. Government, GAD bid on federal contracts needing Blackmer products. Coley handled all correspondence with, to, and from the Government. This business was conducted via internet bids, telephone discussions, wire transfers, and the United States mail. Blackmer would ship pumps and other products directly to the Government based on GAD’s successful bids and contracts. Pursuant to GAD’s contract with Blackmer, the Government, via Defense Finance & Accounting Services (DFAS), would pay GAD directly via wire transfer into GAD’s bank account. GAD was to then pay Blackmer according to the terms of their contract. In the mail fraud scheme, by letter and other communications, Coley falsely represented to employees of Blackmer, that the Government had not paid for the goods yet so funds could not be sent to Blackmer for the goods delivered to GAD. Blackmer relied on these false representations and continued to support Coley’s internet bids for products that Blackmer supplied. Prior to its discovery, the scheme netted Coley $1,192,322.47 in defrauded funds that were due to Blackmer, and which Coley wrongfully withheld and dissipated. This case was investigated by United States Immigration and Customs Enforcement. Assistant United States Attorney S. David Schiller prosecuted the case on behalf of the United States.

Mail Fraud

Arya Neal Behgooy
Chastity Lynn Faulkner
Michael Blaine Faulkner
Jennifer Jo Gilliland
Brian Patrick Haney
Ricky Keele
Eric Byron Littlejohn, III
Nathan Todd Shafer
Christopher Sigler
Dmitri Siiatski
Matthew Norman Simpson
Alicia Smallwood
Valerian James Stock
Logan Vig
Milos Vujanic
William Michael Watts
Jason Carter Watts
Marcus Wentrcek
Casimir A. Wojciechowski

Action Date: January 9, 2010
Location: Dallas, TX

On January 8, 2010, a federal grand jury in Dallas returned a superseding indictment charging 19 defendants in a massive cybercrime conspiracy. This indictment supersedes a September 2, 2009, indictment that charged nine of the defendants in the conspiracy. The following 19 defendants are each charged with one count of conspiracy to commit wire and mail fraud. Defendants (3) through (7), who were charged in the original indictment, have made their initial appearances in federal court and, with the exception of defendant (6), are on pretrial release. Defendant (6) remains in custody. Defendants (10) through (15) and (18) and (19) were either arrested or have surrendered to federal authorities this week. Defendants (16) and (17) are outside of the United States. Defendants (1), (2), (8) and (9) are believed to have fled the United States to avoid prosecution. One anonymous internet report suggested that Michael Faulkner was killed attempting to reenter the U.S. from Mexico. This report has not been confirmed. (1) *Chastity Lynn Faulkner, 34, of Southlake, Texas (fugitive) (2) *Michael Blaine Faulkner, 36, of Southlake, Texas (fugitive) (3) *Brian Patrick Haney, 36 of Plano, Texas (4) Eric Byron Littlejohn, II, 19, of Desoto, Texas (5) Nathan Todd Shafer, 31 of Irving, Texas (6) *Matthew Norman Simpson, 25, of Red Oak, Texas (7) *Alicia Nicole Cargill Smallwood, 28, of Midlothian, Texas (8) *Jason Carter Watts, 32, of Plano, Texas (fugitive) (9) *William Michael Watts, 38, of Plano, Texas (fugitive) (10) *Logan L. Vig, 22, of Dallas, Texas (11) *Arya Neal Behgooy, 33, of Plano, Texas (12) *Christopher Wayne Sigler, 27, of Roanoke, Texas (13) *Marcus William Wentrcek, 29, of Frisco, Texas (14) *Valerian James Stock, 42, of New Orleans, Louisiana (15) *Ricky J. Keele, 55, of Coppell, Texas (16) *Dmitri Siiatski, 22, of Canada (17) *Milos Vujanic, 29, of Eastern Europe (18) Jennifer Jo Gilliland, 29, of Phoenix, Arizona (19) Casimir A. Wojciechowski, a/k/a Casey, 56, of Illinois The eight-count indictment also charges 15 of the defendants (*) with fraud and related activity in connection with electronic mail and aiding and abetting. Michael Blaine Faulkner is also charged with one count of obstruction - threatening a witness or informant; one count of obstruction - hiding assets; one count of obstruction - destruction of evidence; and one count of false registration of a domain name. Matthew Norman Simpson is also charged with one count of obstruction - destruction of evidence and one count of false registration of a domain name. Logan L. Vig and Milos Vujanic area also each charged with one count of obstruction - destruction of evidence. The indictment also includes a forfeiture allegation which would require that the defendants, upon conviction, forfeit any proceeds obtained, directly or indirectly, as a result of the offense. The indictment alleges that from March 2003 through July 2009, the defendants conspired to defraud various telecommunications companies, including AT&T; Verizon; XO Communications; SMARTnet VOIP; Waymark Communications; the lessors of properties at 2020 Live Oak, 2323 Bryan Street and 1950 Stemmons Freeway, in Dallas; various financial institutions; leasing companies and creditors, including Wells Fargo, AT&T Capital Services, and the credit reporting agencies; and various other service providers, such as power companies, insurance companies, air-conditioning companies, web site developers, and others for goods and services amounting to more than $15 million. The indictment further alleges, that as part of the conspiracy, the conspirators made false representations to obtain goods, such as computer and telecommunications equipment and infrastructure, to include racks to hold computer equipment, generators to provide power for the equipment, and office space to install the equipment, as well as services related to the operation and use of computers and telecommunications. The conspirators created, purchased and used shell companies to hide the true identity of the owners or operators of the companies, or the relationships between the companies. They also established P.O. Boxes, commercial remailer services, shell offices, apartments, or other physical locations to hide owners’ or operators’ identity or the relationships between the companies. They assumed multiple fake identities to hide true ownership of the shell companies and made materially false representations to their victims, by mail, fax, telephone, email, or other communications, to obtain goods and services from them. A series of search warrants were conducted by FBI agents in March and April 2009 at Chastity and Michael Faulkner’s residence in Southlake, and at a Faulkner business, Crydon, located at 1950 Stemmons Freeway in Dallas. Searches were also conducted at Core IP, located at 2323 Bryant Street in Dallas, and at other related businesses. Assistant U.S. Attorney C.S. Heath is in charge of the prosecution.

Mortgage Fraud

Deutsche Bank National Trust Company
Foreclosure Document Mills

Action Date: January 7, 2010
Location: West Palm Beach, FL

(Part 4 of a Series on Mortgage Fraud and Foreclosure Document Mills) On January 7, 2010, the New York Times and Bloomberg News reported that the Federal Reserve Bank of New York told AIG to withhold details from the public about more than $62 billion AIG paid to banks at the height of the 2008 financial crisis. California Republican Congressman Darrell Issa released emails showing the intervention of the New York Fed. According to these reports, AIG said in a draft of a regulatory filing that it paid banks, including Goldman Sachs Group and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from AIG. The New York Fed supposedly directed AIG to delete this information, to limit public anger when the banks were paid $62.1 billion, essentially creating a bailout of the banks through the AIG payments. Even thought the banks cashed in on their insurance policies, essentially for policy limits, no bank was required to assign its interest in the underlying real estate - mostly residential mortgages - that were secured by the AIG policies. So the banks received their money from AIG and other insurers in turn, after AIG received its money from the American taxpayer. One of the first questions a homeowner must ask in a foreclosure action is whether the bank has already made a 100% recovery from a financial guaranty insurance policy. If the banks were properly regulated, and there was proper oversight of the bailout funds, this burden would not fall upon homeowners in foreclosure actions. Without such regulation and oversight, banks are free to pursue foreclosure actions and essentially recover twice for the same loss. In many foreclosure cases, the foreclosing bank cannot even produce the minimal documentation to prove its right to foreclose, but relies instead on fabricated documents from foreclosure mills. One indicator of a fraudulent Assignment is the date of the Assignment. Did the alleged Assignment occur over 100 days after the loan was already in default - perhaps even AFTER the foreclosure action was initiated? This is the question that some judges have asked (see, e.g., the decisions of NY Supreme Court Judge Arthur Schack) and others must ask to prevent further unjust enrichment of banks in foreclosure actions. Courts COULD require every foreclosure complaint to be filed with an Affidavit that the subject property is not part of any Trust that has also received financial guaranty insurance payments.

Mortgage Fraud

DOCX

Action Date: January 6, 2010
Location: Alpharetta, GA

Fraud Digest Editors are seeking copies of any mortgage-related documents prepared by DOCX, a mortgage services provider in Alpharetta, Georgia. Please email such documents to szymoniak@mac.com. Nothing in this request is meant to imply that DOCX or any employees thereof have engaged in any fraudulent practices.

Mortgage Fraud

Deutsche Bank National Trust Company
Foreclosure Document Mills

Action Date: January 6, 2010
Location: West Palm Beach, FL

(Part 3 of a Series on Mortgage Fraud and Foreclosure Document Mills) HOW DID MY MORTGAGE BECOME PART OF A DEUTSCHE BANK TRUST? Many homeowners in foreclosure actions find that they have been sued for foreclosure by Deutsche Bank National Trust Company (or another bank), as "Trustee for the Certificate Holders" of a Home Loan Trust. In such cases, the bank/trustee filing the foreclosure complaint may not be known to the homeowner. The very first time most homeowners learn that their home was part of a publicly-traded home loan trust - that their mortgage has been "SECURITIZED" - is when they are served with the foreclosure complaint. As it relates to mortgages, securitization is the process of transforming a group of mortgages into an investment entity regulated by the Securities & Exchange Commission. Investors can buy shares of a home loan trust. Such a trust often has approximately 8,000 - 10,000 mortgage loans worth $1 BILLION DOLLARS or more. The Trust has a Pooling and Servicing Agreement (PSA). The PSA sets forth what happens after the 10,000 mortgages are bundled together. The Originator sells the bundle of mortgages to an entity known as a "depositor." (Financial Asset Securities Corporation is one of the largest such company.) The depositor then sells the bundle of mortgages to an "Underwriter" - the company that issues the certificates that show that the investors hold a beneficial interest in the trust (created by the Pooling Agreement.) In short, the mortgage has gone from the Originator, to the Depositor to the Underwriter to the Trust. WHERE IS THE FRAUD? Deutsche Bank, as Trustee, claims repeatedly in foreclosure actions that it has acquired the loan from the Originator - never mentioning the intervening transfers - or proving that such transfers occurred. WHY DOES THIS MATTER TO THE HOMEOWNER? In the rush to create these trusts and sell shares to investors, Assignments were never prepared, filed and recorded (even though the PSA usually has such a requirement). This means that the entity seeking to foreclose cannot prove the chain of ownership. (There may also be a violation of federal law as most lenders are supposed to notify the homeowners that their mortgage and note have been transferred within 15 days of the transfer. See, 12 U.S.C. §2605. WHY DOES THE CORRESPONDENCE STILL FLOW FROM THE ORIGINAL BANK TO THE HOMEOWNER? In most cases, the originator retains the right to service the loans for a fee. The homeowner has no idea that it is corresponding and negotiating with a mortgage loan servicer instead of a mortgage loan owner. Recently, several good articles have been written on the creation of these trusts. One of the best articles is "The Securitization Process" by Prof. Ian Giddy of New York University's Stern School of Business. Another excellent article, "Mortgage Securitization, Servicing and Consumer Bankruptcy," by O. Max Gardner, III in the September 2005 Issue of Law Trends and News, ABA General Practice, Solo and Small Firms Division. Also, because these trusts are publicly-traded and rated, information about the trust assets is available online and from the SEC.)

Mortgage Fraud

Deutsche Bank National Trust Company
Foreclosure Document Mills

Action Date: January 5, 2010
Location: West Palm Beach, FL

(Part 2 of a Series on Mortgage Fraud and Foreclosure Document Mills) IS MORTGAGE SERVICING JUST A KANSAS CITY SHUFFLE? Regarding the fabrication of documents, despite the hundreds of thousands of foreclosure cases, there are very few cases where the issue of the authenticity of documents, particularly Assignments, has been raised. Assignments are often the critical missing documents in foreclosure actions. When the Assignments have not been properly made, the lender cannot prove it owns and possesses the Note and has a right to foreclose. The issue of fabrication of Assignments may not be frequently raised because most defendants in foreclosure actions are not represented by counsel; inexperienced litigants do not suspect that Assignments may have been fabricated. Only a few lawyers have raised the issue of fabrication, but the issue is clearly arising more often. In the cases where the authenticity of an Assignment has been questioned, the challenges have come most often from judges. Because their dockets are filled with foreclosures, judges are often in the unique position to see hundreds, if not thousands, of Assignments, and compare the names, job titles, and even notary information on the Assignments. The judge who has written the most opinions that include discussion of the validity of Assignments is New York State Supreme Court Judge Arthur M. Schack of Brooklyn. In a 2008 case, Judge Schack wrote: "If these statements are true, then Mr. [Scott] Anderson lied in executing the May 1, 2007 assignment of the Valentin loan... The May 1, 2007 recorded assignment was executed by the same Mr. Anderson, wearing his hat as Vice President of MERS, at Ocwen's office, located at 1661 Worthington Road, Suite 100, West Palm Beach, Florida 33409, and sworn to before Doris Chapman, a Florida Notary Public. The Court is troubled that Mr. Anderson acted as both assignor of the instant mortgage loan, and then as the Vice President of Ocwen, assignee HSBC's servicing agent." (HSBC Bank USA, N.A. v. Candida Valentin, 2008 NY SlipOp 52167 (U), 21 Misc. 3d 1124 (A)). In another case, Judge Schack noted that the same person [Erica Johnson-Seck] signed an Affidavit as Vice President of MERS and 28 days later as an officer of DEUTSCHE BANK. Judge Schack compared the mortgage servicing industry to a con game, saying: "With the assignor MERS and assignee DEUTSCHE BANK appearing to be engaged in possible fraudulent activity by: having the same person execute the assignment and then the affidavit of facts in support of the instant application; DEUTSCHE BANK’S purchase of a non-performing loan from INDYMAC; and, the sharing of office space in Suite 400/500 in Kansas City, the Court wonders if the instant foreclosure action is a corporate “Kansas City Shuffle,” a complex confidence game. In the 2006 film, Lucky Number Slevin, Mr. Goodkat, (a hitman played by Bruce Willis), explains...'A Kansas City Shuffle is when everybody looks right, you go left. . . It’s not something people hear about. Falls on deaf ears mostly . . . No small matter. Requires a lot of planning. Involves a lot of people. People connected by the slightest of events. Like whispers in the night, in that place that never forgets, when those people do. In this foreclosure action is plaintiff DEUTSCH BANK, with its “principal place of business” in Kansas City attempting to make the Court look right while it goes left? (Deutsche Bank National Trust Company v. Ramash Maraj, 18 Misc 3d 1123 (A)). Judge Schack looks at the names of individuals signing Assignments and their job titles, and checks to see whether the same person claims to be an officer of many different banks. He checks the addresses to see how many banks and servicing companies are claiming to use the very same address. He even checks the notary information. In most of the cases, he denies the foreclosure.

Mortgage Fraud

Deutsche Bank National Trust Company
Foreclosure Document Mills

Action Date: January 4, 2010
Location: West Palm Beach, FL

On January 3, 2010, ABC News reported that nearly 40% of all home sales in 2009 were foreclosures or short sales. Mortgage delinquency rates continued to rise in the last quarter of 2009 with California, Nevada and Florida having the highest delinquency rates. There were an estimated 456,000 foreclosure cases pending in Florida Courts at the end of 2009. As this foreclosure crisis continues, courts and litigants are discovering a new kind of fraud: "fabrication" of documents by banks and mortgage companies. In January, 2008, Countrywide Financial Corporation admitted that it fabricated documents related to the bankruptcy case of a Pennsylvania homeowner. Countrywide "recreated" three letters addressed to the homeowner. The federal bankruptcy judge overseeing the case, Thomas P. Agresti, said at that time “These letters are a smoking gun that something is not right in Denmark.” Since that 2008 admission, there have been many more allegations that documents submitted by lenders have been fabricated. New York Supreme Court Judge Arthur Schack has written the most scathing opinions, especially challenging the practices of Deutsche Bank National Trust (often described as "America's Foreclosure King" and Ocwen Financial Corporation. Judge Schack has noted in several decisions the irregularites associated with Ocwen. In a 2008 decision, Judge Schack wrote: "The court ponders if Suite 100 [1661 Worthington Road, West Palm Beach, Florida} is the size of Madison Square Garden to house all of these financial behemoths or if there is a more nefarious reason for this corporate togetherness." This address had been used by Ocwen Financial Corporation, HSBC Holdings, Deutsche Bank National Trust, and several other international companies. Because banks and mortgage companies took "shortcuts" in their rush to create mortgage-backed securities, they lack the documents they need for foreclosure. In recent years, several companies have emerged to "assist" the banks in their document struggle. Two mortgage defense blogs, livinglies.wordpress.com and scribd.com, provide access to questionabledocuments prepared by mortgage mills. Many of Judge Schack's opinions are available with easy access on the "pleadings" section of Fraud Digest. (This is Part One of Fraud Digest's series on Fabricated Mortgage Documents. The series will continue throughout January, 2010.)

Health Care Fraud

Eologia's Diagnostic Medical Center, Inc
Michel De Jesus Huarte (Sentence: pending)
Madelin Machado
Ihosvany Marquez
Metro Med Care, Inc.
Professional Medical Health, Inc.
San Diego Medical & Rehab Center, Inc.
Stop Injury Medical Center, Inc.
Tender Loving Care Medical Center, Inc.
Zigma Medical Care, Inc.

Action Date: January 4, 2010
Location: Miami, FL

On January 4, 2010, Ihosvany Marquez, of Miami-Dade County, was arraigned on an Indictment charging him with conspiracy to commit Medicare fraud, Medicare fraud, conspiracy to commit money laundering, money laundering, and aggravated identity theft. Another defendant, Michel De Jesus Huarte, was indicted for a closely related Medicare fraud scheme in September 2009, and pled guilty in November 2009. The Indictment alleges that Marquez, together with Michel De Jesus Huarte and other unnamed conspirators, operated and controlled seven purported medical clinics in Miami- Dade and Orange counties. These clinics were Zigma Medical Care, Inc., Tender Loving Care Medical Center, Inc., Professional Medical Health, Inc., Metro Med Care, Inc., San Diego Medical & Rehab Center, Inc., Eulogia's Diagnostic Medical Center, Inc., and Stop Injury Medical Center, Inc. According to the Indictment, these clinics submitted at least $55 million in false claims to Medicare for infusion therapy, injection therapy, and other expensive medical treatments designed to treat Medicare beneficiaries suffering from a wide variety of ailments, including cancer, HIV, AIDS, chronic pain, and varicose veins. Based on these fraudulent claims, Medicare paid Marquez and his conspirators approximately $21.6 million. According to the charges, to conceal their involvement in the scheme, Marquez and his conspirators recruited nominee or “straw” owners for each company, and paid them large sums of cash to sign the corporate records, bank records, and other business documents before fleeing the country to avoid arrest. 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 today. U.S. Magistrate Judge Barry L. Garber ordered Marquez be detained pending trial. During the pretrial detention hearing, the United States stated that Marquez used $2.7 million of Medicare fraud proceeds to purchase numerous luxury and exotic cars, including a Lamborghini Gallardo, a Lamborghini Murcielago, a Ferrari 612 Scaglietti, two (2) Bentley Continental GTs, two (2) Mercedes Benz CL63s, and at least six (6) Mercedes Benz S550s. The United States further proffered that Marquez spent more than $500,000 on jewelry, and more than $1million on horses during 2007 and 2008. The United States further proffered that Marquez did not have any reported wages or earnings in the State of Florida, and therefore could not have made such expenditures with legitimate funds. This case is being prosecuted by Assistant U.S. Attorneys Ryan Stumphauzer and Daniel Bernstein.

Bank Fraud

Credit Suisse Group AG

Action Date: January 3, 2010
Location: Boise, ID

On January 3, 2010, Credit Suisse Group AG was sued in federal court in Idaho by property owners at ski resorts in Montana and Idaho. The lawsuit alleges racketeering, breach of fiduciary duty, fraud and negligence and seeks $24 billion in damages, triple the $8 billion in alleged losses for property owners and names three Credit Suisse units and Cushman & Wakefield Inc. as defendants. Cushman & Wakefield provided appraisals, according to the complaint. The plaintiffs claim that the bank made loans based on inflated appraisals so it could take over the resorts when the debts couldn’t be repaid. The plaintiffs claim that Credit Suisse AG ran a "predatory" loan-to-own scheme. Home owners, property owners and other investors claim they've lost billions of dollars at Ginn Sur Mer Resort in the Bahamas, the Lake Las Vegas resort in Nevada, Tamarack Resort in Idaho and the Yellowstone Club in Montana. Credit Suisse was a major player in financing large resorts in the West that have filed for bankruptcy in the last two years.