One of the two men indicted in connection with an alleged scheme to defraud Medicare by recruiting patients from Skid Row in Los Angeles (earlier) has pleaded guilty. Estill Mitts, who operated an “assessment center” in the heart of Skid Row, on Thursday agreed to plead guilty to conspiracy to commit healthcare fraud, money laundering and tax evasion. In the plea agreement, Mitts admits recruiting homeless Medicare and Medi-Cal beneficiaries for three hospitals, where they received unnecessary medical treatments or no treatment at all. One hospital, City of Angels Medical Center, was owned by Dr. Rudra Sabaratnam, who was indicted along with Mitts and has pleaded not guilty (earlier). Mitts will enter his plea on September 10. Sabaratnam’s trial is scheduled to begin on September 30 (LA Times).
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A federal grand jury in Houston on Thursday indicted (.pdf, explicit language) US District Judge Samuel Kent on one count of abusive sexual conduct and two counts of attempted aggravated sexual abuse. Kent becomes the first federal judge to face federal sex charges. Count one of the indictement describes a 2003 incident, counts two and three date from 2007 and all three involve Cathy McBroom, Kent’s former case manager who had previously made public allegations against Kent. She is identified as “Person A” in the indictment.
After McBroom’s harassment complaint became public last fall, Kent was reprimanded and reassigned from Galveston to Houston effective January 2008. He has been confined to handling civil cases, other than sexual harrassment cases. It has been no secret that a federal investigation was begun late last year. The Houston Chronicle reported last month that the investigation had expanded to include allegations that he accepted but failed to report gifts and also sold his home in a deal arranged by a lawyer with dozens of cases in his court.
Kent is represented by Dick DeGuerin, while Rusty Hardin is representing McBroom. Kent apparently will contend that the relationship was consensual (Houston Chronicle, with more background here).
What a coincidence. On the same day that the Second Circuit publishes its landmark Stein decision, upholding Judge Kaplan’s dismissal of the KPMG indictments based on DOJ’s interference with the Sixth Amendment right to counsel, Deputy AG Mark Filip (recently installed) announces DOJ’s total repudiation of the Holder/Thompson/McNulty Memos’ infringement on attorney client privilege and work product. The remarks can be found here. As Comrade Lenin would say, this is no accident. DOJ’s long overdue and supine surrender comes in the face of Senator Arlen “Single Bullet” Specter’s proposed federal legislation aimed at ending DOJ’s unconstitutional practices.
Here, from Filip’s remarks, are the highlights of the new policy:
“First, credit for cooperation will not depend on whether a corporation has waived attorney-client privilege or work product protection, or produced materials protected by attorney-client or work-product protections. It will depend on the disclosure of facts. Corporations that timely disclose relevant facts may receive due credit for cooperation, regardless of whether they waive attorney-client privilege or work product protection in the process. Corporations that do not disclose relevant facts typically may not receive such credit, just like any other defendant”
“Second, prior Department policy allowed federal prosecutors to request, under certain conditions, that a corporation disclose non-factual attorney-client privileged communications and work product, such as legal advice. This is what the old guidelines designated “Category II” information, and it lies at the core of the attorney-client privilege and work product protection. The new policy forbids prosecutors from asking for such information, with only two exceptions, both of which are well-recognized in existing law.”
“Third, the new policy instructs prosecutors not to consider whether a corporation has advanced attorneys’ fees to its employees, officers, or directors when evaluating cooperativeness. Under the earlier guidance, the Department reserved the right to consider such payments negatively in deciding whether to assign cooperation credit to a corporation. That is no longer the case. A corporation’s payment of or advancement of attorneys’ fees to its employees will be relevant only in the rare situation where it, combined with other circumstances, would rise to the level of criminal obstruction of justice. This of course will generally not be the case.”
“Fourth, under the new policy, federal prosecutors may not consider whether the corporation has entered into a joint defense agreement in evaluating whether to give the corporation credit for cooperating. There are legitimate reasons why a business would choose to enter, or not enter, that kind of agreement. The government may, of course, ask that a corporation refrain from taking information the government provided it and disclosing that information to third parties. But the mere participation in a joint defense agreement by a corporation will not be taken into account for the purpose of evaluating cooperation.”
“Fifth, prior guidance allowed prosecutors to consider whether a corporation disciplined or terminated employees for the purpose of evaluating cooperation. That is now disallowed. Prosecutors may only consider whether a corporation has disciplined employees that the corporation identifies as culpable, and only for the purpose of evaluating the corporation’s remedial measures or compliance program.”
Chief Judge Dennis Jacobs, writing for a unanimous three-judge panel of the US Court of Appeals for the Second Circuit, today affirmed (.pdf) US District Judge Lewis Kaplan’s July 2007 dismissal of the indictments of 13 out of an original 19 defendants in US v. Stein et al. The case was was once the largest criminal tax shelter prosecution in US history. Kaplan had ruled that the defendants were deprived of their Sixth Amendment right to counsel as a result of KPMG’s decision to stop paying the defendants’ legal costs (despite contractual obligations to pay) after the government threatened to indict the firm. In affirming the dismisal, the appellate court ruled that no other remedy would return the defendants to the status quo.
In Cincinnati on Wednesday, US District Judge Arthur Spiegel sentenced Steve Warshak, founder of Berkeley Premium Nutraceuticals, to 25 years in prison for selling at least $100 million of fraudulent “natural” remedies and refusing to accept returns when the products didn’t work despite a “double your money back” guarantee. Berkeley is infamous for marketing Enzyte, a “natural male enhancement” pill which promised permanent growth and for a time also claimed to help erectile disfunction.
Warshaw was convicted in February on 93 counts including conspiracy to commit money laundering, conspiracy to obstruct proceedings before the FTC, mail fraud, bank fraud and money laundering. Three others were also convicted, including his 75-year-old mother Harriet Warshak. Spiegel sentenced her to two years in prison (Kentucky Post).
Los Angeles-based class action attorney Pierce O’Donnell on Wednesday pleaded not guilty to charges that he funneled $26,000 in contributions through his employees to a PAC supporting a presidential candidate. The candidate was apparently John Edwards and the contributions were allegedly made in 2003. O’Donnell was indicted July 24 on three counts, including conspiracy, causing illegal contributions to be made and causing the campaign to make false statements to the FEC. His trial is scheduled to begin on October 21 (National Law Journal).
Thomas Rushing III, Brian Rue and William Partridge pleaded guilty on August 22 in US District Court in Austin, Texas to one count each of criminal copyright infringement for selling downloadable counterfeit software through a series of websites. They allegedly sold $2.5 million at retail value between early 2006 and September 2007. They face statutory maximum sentences of five years each; sentencing for all three defendants is scheduled for December 19 (DOJ).
US District Judge Nancy Atlas on August 21 sentenced two former natural gas traders to prison for their roles in false reporting of prices to industry publications in order to influence pricing. Michelle Valencia, formerly of Dynegy Inc., was sentenced to 57 months in prison and Greg Singleton, formerly of El Paso Merchant Energy, received a 28 month prison sentence. The two were indicted on charges of conspiracy, wire fraud and false reporting in violation of the Commodity Exchange Act, but after a jury trial in 2006 they were convicted only on the wire fraud charges: 7 counts for Valencia, one count for Singleton. Valencia’s attorney has filed notice of appeal (Houston Chronicle).
Another defeat for the Southern District of New York in its prosecution of specialist traders: In Manhattan on Monday, US District Judge Sidney Stein vacated the guilty pleas of Patrick McGagh and Joseph Bongiorno, both former specialists at Van der Moolen Specialists USA. The two men pleaded guilty to securities fraud in 2006 in connection with an interpositioning scheme, but the Second Circuit in June upheld a District Court acquittal of specialist David Finnerty and in July reversed the convictions of Van Moolen specialists, Michael Hayward and Michael Stern, ruling in both instances that the evidence was insuffcient to prove deception. In a related case, prosecutors dropped criminal charges against former LaBranche & Co. specialist Freddy DeBoer ($WSJ$, Investment News).
Robert Brodzin, former CFO of for Shriners Hospital for Children – St. Louis, pleaded guilty last Thursday before US District Judge Catherine Perry to one count of mail fraud in connection with the embezzlement of more than $828,000 from the hospital between 2004 and 2008. The stolen funds would have been used to care for sick children, but Brodzin admitted using the money for luxury items and for his tanning salon business. The indictment alleged that he accomplished this by billing the hospital for services that were never rendered by three dummy companies he had set up. His sentencing has been scheduled for November 7; prosecutors are expected to recommend a sentence in the four year range (St. Louis Post-Dispatch, DOJ).
Former KYW-TV Philadelphia news anchor Larry Mendte on Friday pleaded guilty before US District Judge Mary McLaughlin to a one count information charging him with with intentionally accessing a protected computer without authorization. Mendte admitted hacking into former co-anchor Alycia Lane’s email accounts for over 2 years, including 537 times between January 1 and May 26, 2008, and leaking her personal information to a Philadelphia Daily News gossip columnist. He accessed the accounts using a keystroke logger. Mendte was fired in June after the FBI raided his house. He faces a statutory maximum of five years in prison when he is sentenced on November 24. His public remarks at a news conference later Friday caused controversy after he said he had a “flirtatious, unprofessional and improper relationship” with Lane, whose attorney immediately denounced the statement (Philadelphia Inquirer here and here, our earlier entry).
As expected (earlier), Emperors Club VIP booking agent Tanya Hollander on Monday pleaded guilty before US District Judge Deborah Batts in Manhattan to one count of conspiracy to commit prostitution offenses. Hollander is the fourth and final defendant connected with the club to plead guilty in the prostitution ring case that ensnared former New York Governor Eliot Spitzer. She will be sentenced on November 25 and faces an estimated six to 10 months in prison under federal sentencing guidelines (Reuters, DOJ).
Saifoulaye Diallo and Habib Bah of New York City pleaded guilty on Thursday before US District Judge Brian Cogan in Brooklyn to to trafficking in counterfeit goods in violation of criminal trademark laws. The men admitted to distributing over 500,000 tubes of counterfeit Colgate toothpaste from China to discount stores in the US, who were no doubt trying to squeeze out a little extra profit. The retail value of the toothpaste was $730,000. The fake Colgate had no fluoride but came with a bonus of bacillus spores and diethylene glycol at no extra charge, although no illnesses were reported. Diallo and Bah face a statutory maximum of 10 years in prison; sentencing has been scheduled for January 9, 2009 (Newsday, DOJ).
US District Judge Danny Reeves on Friday drastically reduced bond for remaining Kentucky Fen-Phen defendants William Gallion and Shirley Cunningham Jr., who will be retried for allegedly pocketing $65 million more than they were entitled to under terms of the class action settlement with American Home Products on behalf of 440 Kentuckians harmed by the drug. The two men have been in custody since August 2007 under draconian bond amounts set by US District Judge William Bertelsman, $52 million for Gallion and $45 million for Cunningham; the Sixth Circuit upheld Bertelsmann’s ruling.
But Reeves, who took over the case when Bertelsman recused himself, reduced the Gallion’s bond to $2.5 million and Cunninham’s to $1.25 million, which they are expected to meet shortly. However, Reeves ordered severe restrictions including home detention, electronic monitoring and the keeping of visitor and phone logs (Louisville Courier-Journal).
The first trial resulted in an acquittal for Melbourne Mills, Jr. and ended in a mistrial for Gallion and Cunningham.
Joseph Brunson, Timothy McQueen and Tony Pough, the three African-American pastors/investment brokers who call themselves the “Three Hebrew Boys”, were indicted Thursday by a federal grand jury in Columbia, South Carolina on 12 counts of money laundering and 10 counts of transporting checks obtained by fraud. The new charges are in addition to the 35 counts of mail fraud they face from their May indictment which charged them with operating a fraudulent foreign currency trading scheme (earlier); they also face state securities fraud charges. The new counts arise from checks they received from investors which they allegedly converted to personal use. A September 3 arraignment is scheduled (WIS-TV).
Apparently nobody in the press has figured it out yet, but the remaining portion of the Texas Indictment against former House Majority Leader Tom DeLay will almost certainly be thrown out before long. The Texas Court of Appeals Third District’s Friday opinion upholding the constitutionality of charges brought against James Ellis and John Colyandro is in reality a complete victory for DeLay. A portion of the Court’s opinion rejects Ellis’ and Colyandro’s vagueness challenge to money laundering charges. The very same money laundering charges were brought against DeLay. This looks like a defeat for DeLay, right? Wrong! The Court held that that the Texas money laundering statute in effect at the time of the alleged crime was not vague because it clearly did not apply to anything other than cash or cash equivalents. In other words, the statute did not apply, and could not be applied, to checks, cashier’s checks, or money orders. This has long been obvious to anybody familiar with the statute, which was not amended until 2005 to cover checks. It should have been obvious to Travis County District Attorney Ronnie Earle as well. Why does this help DeLay, as well as Ellis and Colyandro? Because their alleged acts of money laundering involved checks, not cash. They were indicted for acts that were not crimes at the time they allegedly committed them. It looks like DeLay’s long nightmare, and his abuse by the Travis County District Attorney’s Office, is about to end. Assuming that the Court’s opinion is upheld by the Texas Court of Criminal Appeals, as it surely will be, the district judge handling DeLay’s case will be forced to dismiss the remainder of the Indictment.
In a decision published late Friday, Texas’ Third Court of Appeals upheld the 2005 money laundering indictments against James Ellis and John Colyandro (Third Court Decision, Houston Chronicle). The two operatives of former US House Majority Leader Tom DeLay were indicted on state charges of laundering $190,000 in corporate contributions through the Republican National State Elections Committee that wound up in seven targeted Texas House races in 2002. They appealed on two grounds: first, that the election code provisions under which they were indicted are unconstitutionally vague and overbroad — in particular, the statutory definition of “campaign contribution”; second, that the money laundering statute in effect at the time of the alleged offense is unconstitutionally vague, more specifically because the statute in effect in 2002 did not include checks in the definition of funds. The three judge panel flatly rejected both arguments and affirmed the district court’s decision. The Chronicle notes that all three judges are Republicans.
DeLay was not a party to this appeal, but his indictments on money laundering and conspiracy charges still stand and arise from the same occurrences.
Andrew Parker of San Antonio, owner of San Antonio Trade Group, Inc., pleaded guilty on Thursday to defrauding the Export-Import Bank of the US. WOAI reported Wednesday that US District Judge Fred Biery had given Parker one day to decide whether or not to accept a plea agreement. In an indictment unsealed May 1 (earlier here and here) Parker was accused of falsifying loan applications, submitting false reports that goods were bought with the loans, and diverting millions of the loan proceeds for his personal use. As much as $163 million was allegedly involved. He pleaded guilty to 11 of the 28 counts in the indictment, including conspiracy, wire fraud, money laundering, tax evasion, and filing false tax returns. Under the plea deal Parker faces up to ten years in prison and up to $10 million in restitution plus $495,000 in tax liability (WOAI, DOJ).
The Daily Journal reports that US Sen. Joe Biden (D-Del.) has returned campaign contributions of $2300 each from Dickie Scruggs, Zach Scruggs, Steve Patterson and Tim Balducci. An FEC report from the Biden For President campaign showed that the contributions had been donated to a cancer charity.
The WSJ Law Blog reported last December on the connection between the Biden campaign and the Scruggs defendants, including a fundraiser last August in Oxford hosted by Balducci, Scruggs and former Mississippi governor Bill Allain. Astonishingly, Biden had no comment. Not even a plagiarized speech.
US District Judge Emmet Sullivan on Wednesday denied a motion by attorneys for US Sen. Ted Stevens to move his corruption trial from Washington to Alaska. Stevens was indicted July 29 on seven counts of making false statements on his Senate financial disclosure forms (earlier). Stevens’ trial is to begin September 22; he demanded a quick trial in the hopes he could be exonerated before election day (Reuters).
Despite the indictment, Stevens is expected to win his primary contest next Tuesday against real estate developer Dave Cuddy, but recent polls show he’s trailing his expected general election opponent, Anchorage Mayor Mark Begich (Fairbanks Daily News-Miner).
Donna Gamble of Marietta, Georgia, a former Georgia Tech employee who pleaded guilty in May to all 22 counts of an indictment which charged mail fraud and theft from an organization receiving federal funds, was sentenced on Tuesday to 32 months in prison by Chief US District Judge Jack Camp in Atlanta. Gamble admitted using a Georgia Tech procurement card which was restricted to work-related expenses to make 2000 purchases of 3800 items for her personal use between 2002 and 2007. The procurement card was funded by a grant from the National Science Foundation. The total amount of Gamble’s illegal purchases was $316,000 and included personal watercraft, a popcorn machine, a wide-screen TV, robotic vacuums, a treadmill and Auburn University football tickets. Gamble hid the fraud by submitting fake receipts and making false entries in accounting records. Her activities were discovered after an audit and that was only conducted after a tip from an informant (Atlanta Journal Constitution, DOJ ).
Mark Eister, a computer tech who worked in the South Philadelphia office of indicted Pennsylvania State Sen. Vincent Fumo, pleaded guilty on Tuesday before US District Judge William Yohn to one count of conspiracy and four counts of obstruction of justice for destroying evidence implicating Fumo in fraudulent activities. The evidence was allegedly destroyed at Fumo’s behest after he learned he was being investigated by the FBI for corruption. Eister’s plea followed the August 11 guilty plea of his co-worker Leonard Luchko (earlier), and both men are expected to testify against Fumo (Allentown Morning Call, DOJ).
The public corruption trial of Fumo begins September 8 and is expected to be a months-long spectacle. The Philadelphia Inquirer has background here including the latest government filing which now puts the amount of the alleged fraud at $3.5 million.
Kyle Roher of Las Vegas pleaded guilty to two counts of wire fraud last Wednesday before US District Judge James Mahan in connection with the embezzlement of $1.6 million from his employer. Roher, a former senior business analyst with Nevada Power, allegedly forged wire transfer forms 19 times between 2002 and 2006 to disburse the funds from a Nevada Power bank account to two Bank of America accounts he controlled. Roher’s sentencing hearing is scheduled for November 12; he faces a statutory maximum of 20 years on each count (Las Vegas Sun, DOJ).
Dr. Rudra Sabaratnam, the CEO of City of Angels Medical Center who was indicted on August 6 in connection with a scheme in which patients were allegedly recruited from Los Angeles’ Skid Row and given unnecessary medical treatment (earlier), pleaded not guilty on Monday in US District Court in Los Angeles. A trial date was scheduled for September 30. Sabaratnam faces eight counts of paying kickbacks for patient referrals (AP).
Lennox and Lester Parris, brothers and principals of now-defunct Jericho, New York-based bottled water distributor Queénch, Inc., were each sentenced last Wednesday in Brooklyn to 60 months in prison for securities fraud in connection with the manipulation of stock prices which allegedly cost investors over $2.5 million. They were convicted in 2007 on six counts including securities fraud, conspiracy to commit securities fraud, witness tampering and conspiracy to commit witness tampering. What’s unusual here, although the DOJ press release fails to mention it, is that US District Judge Frederic Block departed sharply downward from federal sentencing guidelines, which called for a recommended sentences of 30 years to life based on offense levels of 42 for both men. Block criticized the guidelines’ “fetish with absolute arithmetic”, writing that while the sentences were well-deserved, the crimes did not rise to the level of Enron, WorldCom and Computer Associates. Mark Fass’ NY Law Journal story has more, including a link to the decision.
Steven Byers and Joseph Shereshevsky, principals of WexTrust Capital LLC, were arrested last week and charged in the Southern District of New York with conspiracy to commit secuties fraud. The DOJ Press Release alleges a particular scheme in which $9.2 million was raised from investors to buy certain GSA properties, but the properties were never purchased and the funds were used for other purposes including paying off investors in other schemes. However, this indictment may well be a prelude to more criminal counts, because the SEC unveiled massive civil fraud charges against Byers, Shereshevsky and Wextrust entities, alleging a Ponzi scheme involving $255 million raised from approximately 1,200 investors, largely from Shereshevsky’s contacts in the Orthodox Jewish community. Over $100 million was allegedly diverted. The scheme outlined in the criminal case is included. The assets of the Wextrust companies have been frozen.
Shereshevsky, of Norfolk, Virginia was ordered held without bond last Wednesday by US Magistrate Judge Tommy Miller in Norfolk, pending his arraignment on the criminal charges; Miller called Shereshevsky a thief and a thug (Virginian-Pilot). Shereshevsky was convicted on a federal bank fraud charge in 2003. Bloomberg has more.
A Uniontown, Pennsylvania man already indicted in state court for identity theft was indicted Wednesday by a federal grand jury in Pittsburgh on eight counts of mail fraud. Jason Joy, a former math professor, allegedly collected money for merchandise he sold on eBay and Yahoo Auctions but never delivered the goods. He allegedly told the buyers he was the victim of identity theft, but prosecutors claim he was actually using the identity of one of his students and that he stole his sister-in-law’s identity and used her check card to pay eBay seller’s fees. The loss involved in the charged counts totals over $38,000 (Pittsburgh Post-Gazette, DOJ).
Ella Mae Letellier of Ontario, Oregon has been indicted by a federal grand jury in Boise on 29 counts of mail and wire fraud in connection with a Nigerian check scam she allegedly helped run out of Payette, Idaho. It’s a rerun of the scheme for which a Washington woman was sentenced to prison in June (earlier): a seller is paid with a phony check for more than the amount of the goods, returns the excess money and winds up liable for the entire amount when the counterfeit check is eventually returned. Letellier allegedly acted as an accomplice for Patrick Anthony of Nigeria by sending out counterfeit checks on his behalf (Idaho Statesman). This scheme has been so well publicized online that it boggles the mind that people still bite. David Hannum was right.
In Casper, Wyoming on Wednesday, 19-year-old Jason Milmont of Cheyenne pleaded guilty before US Magistrate Judge Michael Shickich to one count of unauthorized access to a computer to conduct fraud. Milmont admitted creating a botnet of 5,000 to 15,000 computers by modifying the Nugache Worm to infect Limewire users in order to steal credit card and banking information. It’s the first case nationally in which a defendant has been charged with using P2P software to infect users. Milmont agreed to plead guilty in June in Los Angeles where the case originated but it was transferred to Wyoming last month. Milmont will be sentenced on October 23 by US District Judge William Downes. He faces a statutory maximum of five years in prison (Casper Star-Tribune).
In court filings made late Thursday, federal prosecutors laid out more of their case against US Sen. Ted Stevens (R-Alaska) and described several new alleged schemes beyond what was revealed in the indictment. The new evidence was described as part of the government response to a defense motion for dismissal on grounds that the indictment violated the speech and debate clause. The intent is to show that Stevens’ activities had nothing to do with lawmaking.
In one instance, Stevens allegedly turned a $5000 down payment on a Florida condo at a sweetheart price into a net profit of over $100,000 before the condo was ever built, with the aid of an interest-free loan he never reported. Others allegedly involve further entanglements with former VECO CEO Bill Allen, who has pleaded guilty and is expected to testify aganst Stevens. At least two of those allegations came as a result of taped conversations (Anchorage Daily News, WaPo).
In Pittsburgh on Monday, US District Judge Donetta Ambrose sentenced Mary Beth Klorczyk of North Huntingdon, Pennsylvania to 33 months in prison for embezzling $758,000 from her employer. Klorczyk, a former senior financial analyst for a Westinghouse subsidiary, pleaded guilty in April to mail fraud and interstate transportation of property taken by fraud. She admitted embezzling the money between 2003 and 2007 by using her corporate Amex card for personal expenditures and presenting false expense vouchers to Westinghouse. She used the money for expensive vacations, home improvement, cars and jewelry. Why Westinghouse took nearly four years to notice that it was paying such a large amount of expense reimbursements to a $70,000 per year employee is a mystery. At the sentencing hearing, Klorczyk’s attorney presented her as a victim of multiple mental disorders that turned her into a shopaholic, and Klorczyk testified that she stole because she missed her family when she was on business trips and called her children bigger victims than Westinghouse. Judge Ambrose didn’t buy that at all (Pittsburgh Tribune-Review, DOJ).
William Weimar, now of Big Arm, Montana but formerly owner of now-defunct Alaska-based Allvest, Inc., pleaded guilty on Tuesday in US District Court in Anchorage to a two count information charging him with conspiracy to commit honest services mail and wire fraud and structuring financial transactions. Weimar admitted conspiring in 2004 with an unnamed consulting firm and an unnamed candidate for the state legislature to structure $20,000 in illegal payments to the candidate, who would support a private prison project in which Weimar held a contingent interest. Veco, the now-defunct oilfiled services company at the center of most of the Alaska corruption cases (including that of now-indicted US Sen.Ted Stevens), was initially a partner with Allvest in the proposed prison project but was apparently no longer involved by 2004. Weimar will be sentenced on October 29; prosecutors estimate a sentence of 10 to 16 months in prison (Anchorage Daily News, DOJ).
Reza Bahram Tabatabai of Beverley Hills was sentenced on Monday to 87 months in prison by US District Judge Florence-Marie Cooper in Los Angeles for operating fraud schemes in three states which cost lenders over $8 million. Tabatabai operated a series of so-called bust-out schemes in which legitimate businesses were taken over and their lines of credit used to purchase large amounts of merchandise which were essentially resold with no intention of repaying the lenders. He was convicted in 2006 on 55 counts including conspiracy, interstate transportation of fraudulently obtained property, mail fraud, wire fraud and money laundering (AP, DOJ).
Leonard Luchko, a computer tech who worked in the South Philadelphia office of indicted Pennsylvania State Sen. Vincent Fumo, on Monday pleaded guilty to one count of conspiracy and 28 counts of obstruction of justice. Luchko, who was actually employed by Senate Democratic Computer Services, admitted acting at Fumo’s request to delete emails and other evidence from computers used by Fumo, his aides and staffers at Citizens Alliance, a nonprofit involved in the public corruption charges against Fumo. The destruction of evidence allegedly began after Fumo found he was the target of a federal investigation. Luchko is cooperating with prosecutors and will testify against Fumo in exchange for no more than two years in prison (Philadelphia Inquirer, DOJ).
Fumo is charged with using his senate office and staff and Citizens Alliance for his personal gain. His trial begins September 8 before US District Judge William Yohn. Ruth Arnao, his longtime legislative aide, and Mark Eister, a computer tech who worked with Luchko, are co-defendants. Here’s the February 2007 DOJ press release for the superseding indictment.
Rejecting the government’s recommendation of probation (earlier), US District Judge John Walter on Monday sentenced Los Angeles attorney Richard Purtich to two months in prison and fined him $50,000 for his role in the Milberg Weiss kickback scheme. Purtich pleaded guilty in April 2006 to a tax charge for failing to report to the IRS about $900,000 in illegal kickback payments he accepted from Milberg and then funneled to Steve Cooperman, who acted as a lead plaintiff in some Milberg cases. Purtich cooperated with prosecutors in their investigation of Cooperman, who pleaded guilty to a conspiracy count last year. Purtich is expected to be disbarred; he currently works as a contract paralegal (KNBC).
Steven Randock, the third principal in the notorious St. Regis University diploma mill, was sentenced to 36 months in prison on August 5 by US District Judge Lonny Suko in Spokane, Washington for his role in the fraud. He ran the operation with his wife Dixie Randock and daughter Heidi Lorhan, who were sentenced on July 2 (earlier). All three pleaded guilty in March to conspiracy to commit wire and mail fraud; Steven Randock’s sentencing was delayed for medical reasons (Spokesman-Review, DOJ). The Spokesman-Review has also published a list of all known purchasers — 9,612 of them.
The action in the US v. Scruggs bribery case which sent Dickie Scruggs, Zach Scruggs and Sid Backstrom to prison is now at a lull pending the (not yet scheduled) sentencing of Tim Balducci and Steve Patterson. However, there’s still the matter of the case in which Joey Langston pleaded guilty in January to bribing Judge Bobby DeLaughter via former Hinds County DA Ed Peters on behalf of Scruggs to influence the Wilson v. Scruggs civil suit. A federal grand jury which will meet in Oxford beginning August 19 is scheduled to hear the case. Langston, Patterson and Balducci are expected to testify. All three met last week with officials from the DOJ’s Public Integrity Division.This case has the potential to reveal much broader patterns of corruption; a certain former US senator could have a Lott of anxiety come next week (Clarion Ledger).
Meanwhile, the now-suspended DeLaughter is under investigation in at least three other cases unrelated to Scruggs but involving Peters. C-L stories here and here discuss recent developments in two of them.
Former longtime Chicago Alderman Arenda Troutman has become the 27th Chicago alderman to be convicted on corruption charges since 1972. Troutman pleaded guilty to one count each of mail fraud and tax fraud last Wednesday before US District Judge Ruben Castillo, admitting that she regularly solicited bribes from developers wanting to do business in her ward. Troutman was indicted last year on 13 counts including extortion, bribery, mail fraud and tax evasion. She maintained her innocence despite being caught on tape by the FBI asking a developer’s agent “What do I get out of it?” and saying “Most aldermen, most politicians are hos.” She was trounced in her reelection bid last Novermber after the charges were made public. Judge Castillo scheduled her sentencing for December 3 (Chicago Tribune).
US District Judge Arthur Schwab has twice been ordered by the US Court of Appeals for the Third Circuit to release the names of jurors in the trial of former Allegheny County Coroner Cyril Wecht (earlier). Yesterday, instead of just releasing the names as ordered, he announced that he will release the names next Monday, after the jurors and alternates have been notified. That’s right: even though it was public knowledge in advance of the trial that he had been ordered to make the jurors’ names public, and even though he has to release the names even if a juror were now to object, he insists on informing them first and delaying another week (Pittsburgh Tribune-Review).
A principal and CEO of a privately-owned Los Angeles hospital and a man who allegedly recruited homeless patients from L.A.’s Skid Row were arrested last Wednesday following the unsealing of a 21 count federal indictment charging them with operating a sophisticated health care fraud scheme. Dr. Rudra Sabaratnam, CEO of City of Angels Medical Center, was indicted on eight counts of paying kickbacks for patient referrals. Estill Mitts, who operated a storefront “Assessment Center” in skid row, was indicted on four counts of receiving kickbacks for patient referrals, six counts of money laundering and two counts of tax evasion. Mitts and stringers who worked for him allegedly brought the patients to the hospital in exchange for sham consulting fees arranged by Sabaratnam; the hospital allegedly submitted bills to Medicare and Medi-Cal for unnecessary medical treatments or in some cases for treatments never performed. A related civil case has been filed by the City of Los Angeles naming two more hospitals and more defendants, indicating that more federal criminal charges may be forthcoming (LA Times, DOJ).
In Alexandria, Virginia on Friday, US District Judge Leonie Brinkema sentenced Tai Shen Kuo of New Orleans to 188 months in prison for his role in passing classified national defense information about Taiwan from a to an unregistered agent of the People’s Republic of China during the period from March 2007 to February 2008. Kuo, a Taiwanese-born US citizen, pleaded guilty in May to conspiracy to deliver national defense information to a foreign government. He solicited the information from Gregg Bergersen, a former weapons systems policy analyst at an agency within the Department of Defense who had a top-secret clearance; the DOJ press release states that Kuo “led Bergersen to believe that he would make Bergersen a part owner or an employee of a company selling US defense technology to Taiwan after Bergersen’s retirement from government service.” Kuo then used Yu Xin Kang, a Chinese citizen and resident alien, as an intermediary to pass the information to the unregistered Chinese agent. Bergersen was sentenced in July to 57 months in prison. Kang was sentenced to 18 months in prison on August 1.
Ending this week’s sentencings of former executives of National Century Financial Enterprises, US District Judge Algenon Marbley today sentenced former CEO and co-founder Lance Poulsen to 10 years in prison for witness tampering. Poulsen and his associate Karl Demmler were convicted on March 26 on one count each of conspiracy to obstruct justice, witness tampering, witness tampering by influencing testimony and corruptly persuading a federal witness. They allegedly attempted to pay former executive VP for compliance Sherry Gibson $500,000 to $1 million to plead unfamiliarity with the fraud charges against Poulsen and other executives. Gibson, who had pleaded guilty in 2003 to one count of conspiracy to commit securities fraud and agreed to cooperate, went to authorities instead. She was a key witness in the fraud trial of the five executives who were convicted in March, testified against Poulsen and Demmler in this case and is expected to testify against Poulsen in his fraud trial which begins October 1. Demmler’s sentencing was postponed pending completion of a psychological evaluation (Columbus Dispatch).
In Manhattan on Thursday, US District Judge Naomi Reice Buchwald sentenced former Refco Inc. President Tone N. Grant to 10 years in prison for his role in the October 2005 collapse of the company which caused investor and partner losses estimated at $2.4 billion. A jury convicted Grant in April on one count each of conspiracy, securities fraud, wire fraud, bank fraud and money laundering. Grant’s attorneys plan to appeal his conviction (Bloomberg, Reuters). Our previous Refco entries are here.
US District Judge Kenneth Karas on Thursday refused to let imprisoned Bayou Group co-founder Sam (Suicide Is Painless) Israel III enter a plea in his bail jumping case. Israel planned to plead guilty to one count of failure to appear in connection with his disappearance the day he was to start serving his 20-year prison sentence for securities fraud, but in response to Karas’ questioning, he described his ability to understand the proceedings as only 60 to 70 percent because of his methadone addicition. Karas then refused to accept a plea, saying “I have to be satisfied that you’re competent.” He set a new hearing for September 16 (Bloomberg).
Following Wednesday’s sentencings, the third and fourth former National Century Financial Enterprises defendants were sentenced on Thursday by US District Judge Algenon Marbley in Columbus. In the morning, former executive vice president of securitizations Roger Faulkenberry was sentenced to 10 years in prison. He was convicted in March on one count of conspiracy, four counts of securities fraud, one count of wire fraud and two counts of money laundering. On Thursday afternoon, former associate director of marketing and vice president of client development James Dierker received a five year prison sentence. He was convicted on one count of conspiracy and three counts of money laundering. Marbley had previously indicated that he held Dierker less culpable than the other defendants. After fifth defendant Rebecca Parrett flew the coop, Dierker was the only other defendant allowed bond with electronic monitoring (Columbus Bizjournal, Columbus Dispatch, DOJ via Yahoo News).
Co-founder and former CEO Lance Poulsen and his co-defendant Karl Demmler will be sentenced today in connection with their witness tampering convictions. Poulsen’s trial on the fraud charges begins October 1.
In the first of three days of sentencing hearings relating to the collapse of National Century Financial Enterprises, US District Judge Algenon Marbley sentenced co-founder and former COO Donald Ayers to 15 years in prison and former CFO Randolph Speer to 12 years in prison for their roles in the 2002 collapse of the health care provider financing company in what prosecutors called a massive and complex fraud scheme. In their March trial, Ayers was convicted on one count of conspiracy, six counts of securities fraud and one count of money laundering, while Speer was convicted on one count of conspiracy, three counts of securities fraud, one count of wire fraud and six counts of money laundering. Marbley also ordered restitution of nearly $2.4 billion (Columbus Dispatch, Columbus Bizjournal).
Co-defendants Roger Faulkenberry and James Dierker will be sentenced today. Co-founder and former CEO Lance Poulsen has yet to stand trial on fraud charges but he will be sentenced tomorrow in connection with his witness tampering conviction. Convicted co-founder Rebecca Parrett remains at large.
In court documents filed last week in US District Court in Los Angeles, prosecutors recommended that Los Angeles attorney Richard Purtich be sentenced to one year of probation for his role in the Milberg Weiss kickback scheme. Guidelines called for a 21 to 27 months in prison but prosecutors cited his “substantial assistance” in the prosecution of Steve Cooperman, who acted as a lead plaintiff in some Milberg cases. Purtich pleaded guilty in April 2006 to a tax charge for failing to report to the IRS about $900,000 in payments he accepted from Milberg that he passed on to Cooperman, who pleaded guilty to a conspiracy count last year. Purtich will be sentenced on August 11 (National Law Journal).
Angela Isley of Atlanta, former COO of medical supplier Orthoscript, Inc., was sentenced on Monday to 70 months in prison by US District Judge Charles Pannell in Atlanta. A jury convicted Isley in April on 52 counts including health care fraud, mail fraud and money laundering in connection with two schemes (earlier). In one, she submitted $600,000 in fraudulently coded claims to Medicare, causing a loss to Medicare of $219,000. In a separate scheme, she embezzled $360,000 from Orthoscript to pay her and her partner’s credit card bills by falsely coding payments as legitimate business expenses. Arch Nelson, a partner in Orthoscript who testified against Isley, was also sentenced on Monday. He received 5 years probation for misprision of a felony (Forbes/AP, DOJ).
It may be months before the three-judge panel of the Third Circuit rules in the appeal of former Allegheny County Coroner Cyril Wecht, but if reports on Monday’s oral arguments are any indication, the outlook for Wecht is good. Jason Cato’s Pittsburgh Tribune-Review article quotes Senior Judge Franklin Van Antwerpen, who attended via conference call:
This isn’t the fault of the jury. This is the fault of the judge. For all we know, that jury could have been ready to acquit Wecht on all but one count that day. But we’ll never know.
He was referring to the failure of US District Judge Arthur Schwab to poll the jury before declaring a mistrial. He had done so five days earlier, but Wecht’s attorneys argued that they might have sought a partial verdict if the jury had been polled again. Schwab refused to let Wecht’s attorneys interrupt him as he declared a mistrial. Judges D. Brooks Smith and D. Michael Fisher also said that Schwab erred.
A St. Paul area pastor who called himself an apostle and his wife a prophetess was convicted on Friday of defrauding 519 people from Minnesota and Louisiana of $30 million in a Ponzi scheme which operated from April 2004 through December 2005. A federal jury in Minneapolis convicted Neulan Midkiff on eight counts of mail fraud, eight counts of wire fraud, one count of conspiracy and four counts of failure to file tax returns. Midkiff used his position as a minister to solicit investors with the typical promise of high rates of return on investments that were never made, using the funds to pay off earlier investors. He was initially part of a $390 million Ponzi scheme operated by Travis Correll of Atlanta, but Midkiff later started a separate operation of his own. Correll, who pleaded guilty and was sentenced to 12 years in prison, testified against Midkiff at the trial. Midkiff was immediately taken into custody following the verdict. His sentencing hearing has been scheduled for October 1 (Star Tribune, DOJ).
Martin Holtet of LaCrosse, Wisconsin, a former newspaper distributor for the NY Times, was arrested on Tuesday and charged with one count of mail fraud in a scheme which allegedly cost the paper about $325,000. Holtet is accused of creating a total of about 8500 fake customers under the Times’ policy of starting the subscription and billing later. He was paid for each subscription but allegedly just recycled the papers. The Times loss is estimated at about $227,000 in subscription fees paid to Holtet and another $98,000 in printing fees. He was arraigned in US District Court in Madison but the indictment is from the Southern District of New York, where he is scheduled to appear on September 9 (WEAU-TV, DOJ).
In Alexandria, Virginia on Friday, US District Judge Leonie Brinkema sentenced Yu Xin Kang of New Orleans to 18 months in prison for aiding and abetting an unregistered foreign agent. Kang, a Chinese citizen and resident alien, pleaded guilty in May, admitting that she acted as an intermediary in passing classified national defense information about Taiwan from a New Orleans businessman to an unregistered agent of the People’s Republic of China during the period from March 2007 to February 2008. The documents originated with Gregg Bergersen, a former DoD analyst who was sentenced to 57 months in prison on July 11 (earlier). He passed the classified documents to Tai Shen Kuo of New Orleans, a Taiwanese-born US citizen, who passed them to Kang. Kuo also pleaded guilty in May and faces a possible life sentence; he will be sentenced on August 8 (APF, DOJ).
James Walsh, former treasury manager at NBC Universal, pleaded guilty on Friday before US Magistrate Judge Theodore Katz in Manhattan to a two-count information charging him with conspiracy and wire fraud. Walsh admitted that he and his supervisor, former NBC treasurer Victor Jung, were involved in a scheme to embezzle more than $1 million from NBC Universal. The wire fraud count involves a single transfer of $238,000 to a dummy account controlled by Jung, who pleaded guilty in May in the same scheme. Walsh admitted that he and Jung used the money on personal expenditures. His sentencing is set for November 4 and is expected to be in the range of 21 to 27 months in prison (Reuters, DOJ).
The Chronicle’s Mary Flood reported Friday that US District Judge Sim Lake has denied Jamie Olis’ recusal motion (earlier here and here ), which was requested because Lake and the late USA Mike Shelby went to the same schools, served in the military and worked at the same law firm (all at different times) and that Lake swore in Shelby. In denying the motion, Lake ruled that the request was filed too late and wrote, “Olis does not point to any evidence showing that any of the court’s prior rulings in this case are based on an extrajudicial source or that they exhibit the degree of favoritism or antagonism required to warrant recusal.”
A three judge panel of the US Court of Appeals for the Third Circuit on Friday again overruled US District Judge Arthur Schwab in his machinations to keep the names of jurors secret in the public corruption trial of former Allegheny County Coroner Cyril Wecht. In January, ruling on an appeal by Wecht and news organizations, the Court ordered Schwab make the jurors’ names public before they were sworn in, but Schwab only allowed the seated jurors’ names to be read aloud once in court and later released a list of all prospective jurors without specifying which had been chosen.
In Friday’s ruling, the Court stated that juror identification is a “well-established part of American judicial tradition” and called Schwab’s reasons for disallowing it “conclusory and generic,” saying that his reasoning “would justify anonymity in virtually every jury trial, whether or not it attracts media attention.”
Wecht’s retrial is on hold pending appeal, and the same three judge panel will hear oral arguments today in that appeal. The primary issue is the defense motion for dismissal on grounds that a retrial would violate Wecht’s constitutional protection against double jeopardy (Pittsburgh Post-Gazette).
Hernán Arbizu, a former vice president in the private banking division at JPMorgan Chase,was arrested Monday in Argentina after the unsealing of a 15-count indictment in Manhattan charging him with embezzling almost $5.4 million from the accounts of bank customers at JPMorgan and UBS. He allegedly made 12 unauthorized transfers of funds between March 2007 and April 2008; that total includes 4 transfers totaling almost $2.8 million from a JPMorgan account on April 15, 2008 allegedly accomplished by forging a letter of authorization. He was fired in May and JPMorgan is also suing him for theft (Bloomberg, DOJ).
US Sen. Ted Stevens (R-Alaska) pleaded not guilty to charges of making false statements at his arraignment on Thursday afternoon before US District Judge Emmet Sullivan in Washington. Stevens’ attorney Brendan Sullivan requested a speedy trial and Judge Sullivan scheduled the trial to begin on September 24. Prosecutor Brenda K. Morris said that no plea deal has been offered (WaPo).
Julian Tzolov, one of two former Credit Suisse brokers known to be under criminal investigation for securites fraud in the Eastern District of New York, has disappeared. Prosecutors suspect that Tzolov has returned to his native Bulgaria. The investigation of Tzolov and Eric Butler is said to center on whether they lied to investors about what was backing the auction rate securities they sold. ($WSJ$ , Reuters).
Leslie Anderson and David Dalglish, both of Toronto, Ontario, were sentenced earlier this week to 280 months and 235 months in prison, respectively, by US District Judge William Stiehl in East St. Louis, Illinois for their roles in a multi-million dollar telemarketing scam. The sentencing of co-conspirator Lloyd Prudenza was rescheduled for October 1. Dalglish, Anderson and Prudenza operated the Toronto-based First Capital Consumers Group. The firm targeted US residents with substandard credit, promising them a credit card for an advance fee of between $189 and $219 but never delivering a credit card. Prosecutors said that about 40,000 victims paid the defendants and their co-conspirators about $8 million in fees. Anderson was convicted by a jury in March on one count of conspiracy, five counts of mail fraud and eighteen counts of wire fraud. Dalglish and Prudenza pleaded guilty to the same charges in February (Canwest, DOJ).
On Thursday, Steven Winter and Sean McVicar, both also of Toronto, surrendered to US authorities and pleaded guilty in US District Court in East St. Louis to one count of conspiracy and one count of mail fraud in a separate but similar Canadian-based scheme. In this case, their companies sold bogus “credit protection services” and collected advance processing fees for credit cards, allegedly bilking 37,000 consumers out of about $10.5 million. Their sentencing has been scheduled for November 2 (St. Louis Bizjournal, DOJ).
Prosecutors in the Southern District of Illinois won another conviction earlier this year in the Kyle Kimoto case, a $43 million fraud of the same type. His sentencing is scheduled for September 5.
The Mississippi Supreme Court on Thursday announced the permanent disbarment of Dickie Scruggs, Zach Scruggs and Sid Backstrom, as expected (Sun Herald).