Today’s WSJ has an interesting story here about the “backwards” progress of the Madoff probe, contrary to the typical “from the bottom up” investigatory model. Of course this was necessitated by the SEC’s failure to investigate Madoff’s investment operation, depite years of credible warnings, topped off by Madoff’s surprise confession. The article focuses almost entirely on the SEC’s current probe, hardly mentioning DOJ’s concomitant investigation, which must result in an indictment before long.
You are currently browsing the archive for the Embezzlement category.
Today’s Wall Street Journal reports that Frank DiPascali, who allegedly executed “trades” for Bernard Madoff, has become a focus of the federal investigation. Such focusing make sense, since most of the Madoff trades apparently never occurred. The WSJ story is here.
Magistrate Judge Ellis imposed even heavier restrictions. In addition to the previous 24-hour surveillance, Madoff will now have his transportable valuables subject to monitoring and inspection. Plus, the terms of the SEC injunction are to be made part of the bond conditions. The Government also moved, with Madoff’s consent, to extend the 30-day Speedy Trial Act deadline in which it must file an indictment or dismiss the complaint. The Government’s motion states that it is in talks with Madoff with a view toward possible disposition of the case.
Bernard Madoff’s wife sent some of the couple’s valuables to family members and friends, allegedly in violation of an injunction obtained by the SEC in its civil case against Madoff. Ergo, the SDNY U.S. Attorney’s Office wants Madoff’s bond revoked, on grounds that he is a flight risk and and an economic danger to the community. Magistrate Judge Ronald Ellis seemed skeptical at yesterday’s hearing and wants to see some law. The Government’s brief is due today, and Madoff has through Wednesday to respond. Alex Berenson’s NYTimes story is here. I’ll be discussing this issue on CNBC’s Power lunch today, sometimes between 12:15 and 12:30 PM Eastern Time.
High society investment advisor and Wall Street legend Bernard Madoff has been arrested for running what the SEC calls “a stunning fraud that appears to be of epic proportions.” Madoff was turned in by his sons. The Wall Street Journal has the story here. Losses are estimated to be in the $50 billion range. The SEC has filed suit and DOJ has issued a criminal complaint.
Martin Bodner, former CFO of Tommy Hilfiger Handbags and Small Leather Goods Inc. (a Tommy Hilfinger licensee), was sentenced on Friday to 66 months in prison by US District Judge P. Kevin Castel in Manhattan. Bodner pleaded guilty on September 15 to a two-count information charging him with mail fraud and wire fraud (earlier); he admitted embezzling more than $19 million from the company between 2000 and 2007, largely by using his authority to secretly increase his salary and bonuses, arranging to be reimbursed for phony expenses and using company funds to pay for personal expenses. Bodner was also ordered to pay over $17.3 million restitution and to forfeit luxury items including real estate and cars (DOJ, North Country Gazette).
Robert Brodzin, former CFO of for Shriners Hospital for Children – St. Louis, was sentenced on November 7 to 41 months in prison by US District Judge Catherine Perry for embezzling $828,000 from the hospital between 2004 and 2008. Brodzin pleaded guilty in August to one count of mail fraud (earlier). He admitted stealing the funds by billing the hospital for services that were never rendered by three dummy companies he had set up. He used the money for luxuty items and and for his tanning salon business (DOJ, Bizjournal).
Jeffrey Koger of Herndon, Virginia, pleaded guilty to wire fraud and tax evasion counts on Monday before US District Judge Leonie Brinkema in Alexandria. Koger was the formerly the CFO of his father’s real estate management firm, Koger Management Group, which managed about 400 homeowners associations. He admitted embezzling about $3 million from a bank account that received dues from homeowners and distributed them to the various associations. On about 140 occasions between 2003 and 2006 he diverted funds to his own accounts; among other things, he invested $733,000 of the embezzled funds in a restaurant and paid a contractor almost $500,000 to remodel his house and a fitness center. He also admitted failing to pay more than $775,000 in income taxes during that period.
The investigation began after Robert Koger, the father, told Fairfax City police that he suspected his son had embezzled $800,000 before leaving the firm in late 2006. The firm filed for bankruptcy in July 2007 but Robert Koger has said he intends to repay the associations.
Jeffrey Koger’s sentencing is scheduled for February 6, 2009; he faces a maximum of 25 years in prison, but he also faces a Virginia state trial later in February on multiple violent felony charges in connection with a shootout with police early this year (DOJ, WaPo).
Grant Gaspard of Olympia, Washington, a former assistant fire chief, on Friday pleaded guilty to mail fraud before US District Judge Ricardo S. Martinez in Seattle. In an indictment unsealed in August, Gaspard was charged with embezzling over $500,000 from South King Fire & Rescue, where he was in charge of financial and procurement operations. Gaspard admitted operating an elaborate scheme involving fraudulent purchase orders and a fake company; he used the embezzled funds to buy luxury goods. He also admitted submitting phony documentation to cover up unauthorized purchases on his fire district credit card. Gaspard faces a probable sentence of 33 to 41 months in prison when he is sentenced on January 30, 2009 (Tacoma News Tribune, DOJ).
A former paralegal at a South Windsor, Connectiut law firm has admitted embezzling more than $1.7 million from her employer to cover her gambling debts. Patricia Baddeley-Meehan pleaded guilty to two counts of mail fraud and one count of filing a false tax return earlier this month before US District Judge Stefan Underhill in Bridgeport. She had signatory authority on three major accounts at the Berman & Russo law firm and wrote checks from the firm’s client fund account over a four year period to pay off nearly $1.5 million in cash advances she had taken on her credit cards at several casinos and to fund other purchases. Her sentencing is scheduled for January 6, 2009; she faces a statutory maximum of 43 years in prison (Hartford Courant, DOJ).
Gerald McAfee on Monday made his first court appearance in US District Court in Los Angeles on charges that he stole $1.6 million from College Hospital of Downey in 1985. Working as an accountant for the hospital, using an assumed identity, he allegedly talked officials into giving him control of the funds for reinvestment, then fled the country with the loot. He was indicted in absentia in 1987 on charges of bank fraud, mail fraud, wire fraud and interstate transportation of securities taken by fraud. Last year he was arrested in Thailand where he had been living under another name. To no one’s surprise, he has been ordered held without bond pending trial (LA Times).
Martin Bodner, former CFO of Tommy Hilfiger Handbags and Small Leather Goods Inc. (a licensee of Tommy Hilfinger Corp.), has admitted stealing more than $19 million from the company between 2000 and 2007. He pleaded guilty on Tuesday in US District Court in Manhattan to a two-count information charging him with mail fraud and wire fraud. He allegedly accomplished the theft largely by using his authority to secretly increase his salary and bonuses and arranging to be reimbursed for phony expenses. Bodner is scheduled to be sentenced on November 5 by US District Judge P. Kevin Castel. The plea agreement calls for a sentence of 63 to 78 months in prison (NYT, CFO).
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).
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).
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).
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).
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).
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).
A federal grand jury in Richmond, Virginia on July 10 returned a superseding indictment in the case of Edward Okun of Miami, who was indicted in March (earlier) in connection with the theft of $132 million in client funds held in trust by 1031 Tax Group (1031TG), his qualified intermediary company. Okun allegedly converted the funds for his personal and business use, including the purchase of a $6.7 million house and a $15.5 million yacht. There are allegedly 577 victims in the case. The 27 count superseding indictment charges Okun and Lara Coleman of Richmond, his Chief Operating Officer,with conspiracy wire fraud, mail fraud, money laundering and bulk cash smuggling and forfeiture. Okun also faces one count of making false statements. Coleman made her initial appearance in the case on July 10. Both Okun and Coleman pleaded not guilty on July 18 (Richmond Times-Dispatch, DOJ).
“She walked into the vault and took stacks and stacks of money.” That’s how AUSA Susan Dowd described the actions of Patricia Sherman of New Albany, Indiana, former head teller for Obelisk Federal Credit Union in New Albany. Willie Sutton would have pointed out that that’s where they keep it. Sherman, who had pleaded guilty to a single count of embezzlement by a credit union employee, was sentenced on April 25 to 97 months in prison by US District Judge David Hamilton in New Albany. She admitted embezzling $7 million from Obelisk over a 46 month period starting in 2003 until she was caught in early 2007. According to the DOJ press release:
She accomplished her embezzlement by taking large amounts of currency from the vault, secreting it on her person and taking it out of the credit union. She was able to conceal the embezzlement by making journal entries to the Vault Cash account whenever there was an audit or cash count by the credit union supervisory committee and then making adjusting entries after those counts were completed. In addition, when Sherman was going on vacation or had jury duty, she would make an entry to the cash account before she left so that it would properly reflect the amount of cash in the vault; when she returned, she would reverse the entry. As Head Teller she was responsible for ordering and accounting for all cash replenishments for the credit union. She was also responsible for reconciling and overseeing vault activity. She also was responsible for the general ledger and reconciling the vault cash account to the physical count of cash on hand.
As a direct result of Sherman’s actions, Obelisk had to merge with another credit union in July 2007 after the NCUA placed it into conservatorship and determined that it was no longer viable. Judge Hamilton stated “This is a theft, a case of grand theft, on an astonishing scale, driving what had been a healthy credit union into insolvency” (News and Tribune).
Laura I. Flores of Arlington, Virginia, a former congressional office manager for House Democrats Jane Harman of California and Neil Abercrombie of Hawaii, was sentenced on Friday to six months in prison for wire fraud by US District Judge Leonie M. Brinkema in Alexandria. Flores, who pleaded guilty to a single wire fraud count in January (earlier), admitted receiving approximately $200,000 from false expense vouchers she submitted during 2005 and 2006 and diverting the funds to her personal account.
The Washington Post story here reports that prosecutors filed petitions to reduce her sentence because she is helping them with a previously unreported investigation into whether members of Congress used phones, supplies and staff time for campaign purposes. The motions were filed under seal.
Angela Isley of Atlanta, former COO of medical supplier Orthoscript, Inc., was convicted on Monday by a federal trial jury in Atlanta on 52 counts including health care fraud, mail fraud and money laundering. Isley was indicted in February 2007 in connection with a three year scheme in which she allegedly submitted $600,000 in fraudulent claims to Medicare and embezzled $360,000 to pay her and her partner’s credit card bills. The Medicare billing fraud involved assigning incorrect product codes to certain products to obtain higher reimbursements.The embezzlement entailed coding company checks as legitimate business expenses while using them to pay her bills. Sentencing is scheduled for July 28 before US District Judge Charles Pannell (Atlanta Business Journal).
In Anchorage, Alaska on Thursday, US District Judge Ralph Besitline sentenced Mark Avery of Anchorage to 8 1/2 years in prison for embezzling the entire $52 million trust fund of May Wong Smith, a wealthy San Francisco widow who suffered from Alzheimer’s; she died in 2006. Avery pleaded guilty to wire fraud and money laundering charges in March 2007.
Avery is a former San Francisco prosecutor who had moved to Alaska. The fund had been administered by his father, a prominent trust attorney; he took over administration of the fund after his father’s death in 2001. He withdrew all the funds during a six month period in 2005 and started several companies including Security Aviation in Anchorage. His spending spree brought him to the attention of federal investigators, “ especially the purchase of weapons, body armor, fighter jets and rocket launchers” (Anchorage Daily News, San Francisco Chronicle).
Brent Crosson of Salem, Oregon, a former accountant with the Oregon Department of Education who was charged in February by federal prosecutors with embezzling $925,000 in federal education funds (earlier), on April 3 pleaded guilty to single count of fraud before US District Judge Garr King in Portland. He admitted diverting the funds from the state to the accounts of an online guns and ammunition dealership he had started, and then to his personal accounts. The missing funds were federal grants for charter schools, anti-drug programs and health programs. $750,000 has been recovered, but much of that will have to be repaid to the US Department of Education because the deadline for spending it has passed. Sentencing is scheduled for June 17; Crosson could receive up to ten yearsin prison but prosecutors are recommending a two year sentence because of his cooperation (The Oregonian).
Leslie Tavolacci of Southbury, Connecticut waived indictment and pleaded guilty on April 3 to one count of wire fraud and one count of income tax evasion before US District Judge Stefan R. Underhill in Bridgeport. Tavolacci acknowledged that she embezzled $816,000 from RZM Imports Inc. of Southbury while working part-time for the firm between 1997 and 2004. She admitted opening accounts for herself in the name of RZM Imports Inc. and depositing legitimate checks made out to the firm into the accounts which she controlled, then withdrawing the money and using it for her own enrichment. Sentencing is scheduled for June 20; she faces a possible maximum of 25 years in prison (DOJ press release).
A federal grand jury in Richmond, Virginia on Monday indicted Edward Okun of Miami on three counts in connection with a scheme which allegedly defrauded clients of $132 million. Okun was charged with one count of mail fraud, one count of bulk cash smuggling and one count of false statements and forfeiture. Okun operated 1031 Tax Group (1031TG), a qualified intermediary company which acted as a neutral party to hold transaction funds for property investors deferring taxes under IRS Section 1031. The indictment alleges that between 2005 and 2007, Okun misappropriated $132 million in client funds held in trust under agreements and converted it for his personal and business use. He was arrested in Miami and has waived extradition to Virginia. AP, DOJ (via PRNewswire).
The US Attorney’s office in Tampa on Friday announced that David Alan Smith of Wesley Chapel, Florida has pleaded guilty to three counts of wire fraud, three counts of mail fraud and two counts of aggravated identity theft. Smith was the facilities manager for the Tampa laboratory of Quest Diagnostics, Inc. Beginning in 2001, he created fake shell companies which he controlled, submitted fake invoices to Quest seeking reimbursement for expenses, and obtained approval for the payments by forging the names of two supervisors. He obtained almost $1.2 million in payments to his shell companies and over $100,000 in additional unauthorized expense payments. Smith could face a maximum of 124 years in prison; no sentencing date has been announced. Bizjournal here, DOJ press release (.pdf) here.
Isidro Garza, Jr., the former manager of the Kickapoo Traditional Tribe of Texas, was sentenced last week to 235 months in prison by US District Judge Walter Smith in Waco for his role in the embezzlement of over $2 million from tribal funds, including over $1.7 million from tribal community health services and more than $200,000 from the tribal casino. Also sentenced were his son, former state Rep. Timoteo Garza, who received a 78 month prison sentence; his wife Martha Garza, sentenced to 24 months in prison; and former tribal casino manager Lee Martin, sentenced to 60 moths in prison. All four are non-Indians. In October 2007 they were convicted after a jury trial on multiple counts of substantive theft from an Indian gaming establishment and other charges including conspiracy and tax evasion. AP here, San Antonio Express-News here.
Former Fairbanks, Alaska Mayor Jim Hayes was convicted on Monday by a federal trial jury on 16 counts including conspiracy, theft, fraud, misapplication of federal funds, money laundering and tax fraud.; he was acquitted on four counts and the jury was hung on seven more counts. Hayes had been charged with embezzling over $450,000 in funds from the LOVE Social Services tutoring and mentoring center, a nonprofit whose executive director was his wife Murilda “Chris“ Hayes. The funds were used for personal items and to finish construction of the church where he is pastor. The nonprofit agency exists only because it was founded and funded with five earmark grants totaling about $2.9 million directed to it by prince of pork US Senator Ted Stevens. Jim Hayes’ sentencing has been scheduled for May 2 by US District Court Judge Ralph Beistline. Chris Hayes was also indicted; she pleaded guilty in December to illegally diverting federal funds and money laundering and awaits sentencing. AP story here; the Alaska Report story here has more about the relationship between Stevens and the Hayes family.
Brent Crosson of Salem, Oregon, a former accountant with the Oregon Department of Education, has been charged by federal prosecutors with diverting $925,000 in federal education funds from the state to the accounts of an online guns and ammunition dealership he had started, and then to his personal accounts. The missing funds were federal grants for charter schools, anti-drug programs and health programs. The alleged transfers took place between June 2006 and June 2007; $750,000 has been recovered. The US Attorney charged him by filing an information rather than seeking an indictment, an indication that a plea agreement will follow. AP here, Oregonian here.
Laura I. Flores of Arlington, Virginia, a former office manager for three House Democrats, pleaded guilty on Friday to a single count of wire fraud in US District Court in Alexandria. Flores admitted receiving approximately $200,000 from false expense vouchers she submitted during 2005 and 2006. The vouchers were paid from funds allocated to the three House members to be used for operational expenses; Flores had the funds diverted to her personal bank account. Sentencing is scheduled for May 2, 2008; the DOJ press release is here. A Washington Post story here identifies the three Representatives as Jane Harman, Neil Abercrombie and Jim Costa.