The Washington Post editorializes here for a compromise in the U.S.-Switzerland cold war over UBS’ reluctance to release more names of purported American tax cheats to IRS and DOJ. I understand the Swiss position. It’s tough to be a grown up nation in the 21st Century when a key segment of your economy is devoted to facilitating tax fraud…..Andrew Cuomo is talking to Chuck but in a nasty way, according to this WSJ article. In a Friday letter, the New York AG threatened to sue Charles Schwab & Co. for fraud in connection with its marketing of auction-rate securities. Cuomo is open to a settlement, however, if Schwab buys back the securities from its investor clients. Schwab adamantly denies wrongdoing. Cuomo’s letter provides examples, allegedly supporting his fraud theory. They look pretty weak to me. Let’s see if Andy is as tough on recently departed Auto Task force Chief, and Democratic Party mega-money raiser, Steven Rattner. Fox News reported on his departure, here, last week…..Meanwhile, in the surprise of the century, Neil Barofsky, “the special inspector general overseeing the government’s financial rescue program,” reports that many of the banks receiving TARP money have used those funds for things other than lending! The uses include, investing, repaying debt, and buying other banks. About 80% of the banks spent at least some of their TARP funds in connection with new lending. Barofsky’s report comes out today, according to this Washington Post article. I have an idea to increase employment and reduce waste and fraud. Every company should be required to hire its own special inspector general at inception. Then, after the first special inspector general’s report is issued, the company should be forced to fire the special inspector general on trumped-up charges. We can keep a lot of people employed this way, and generate plenty of news stories about waste and abuse. We should also make every person hire a special inspector general at birth. Then we can ignore virtually every warning the special inspector general gives us and later suffer the consequences. Oh wait–I’ve already done that with Mom and Dad.
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A federal jury in Manhattan last week convicted William Spencer of Oakland, California of bankruptcy fraud in connection with the attempted purchase of Hawaiian Airlines out of bankruptcy in 2003. Spencer is the pastor of the House of Truth in Oakland. He and his associate Paul Boghosian were indicted in April 2005 on charges that they attempted to defraud the US Bankruptcy Court for the District of Hawaii by providing false documentation claiming that their Hawaiian Investment Partners Group could provide $500 million in financing to reorganize the airline. They then allegedly used the false documentation to solicit investors, since they apparently didn’t actually have any money. Boghosian pleaded guilty to bankruptcy fraud on October 29. Sentencing for both men in scheduled for January 30, 2009 before US District Judge Loretta Preska, who presided over the trial (Reuters, DOJ).
A superseding federal indictment unsealed on Friday afternoon includes the previous immigration and bank fraud charges against former Agriprocesssors CEO Sholom Rubashkin and adds new counts. Rubashkin now faces charges of conspiracy to harbor undocumented aliens for profit, harboring undocumented aliens for profit, conspiracy to commit document fraud, aiding and abetting document fraud, six counts of aiding and abetting aggravated identity theft, and two counts of bank fraud.
Also named are the corporation and four other management team members: Brent Beebe, Hosam Amara, Zeev Levi and Karina Freund. Amara and Levi are believed to have fled to Israel after the May immigration raid at the Postville, Iowa kosher meat processing plant. Amara and Freund were named in an earlier indictment. The Iowa Independent has a full listing of the charges and background.
McCourt Construction Company was sentenced on Friday to a $500,000 fine and three years probation by US District Judge Richard Stearns in Boston for its role in an overbilling scheme on Boston’s Big Dig project. Stearns also ordered the company to pay $600,000 restitution to the Massachusetts Turnpike Authority. McCourt pleaded guilty earlier this year to conspiracy to defraud the US government with respect to claims on a federal highway project. Two of its supervisors pleaded guilty conspiracy to commit highway project fraud by making false statements and were sentenced last month. The charges arose from overbilling on the I-93 Tip O’Neill Tunnel project. McCourt admitted participating in over 1500 instances of overbilling between 2002 and 2005 in which subcontractors charged journeyman labor rates for work actually done by apprentices (DOJ, Boston Bizjournal).
Another former natural gas trader has been sentenced to prison for reporting false prices to industry publications in order to influence pricing. Donald Burwell of Richardson, Texas, a former El Paso Corporation trader, was sentenced to 10 months in prison on Monday by US District Judge Vanessa Gilmore in Houston. He pleaded guilty in 2006 to one count of reporting fictitious natural gas trades (Reuters, DOJ). See earlier here and here for other prosecutions.
In US District Court in Los Angeles last week, four officials connected with Ralph’s Supermarket pleaded not guilty to labor fraud charges in connection with the 2003-2004 California supermarket strike and lockout. Scott Drew, a vice president with Cincinnati-based Kroger, which owns Ralph’s, and former Ralph’s managers Charles Vance, Randall Kruska and Karen Montoya were indicted in September on charges that they participated in a conspiracy to secretly rehire hundreds of locked-out employees under false names and false social security numbers during the 2003-2004 labor dispute. A December 23 trial date has been scheduled (Supermarket News, LA Times/AP). There’s no word about former Ralph’s vice president Patrick McGowan, who was indicted on the same charges.
Ryan McCourt and Kenneth Hartley, both former managers for McCourt Construction Company, were sentenced on October 16 by US District Judge Joseph Tauro in Boston for their roles in an overbilling scheme on Boston’s Big Dig project. Ryan McCourt was sentenced to two years probation, while Kenneth Hartley was sentenced to six months in prison and two years of supervised release. Both men pleaded guilty in July to a single-count information charging conspiracy to commit highway project fraud by making false statements regarding the cost of work performed on a federal highway project, admitting that they took part in overbilling the I-93 Tip O’Neill Tunnel project in a scheme where subcontractors charged journeyman labor rates for work actually done by apprentices (earlier). McCourt Construction also pleaded guilty and will be sentenced on November 7 (Boston Globe, DOJ).
A three-judge panel of Texas’ Fourth Court of Appeals on Wednesday unanimously upheld the conviction and sentence (.pdf) of suspended attorney Ted H. Roberts of San Antonio. Roberts was convicted in March 2007 on three counts of theft by deception and coercion and sentenced to five years in prison; he was acquitted on two other counts. His wife Mary, also an attorney, was convicted on five counts at her trial and sentenced to 10 years probation. Ted Roberts was accused of using Rule 202 petitions threatening civil litigation to coerce payments from men who had affairs with Mary; the deception was telling them the money would go to charity when it actually went to him and his wife. Roberts’ primary argument was that his actions were lawful and that the petitions were legally valid. Justice Alma Lopez, who wrote the opinion, stated: “We fail to see how Roberts’s use of his law license to draft Rule 202 petitions in his efforts to get the men to ‘contribute to his favorite charity: me’ converts criminal extortion into lawful conduct.” Roberts has been free on bond pending appeal; his attorney indicated he would probably continue his appeal (Express-News).
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).
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).
Ryan McCourt and Kenneth Hartley, both former managers for McCourt Construction Company, last Thursday pleaded guilty before US District Judge Joseph Tauro in Boston to a single-count information charging conspiracy to commit highway project fraud by making false statements regarding the cost of work performed on a federal highway project. Ryan McCourt’s plea agreement had been announced in February at the time McCourt Construction pleaded guilty (earlier). Both men admitted taking part in an overbilling scheme on the I-93 Tip O’Neill Tunnel project, in which subcontractors charged journeyman labor rates for work actually done by apprentices. Judge Tauro scheduled sentencing for October 1; Ryan McCourt and Hartley face a statutory maximum of five years in prison. McCourt Construction’s sentencing date is August 22 (Boston Herald, DOJ).
Atul Malhotra of Santa Barbara, California, a former Hewlett-Packard vice president who had previously worked for IBM, pleaded guilty on Friday to one count of theft of trade secrets before US District Court Judge Jeremy Fogel in San Jose. Malhoutra admitted that in March 2006, while he was a sales director at IBM, he requested confidential documents containing trade secrets about pricing and product costs; in July 2006, two months after joining HP, he passed the documents to two senior vice presidents at HP. Malhotra faces a statutory maximum of 10 years in prison; sentencing is scheduled for October 9. IBM and HP fully cooperated in the investigation (Reuters via IHT, DOJ).
Ronald Peteka, a former Morgan Stanley client service representative, pleaded guilty on Wednesday in US District court in Manhattan to possessing stolen proprietary information about the company’s hedge fund clients. Peteka is the co-conspirator referred to as CC-1 in the indictment of Ira Chilowitz, an IT consultant who pleaded guilty last year to stealing and transporting proprietary data and other counts. He and Peteka planned to use the stolen data to start their own firm (Reuters).
Modern Continental Corporation, the largest contractor on Boston’s Big Dig project, was charged late last Friday in US District Court in Boston with making false statements in connection with its execution of construction documents certifying the quality of the work it performed on certain contracts, submitting false time and materials slips on contracts, and with wire fraud. The DOJ press release alleges that the company was aware of numerous defects including the one that caused the accident which killed a motorist in 2006 after a ceiling panel fell. The company called the charges “completely unfounded and without merit.” The charges were in the form of a 49-count information. Although an information usually indicates a forthcoming plea, in this case it came after negotiations broke down (Boston Globe).
Yesterday Modern Continental filed Chapter 11 bankruptcy in Boston. A bankruptcy lawyer not involved in the case called the filing “skeletal” and believes it was rushed because of the criminal charges (Boston Globe).
A federal jury in Dallas on Friday convicted longtime blowhard self-proclaimed civil rights activist Darren Reagan on five counts of theft of public money for collecting $45,000 in rent subsidies from the Dallas Housing Authority which he wasn’t entitled to. Despite signing documents stating that renting to a relative is prohibited under Section 8 rules and affirming that he had no blood, marital, or other familiar relationship to his tenant, Reagan rented a house to his mother-in-law and collected rent subsidies from 2002 to 2007. He claimed he never read the fine print. Then when investigators approached his mother-in-law and she admitted they knew what they were doing was illegal, the Housing Authority notified him in early 2007 that benefits were terminated. Reagan claimed he never got the letter although he admitted receiving every check sent to the same PO box address. And when checks were mistakenly sent for several months after the termination, Reagan cashed them instead of depositing them. Reagan faces a statutory maximum of 10 years on each count. Sentencing is scheduled for October 4 before US District Judge Barbara Lynn (Dallas Morning News, DOJ).
But this is only the beginning of Reagan’s legal woes. He is one of 14 persons indicted last fall in a major bribery and extortion scandal at Dallas City Hall. He is charged with one count of conspiracy to commit extortion, two counts of extortion by public officials, one count of conspiracy to commit money laundering and four counts of tax evasion for allegedly helping extort money from a developer on behalf of former Dallas Mayor Pro Tem Don Hill. That trial is scheduled to begin in January 2009.
One day after indicted Rep. William Jefferson (D-La.) endorsed Sen. Barack Obama for President, three of Jefferson’s relatives were charged in a 31-count federal indictment made public on Wednesday in New Orleans. Betty Jefferson, a publicly elected district tax assessor, her brother Mose Jefferson and her daughter Angela Coleman have been indicted on counts of conspiracy to commit mail fraud, federal program fraud, aggravated identity theft, substantive program fraud, mail fraud and conspiracy to commit money laundering, for allegedly looting charitable organizations under their control (Times-Picayune, DOJ).
Harry Siskind, the former Mark Nutritionals CEO who pleaded guilty on May 19 to making a false statement to the FTC for lying about the value of his assets (earlier), is in more hot water. He was back in court on Thursday in San Antonio before US District Judge Orlando Garcia, who demanded to know why Siskind got a public defender when he appears to have the means to pay for his own attorney. It turns out that at the time he was pleading indigence, he was traveling around the country playing in high stakes poker tournaments which had $10,000 to $25,000 entry fees. And he owns a house valued at over $500,000 with no mortgage. Judge Garcia has not yet ruled whether Siskind will be required to reimburse taxpayers for the cost of his public defender, but he did tell Siskind that he is to “have nothing to do with poker whatsoever” and that he no longer can travel freely about the country. His sentencing hearing is scheduled for August 28 (Express-News).
Lou Pearlman, the sadist pop music promoter who gave the world N’Sync and the Backstreet Boys, was sentenced on Wednesday to 300 months in prison by US District Judge G. Kendall Sharp in Orlando. Pearlman pleaded guilty in March (earlier) to two counts of conspiracy, one count of money laundering and one count of making a false claim in a bankruptcy in connection with a series of long-running fraud schemes which caused losses to 250 investors estimated at $200 million and losses to 10 financial institutions estimated at $100 million. His schemes included enticing individuals and banks to invest millions of dollars in two airline companies which existed only on paper, a Ponzi scheme involving the sale of “employee investment savings accounts,” a bank fraud involving faked financial statements, and a plot to siphon frozen assets from a bankruptcy case. Sharp offered Pearlman the opportunity to shorten his sentence by one month for every $1 million repaid to his bankruptcy trustee, but the assets recovered to date (including his mansion and Rolls) will not count toward the incentive (Reuters, MTV).
Remember Body Solutions? Their Evening Weight Loss Formula, huckstered by radio DJs nationwide, allegedly would let you lose weight while you sleep. All you had to do was drink it and you would burn fat and gain lean muscle without diet or exercise, just like magic! Some dupes people actually believed it for a while, to the tune of $155 million in sales; but Mark Nutritionals Inc. of San Antonio, the company that made it, filed for bankruptcy in 2002 after being sued by the FTC for making false and unsubstantiated claims.
On Monday in San Antonio, former Mark Nutritionals CEO Harry Siskind pleaded guilty before US Magistrate Judge Nancy Nowak to a single count of making a false statement to the FTC. The charge arose from a deposition he gave the FTC in connection with its suit against him and his company and in connection with the bankruptcy. Specifically, he admitted lying about the value of his assets. After being ordered by a federal court to disclose all assets, “under oath, Siskind falsely stated that certain assets owned by him were valueless stock when in fact they were valuable loans owed to him which he expected to be repaid.” Siskind faces up to five years in prison; sentencing is scheduled for August 28 before US District Judge Orlando Garcia (AP, DOJ).
At the request of the US Attorney’s Office, on Monday in Los Angeles US District Judge Robert Takasugi dismissed all charges against Eutiquio Sauceda of Downey, California and Gabriel Camacho of El Monte, California. The two men had been indicted in 2003 on counts of conspiracy and making false statements to a US government agency for allegedly falsely certifying the quality of parts used by commercial aircraft, NASA and the Pentagon; the alleged incidents date back to 1999. They had been scheduled to go on trial next month. No reason was given for the dismissal, but Camacho had turned down a plea that would have involved no prison time. Both men were managers at Temperform USA, a subsidiary of Hydroform USA. The men had been accused of ordering their employees to falsely state that parts had been properly heat treated. Temperform and Hydroform were also indicted; Temperform pleaded guilty in September 2004, paid a fine and closed down, but all charges against Hydroform were later dropped (San Francisco Chronicle).
In an opinion published Monday, the US Court of Appeals for the Eleventh Circuit upheld the convictions and prison sentences of Joya Williams and Ibrahim Dimson for conspiracy to commit theft of trade secrets. Williams, an executive assistant at Coca-Cola in Atlanta, was convicted in February 2007 of taking confidential trade information from Coke and trying to sell it to Pepsi through her friend Edmund Duhaney and Dimson. Pepsi contacted the FBI after being contacted by Dimson. Williams was sentenced to eight years in prison; Dimson received a five year sentence. Duhaney, who pleaded guilty and cooperated with prosecutors, was sentenced to two years in prison.
The appellate court rejected Williams’ claims that the presiding judge violated her Sixth Amendment rights by limiting her cross-examination of Duhaney and improperly instructed the jury on the meaning of reasonable doubt. The court also rejected Williams’ and Dimson’s claim that their sentences were unreasonable compared to Duhaney’s two-year sentence (AP/Forbes).
Andrew Bodnar, a doctor and former senior vice president of Bristol Myers-Squibb, on Wednesday was indicted in US District Court in Washington on one count of violating of the Federal False Statements Act for allegedly lying to the FTC about a secret settlement of a challenge to the company’s Plavix patent. The indictment charges that in 2006, he negotiated a secret agreement between Bristol Myers-Squibb and the Canadian generic drug manufacturer Apotex Inc., failed to submit it to the FTC and later lied to the FTC by denying the existence of the agreement. Apotex had filed suit against Bristol Myers challenging the validity of its patent on Plavix and was threatening to market a generic equivalent. In the supposedly undisclosed deal, Bristol Myers allegedly agreed not launch a generic version of Plavix when its patent expires in 2011 if Apotex agreed not to launch its Plavix generic until 2011. The charge carries a maximum sentence of five years in prison. Bristol Myers pleaded guilty to related charges in the case last June and paid a $1 million fine (Reuters, NYT).
It sounds like the plot for a yet-to-be-written Coen Brothers’ movie: according to a search warrant unsealed earlier this week in US District Court in Minneapolis, a St. Paul area man named Michael Anthony Powell is under investigation for allegedly swindling investors who were told he had contracts to deliver containerloads of carp worldwide for humanitarian purposes. The search warrant affidavit indicates that more than 40 people have invested in “fraudulent humanitarian carp proposals” with Powell since 1992, and six people have invested $694,000 into Powell’s ventures from 2000 through 2005. No one has been repaid, and Powell has allegedly converted the money to personal use. He has operated under a number of different company names. Among the ventures:
[The affidavit] said Powell allegedly told some investors in 2004 that he had a $1.2 million contract to deliver container loads of carp fillets to China; persuaded some business associates in 2005 to buy a fish plant in Pepin, Wis., where they were going to process carp for buyers he had supposedly lined up in Serbia, and pitched a deal as recently as last December to haul carp from Utah Lake that would be shipped as “humanitarian aid to countries around the globe.”
Minnesota is perhaps the only state where a bottom-dwelling sand-sucking primitive life form (the carp, not Powell) could generate such interest from investors (Star Tribune).
The latest updates to stories we’ve been following:
- Dickie Scruggs is still fighting disbarment but will not fight indefinite suspension of his law license in the meantime (Sun Herald, earlier).
- The four convicted National Century execs who were taken into custody (earlier) will stay in jail (Columbus Dispatch).
- Wannabe Tennessee Titan Reed Kyle Diehl (earlier) has now been indicted on nine counts of wire fraud and two counts of money laundering (AP).
- The government responds to Jamie Olis’ §2255 motion to set aside his conviction (earlier).
After a hearing in Los Angeles on Monday, US District Judge John Walter refused to dismiss the money laundering conspiracy indictment of the former Milberg Weiss firm (now renamed Milberg LLP), ruling that the firm was correctly charged. An attorney for the firm had argued that the count was a separate offense from the secret kickback scheme that has resulted in guilty pleas from current and former principals of the firm. The trial is scheduled for August 12 (ABA Journal).
Two Houston policemen, officer Tracie Bell and first-year probationary officer Kirshondra Richardson, were indicted last week by a Harris County grand jury on felony charges of theft of more than $100,000. The indictment alleges that they billed the Red Cross over $160,000 for a two-week basketball camp for 310 Hurricane Katrina refugees but the camp only lasted two days and had only 10 attendees. If convicted they could face up to 20 years in state prison. Houston Chronicle here, FoxHouston here.
This would never have happened if Herman Short were still chief of police.
Lou Pearlman, the promoter responsible for foisting N’Sync and the Backstreet Boys on an unsuspecting public, on Thursday pleaded guilty to two counts of conspiracy, one count of money laundering and one count of making a false claim in a bankruptcy in connection with long-running fraud schemes which caused losses to 250 investors estimated at $200 million and losses to 10 financial institutions estimated at $100 million. The plea was entered before US District Judge G. Kendall Sharp in Orlando. Pearlman could face up to 25 years in prison but has agreed to cooperate with authorities investigating other unnamed parties in exchange for the possibility of a reduction in sentence. Pearlman is currently in custody and appeared in court wearing shackles. Full details of the schemes have not been revealed but in court Pearlman acknowledged a Ponzi scheme involving the sale of “employee investment savings accounts,” a bank fraud involving faked financial statements, and a plot to siphon frozen assets from a bankruptcy case. Sentencing has been scheduled for May 21, 2008. Orlando Sentinel here, AP here.
In a plea agreement announced on Friday by US Attorney Michael Sullivan in Boston, McCourt Construction Company pleaded guilty to conspiracy to defraud the US government “with respect to claims on a federal highway project.” The company’s project manager Ryan McCourt, son of the owner, pleaded guilty to one count of conspiracy to submit false statements regarding a federal highway project. McCourt Construction was one of the main contractors on the project; the charges arose from overbilling on the I-93 Tip O’Neill Tunnel project. McCourt admitted participating in over 1500 instances of overbilling in which subcontractors charged journeyman labor rates for work actually done by apprentices. This scheme also increased McCourt’s profits because it was paid 10% of the billings as overhead and an additional 10% as allowable profit margin. The company has agreed to pay a $500,000 fine; Ryan McCourt could face up to 5 years in prison but prosecutors will recommend a sentence in the low end of the sentencing range. A DOJ press release here announces the filing of the information; an AP story on the plea agreement is here.
A federal jury in Houston on Thursday convicted three former natural gas traders from Houston-based El Paso Corporation on one count each of conspiracy and multiple counts of false reporting and wire fraud. The charges arose from the reporting of non-existent natural gas trades sent to industry publications Inside FERC and Natural Gas Intelligence from 2000 to 2002 for the alleged purpose of influencing natural gas prices in El Paso’s favor. James Brooks, former head of gas trading at El Paso and managing director of a wholly owned subsidiary, was convicted on 45 total counts; gas trader Wesley C. Walton was convicted on 23 counts; and gas trader James Patrick Phillips was convicted on 21 counts. US District Judge Melinda Harmon has scheduled sentencing for May 23, 2008; each count carries a possible five year sentence. Houston Chronicle here; AP here.
ChemNutra Inc., the American importer of melamine-tainted wheat gluten from China that made its way into many dog and cat foods last year, its owners Sally Qing Miller and Stephen S. Miller on Wednesday were indicted on 13 counts of introduction of adulterated food into interstate commerce, 13 counts of introduction of misbranded food into interstate commerce and one count of conspiracy to commit wire fraud. The Millers are alleged to have known of the contamination and concealed it from their customers. In a related case, the Chinese producer and the Chinese export brokerage company and their top executives were indicted on 13 counts of introduction of adulterated food into interstate commerce and 13 counts of introduction of misbranded food into interstate commerce. The charges were announced by the US Attorney’s Office in Kansas City, Missouri, where ChemNutra and the Millers took delivery of the product. AP here, DOJ Press Release here.