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Arizona State Representative Accused of Bribery, Fraud and Attempted Extortion
A member of the Arizona House of Representatives was charged last Wednesday by a federal grand jury in the District of Arizona with bribery, fraud, attempted extortion and false statements in connection with receiving more than $6,000 in tickets to sporting and special events while serving as a Tempe City Council councilmember and member-elect of the Arizona House.
The indictment charges Paul Ben Arredondo, 63, of Tempe, with one count of federal programs bribery, two counts of honest services mail fraud, one count of attempted Hobbs Act extortion and one count of making false statements. Arredondo will be arraigned on May 30, 2012, in U.S. District Court for the District of Arizona before U.S. Magistrate Judge Lawrence O. Anderson.
Honest services fraud has been an evolving area in federal criminal prosecutions since its addition to 18 U.S.C. 1346, the mail and wire fraud statute, in 1988. The question lower courts have grappled with is what type of specific conduct, in the private and public sector, falls under the purview of “honest services” fraud. Without any indication of Congressional intent in the statute itself, lower courts approached the law broadly, which lead to little limitation as far as federal prosecutors were concerned.
However, in 2010, three cases made their way to the U.S. Supreme Court on this exact issue. The most notable of the three is Skilling v. U.S., where the former CEO of Enron, Jeffrey Skilling, was convicted of honest services fraud. Holding that honest services fraud is limited to bribery and kickback schemes, the Supreme Court overturned Skilling’s conviction under the statute because he did not engage in such behavior. The other two cases were remanded in order for the lower courts to evaluate each case based on the holdings of Skilling.
According to the indictment, Arredondo was a councilmember in Tempe for 16 years, until July 2010. He was elected to the Arizona House of Representatives in November 2010. The indictment alleges that from February 2009 to November 2010, Arredondo accepted, agreed to accept and solicited things of value, mainly sporting tickets, from representatives of a company whose purported business objective was to acquire city-owned property in Tempe for real estate development purposes. Allegedly, in return for those tickets, Arredondo took and agreed to take action in his capacity as a Tempe city councilmember and as a member of the Arizona House of Representatives to facilitate the purported purchase of city-owned property and development project. The representatives were, in fact, undercover agents with the FBI, and no development project actually existed.
Although this case seems to involve a bribery scheme, it was initiated by undercover government agents. Entrapment is a viable defense if Arredondo can raise a reasonable doubt as to whether he had any intent to commit the crime had it not been for inducement or persuasion on the part agents.
In addition to the fraud and bribery charges, Arredondo must also prepare a defense for attempted extortion, which is somewhat of a catchall bribery provision for a public official acting under color of official right. To prove attempted extortion under the Hobbs Act, the government simply has to prove that Arredondo attempted to agree to take some official action in exchange for payment as opportunities arose to do so. Arredondo’s actual intent to follow through with the agreement is irrelevant.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Lawyer for Indian Tribe and Three Others Indicted for Casino Bribery Scheme
An attorney for the Twenty-Nine Palms Band of Mission Indians is among four people who have been indicted on federal bribery and money laundering charges for allegedly participating in scheme in which associates of the lawyer hired to provide assistance to the tribe paid kickbacks to the attorney.
The 48-count grand jury indictment returned Wednesday afternoon names Gary Edward Kovall, 66, of Ely, Minnesota, a licensed California attorney who acted as legal counsel for the tribe; David Alan Heslop, 74, of Templeton, who, on Kovall’s recommendation, was hired by the tribe to oversee some tribal business; Paul Phillip Bardos, 57, of Rancho Cucamonga, a general contractor; and Peggy Anne Shambaugh, 56, of Ely, Minnesota, who is Kovall’s wife.
Arraignments are set for today in the United States District Court in Los Angeles. The indictment has not been posted publicly as of yet.
According to the press release, Kovall advised the tribe to create a limited liability company to purchase real estate, and the attorney allegedly convinced the tribe to hire Heslop as the company’s manager. Kovall and Heslop then recommended that the tribe hire Bardos to act as the tribe’s “owner’s representative” in several construction projects at the Spotlight 29 Casino. Allegedly, when additional construction or construction oversight became necessary in relation to casino projects, Bardos submitted proposals to perform the work, and Kovall persuaded the tribe to give Bardos the contracts. After being paid by the tribe, Bardos allegedly paid kickbacks to Heslop who, in turn, paid kickbacks to Kovall through Shambaugh.
As far as the financial aspect of the alleged scheme, the press release only cites to one instance in 2007, when Bardos allegedly paid Heslop more than $186,577 which was then funneled to Shambaugh.
Although the indictment has not been made public yet, it is interesting to note that Twenty-Nine Palms Enterprises has been involved in two civil suits in the past, and Twenty-Nine Palms Band of Mission Indians has been involved in five civil suits. One of the civil lawsuits was apparently between Twenty-Nine Palms Enterprises and Cadmus Construction, Inc., which is owned by Bardos. Cadmus Construction brought the suit against Twenty-Nine Palms Enterprises in 2010 to recover payment for construction work that Twenty-Nine Palms was refusing to pay.
Without access to the indictment, there is no telling how or why the federal government began to investigate the relationship between Twenty-Nine Palms and the four individuals who have been criminally indicted. Perhaps the earlier civil lawsuit between Bardos and Twenty-Nine Palms led to the federal investigation after issues regarding payment was brought up. Regardless, the four individuals now face serious federal criminal charges and if convicted, might face federal prison and significant fines.
All four individuals have been indicted with conspiracy. Additionally, Kovall, Bardos, and Shambaugh are charged with eight counts of bribery, while Heslop is charged with 16 counts of bribery. In addition to the conspiracy and bribery charges based on the kickback scheme, Bardos is charged with eight counts of money laundering, Heslop is charged with seven counts of money laundering, and Shambaugh is charged with two counts money laundering.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
U.S. Government Contractor Pleads Guilty to Alleged Role of Theft of Military Equipment
A former U.S. civilian contractor pleaded guilty on Monday in the Eastern District of North Carolina to conspiring to steal military generators in Iraq in 2011 and selling them on the black market. David John Welch, 36, of Hope Mills, N.C., pleaded guilty before U.S. District Judge W. Earl Britt to a criminal information charging him with one count of conspiracy to steal property under the control of a government contractor.
According to court documents, in 2011, Welch was the operations and maintenance manager of Fluor Corporation, a U.S. government contractor, on Victory Base Complex in Baghdad. In this capacity, Welch had access to the distribution and movement of military equipment as well as U.S. government equipment. In addition, Welch was in charge of overseeing the movement of generators from the compound to the Defense Reutilization & Marketing Office (DRMO). In October 2011, Welch and a co-conspirator entered into an alleged scheme to steal and later sell approximately 38 generators on the black market in Iraq to unknown co-conspirators by diverting these generators from the DRMO to an undisclosed location off-base in Iraq. Allegedly, after the generators were stolen from the compound Welch’s co-conspirator provided him with approximately $38,600.
The court documents do not identify the co-conspirator by name in this case. Therefore it is unclear whether the co-conspirator has also pleaded guilty, or is currently aiding the U.S. government in its investigation of others.
Welch has pleaded to conspiracy to commit an offense against the United States. Specifically, the conspiracy that Welch has been accused of relates to the theft or bribery concerning programs receiving federal funds, 18 U.S.C. § 666. The statute applies to any organization, government, or agency that receives, in any one year period, benefits in excess of $10,000 under a Federal program involving a grant, contract, subsidy, loan, guarantee, insurance, or other form of Federal assistance. Federal contractors and their agents are typically subject to criminal liability under this statute because they receive at least $10,000 in Federal funding in a one year period.
At sentencing, scheduled for July 9, 2012, Welch faces a maximum penalty of five years in prison, a $250,000 fine and three years of supervised release following his prison term. As part of his guilty plea, Welch agreed to pay $160,000 in restitution to the United States.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Three Californians Indicted for Alleged Insurance Fraud
Three Southern California residents have been arrested on federal bribery and embezzlement charges related to a scheme that allegedly caused a California state agency to issue at least $187,513 in unemployment insurance benefits checks to dozens of people who were not eligible for the benefits, with cash kickbacks allegedly going to the organizers of the scheme.
A 31-count indictment returned by a federal grand jury on February 1, 2012, charges three individuals with conspiracy, bribery, embezzlement and obstruction of justice. The individuals were arrested by special agents of the U.S. Department of Labor. David Paul Holden, 30, of Corona, a former employee of the California Employment Development Department (EDD), and Patricia Cordova, 31, of Corona, were arrested February 1, 2012. Narciso “Tony” Rodriguez, 29, of Riverside, was arrested February 2, 2012. The three individuals were arraigned on the indictment in United States District Court in Santa Ana.
According to the indictment, in 2010 and 2011, Holden worked at the EDD office in Anaheim, where he processed unemployment insurance claims and had access to EDD’s electronic database for approving claims and making payments of unemployment insurance benefits. Allegedly, personally and through a network of recruiters, which included Cordova and Rodriguez, Holden approached more than 50 individuals who were not qualified to receive state unemployment benefits because they were already employed, had voluntarily quit their prior jobs, or had been terminated for other reasons, including misconduct. Holden and his recruiters persuaded those people to provide their social security numbers and other information so that Holden could arrange for them to receive unemployment checks. According to the indictment, EDD’s electronic database was manipulated to make it appear that those people were entitled to benefits and caused EDD to issue unemployment benefits checks to those persons.
The indictment is sealed in this case; however, according to the press release, the indictment alleges that the people who were not qualified to receive unemployment benefits from EDD illegally obtained $187,513, but investigators have determined that EDD paid more than $500,000 to unqualified beneficiaries. The press release also states that Holden and his co-defendants received $33,100 in kickbacks, but investigators have determined that the amount of kickbacks and unemployment benefits that went directly to the defendants is more than $85,000.
The question must be asked, if the investigators determined that EED paid more than $500,000 to unqualified beneficiaries, and the alleged conspirators received more than $85,000 in kickbacks, then why are the amounts much less in the indictment? Perhaps the investigators are merely basing such high numbers on their assumptions and do not have proof to substantiate these allegations. This is beneficial for those charged in the case because typically, the higher the loss involved, the steeper the penalty.
In addition to bribery and embezzlement, the indictment alleges that Holden and Cordova took various steps to conceal the scheme and discourage other participants from cooperating with investigators.
Another point the press release makes clear is that the three individuals charged are not the only ones under scrutiny in this case. If what the indictment alleges is true, then investigators believe there was a much larger network involved. There is no doubt that prosecutors will attempt to uncover additional names by offering plea deals to the individuals currently charged in exchange for a possible lesser sentence.
If they are convicted of all counts in which they are charged, Holden would face a statutory maximum sentence of 305 years in federal prison, Cordova could be sentenced to as much as 45 years in prison, and Rodriguez would face a statutory maximum sentence of 15 years in prison.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Former Los Angeles County Sheriff Agrees to Plead Guilty to Federal Corruption Charge
The Department of Justice’s Civil Rights Division and the U.S. Attorney for the Central District of California charged former Los Angeles County Deputy Sheriff, Gilbert Michael, with one count of bribery of a public official. Specifically, Michael was charged with agreeing to accept $20,000 in bribes in exchange for smuggling contraband into the Men’s Central Jail in downtown Los Angeles.
While at the Los Angeles Sheriff’s Department (LASD), Michael was responsible for the care, custody, and security of inmates housed at the Men’s Central Jail. Michael resigned from his position at LASD in September 2011.
The DOJ press release provides that a plea agreement was reached January 13, 2012, wherein Michael agreed to plead guilty to the charge and cooperate in the ongoing investigation. In the plea agreement, Michael admitted to agreeing to smuggle contraband, including a cell phone, cigarettes, and a note, to an inmate in exchange for $20,000.
The maximum federal prison sentence for bribery of a public official is ten years. Michael is expected to make his initial court appearance today, January 17, 2012, in U.S. District Court in Los Angeles.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Blagojevich’s Sentence Sets a Precedent
Judge James Zagel sentenced Rod Blagojevich on Wednesday in the Northern District of Illinois on 18 counts of corruption, including his June convictions on charges that he tried to sell or trade an appointment to President Barack Obama’s U.S. Senate seat for campaign cash or a top job. The impeached governor must report to prison on February 16.
Prosecutors in the case were seeking 15 to 20 years for Blagojevich, while defense counsel was arguing for only 4 to 5 years. Judge Zagel was clearly upset with Blagovich when he pronounced his sentence, stating “When it is the governor who goes bad, the fabric of Illinois is torn, disfigured and not easily repaired.”
In federal court, judges typically follow the Federal Sentencing Guidelines to determine how much time a defendant will serve. The Supreme Court has ruled that the Guidelines are not mandatory, but most federal judges determine their sentence based on how the convicted counts fit into the Guideline range. Unfortunately for Blagojevich, not only was he convicted on 18 counts, but he was also a public official at the time which fares a higher sentence.
Blagojevich’s first trial took place in the summer of 2010 and he was convicted of making false statements to FBI agents when he told them in an interview on March 16, 2005, that he did not track, or want to know, who contributed to him or how much money they contributed to him, but the jury was deadlocked on all remaining counts.
The government went after Blagojevich again in the spring of 2011, and this time he was convicted on 17 additional counts, including 10 counts of wire fraud, two counts of attempted extortion, two counts of conspiracy to commit extortion, one count of soliciting bribes, and two counts of conspiracy to solicit and accept bribes.
Federal prosecutors and the judge have made a spectacle of this case, as Blagojevich’s lengthy sentence is surely meant to heed a warning to others not to engage in public corruption practices. Unfortunately, the ones suffering the most in this case are Blagojevich’s young daughters, who will be adults when he is released in 14 years.
Blagojevich is the fourth Illinois governor to be sentenced to prison. The previous governor, George H. Ryan, is still serving time for his corruption sentence and is set to be released in 2013.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
U.S. Government Charges New York Assemblyman with Another Round of Alleged Bribery
It was announced yesterday in the Eastern District of New York the unsealing of a complaint charging New York State Assemblyman William F. Boyland, Jr. with allegedly soliciting more than $250,000 in bribes and accepting thousands of dollars of bribe money in exchange for performing official acts for the bribe payers.
The criminal complaint alleges that between August 2010 and June 2011, Boyland solicited and accepted a stream of bribes from a carnival promoter and two undercover FBI agents, whom Boyland believed to be out-of-state businessmen and real estate developers. Boyland allegedly agreed to take official action to secure business opportunities for the three individuals.
According to the FBI press release, Boyland met with the three individuals on multiple occassions, regarding three different bribery schemes. However, it is not mentioned whether Boyland sought out the supposed carnival promoter and two undercover agents, or whether they originally approached him.
While these alleged occurrences were taking place, Boyland was also busy fighting bribery charges for a separate case in the Southern District of New York. In March 2011, Boyland was charged for bribery arising from an investigation into former hospital executive David Rosen, who allegedly tried to pay off Boyland and two other New York lawmakers to help support medical facilities in Brooklyn and Queens.
Boyland was acquitted of those charges just recently in November. Following the acquittal, the government hit Boyland with this new round of charges. It is interesting that the government was still investigating Boyland while prosecuting him on separate charges at the same time. Ethically speaking, the government should not have charged Boyland in March while continuing to investigate him. It would seem that the government knew their first case lacked sufficient evidence, and was using the second investigation as a back up.
Boyland may have been lucky enough to dodge the bullet once, but clearly the government is going to throw everything they’ve got at Boyland in this new case.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Two U.S. Army Corps of Engineers Employees and Two Others Indicted in $20 Million Bribery and Kickback Scheme
The FBI has reported that four Virginia men, including two longtime employees of the U.S. Army Corps of Engineers, were arrested October 4, 2011 on charges stemming from an indictment that accuses them of taking part in a conspiracy involving more than $20 million in bribes and kickback payments and the planned steering of a $780 million government contract to a favored contractor.
The defendants include Kerry F. Khan, 53, of Alexandria, Va.; his son, Lee A. Khan, 30, of Fairfax, Va.; Michael A. Alexander, 55, of Woodbridge, Va.; and Harold F. Babb, 60, of Sterling, Va. Kerry Khan and Alexander are employed by the U.S. Army Corps of Engineers, and Babb is director of contracts for a company that did business with the government.
All four men were taken into custody on charges contained in an indictment that was returned by a grand jury, under seal, on Sept. 16, 2011, in the U.S. District Court for the District of Columbia. The arrests took place as authorities executed search warrants at seven locations in Virginia and one in the District of Columbia. The indictment was unsealed the day of the arrests.
According to the indictment, Kerry Khan and Alexander helped funnel more than $45 million in payments to a favored company through a federal government contract they oversaw, with plans to steer hundreds of millions more to the business. Approximately $20 million in fraudulent expenses were built into the invoices, and proceeds went to all four defendants.
All four defendants were indicted on one count of conspiracy to commit bribery and wire fraud and aiding and abetting and causing an illlegal act to be done, as well as one count of conspiracy to commit money laundering. Kerry Khan and Alexander also were indicted on one count of receipt of a bribe by a public official, and Babb was indicted on one count of unlawful kickbacks.
If convicted of the charges, Kerry Khan and Alexander face a maximum of 40 years in prison. Babb faces up to 35 years, and Lee Khan faces a sentence of up to 25 years.
The United States has obtained warrants to seize funds in 29 bank accounts and to seize three luxury vehicles and seven high-end watches. In addition, the indictment includes a forfeiture allegation against 16 real properties financed in whole or in part with proceeds of the crimes. The United States has begun the process of securing forfeiture of those 16 properties, which include 14 properties in Virginia, one in West Virginia, and one in Florida.
The indictment also provides the defendants notice that, if convicted, the United States will seek forfeiture of all proceeds of the charged offenses.
The case is being prosecuted by the Fraud and Public Corruption and the Asset Forfeiture and Money Laundering Sections of the U.S. Attorney’s Office for the District of Columbia. Their coordinated efforts with the FBI, the Office of the Inspector General for the Small Business Administration, the Department of Defense Criminal Investigative Service, Army Criminal Investigation Command and the IRS led to the indictment and arrests.
Given the global economic climate, the federal government’s burgeoning debt crisis, and the increased public scrutiny of government expenses law enforcement has stepped up enforcement of contract procurement fraud, abuse, and waste. The government will prosecute these offenses rigorously and knowledgeable defense counsel should be sought immediately by those targeted by a federal investigation.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Suspicious Activity Report (SAR) Leads to Recovery of Funds Derived from Foreign Corruption
As was reported in our last blog post about Suspicious Activity Reports (SARs), such reports are critically important to the U.S. government’s efforts to detect complex criminal activity. FinCEN, the U.S. Department of the Treasury’s office responsible for analyzing such filings, has been more active than ever in detecting criminal activity. Since SARs are filed by a financial institution without the target’s knowledge they give the government a head start in their investigations. The information contained in the reports is analyzed by teams of government analysts who develop trends and establish findings that assists the government’s subsequent investigation.
One area of criminal activity SAR analysts focus on is foreign corruption. Analysts will search SARs for key terms such as “politically exposed person” or “PEP,” “foreign corruption,” and “senior foreign political figures.” In 2010 analysts documented 1,294 SARs related to the terms mentioned above. Most of the reports are filed by depository institutions like banks, but other institutions like securities dealers and money services businesses also filed “foreign corruption” related SARs. Most of the reports involved amounts or aggregate amounts between $100,000 and $50,000,000 and identified the activity as BSA/Structuring/Money Laundering.
One such SAR exposed a foreign corruption scheme to Federal officials. The government ultimately seized and forfeited criminal proceeds valued at more than $100 million from the findings of that initial SAR and its subsequent investigation. The investigation revealed that several subjects conducted a complex series of transactions, over a period of several years, using the proceeds of foreign corruption.
The investigation centered on the circumstances surrounding a foreign civil case in which the judge found for the plaintiff and ordered the defendant to pay the plaintiff (and heirs) the U.S. equivalent of half a billion dollars. Soon after the judgment in the civil case, law enforcement commenced an investigation into the possibility that the decision in the civil case was the result of a bribe, worth tens of millions of dollars, paid to the judge through a group of attorneys. This investigation led to the arrest of several individuals involved in the civil case, including the plaintiff’s heirs, the judge, and the attorneys. The judge and attorneys were convicted of bribery.
After the bribery scandal broke, a financial adviser (and co-conspirator) helped the plaintiff and his heirs set up corporate and trust structures to conceal and launder large portions of the public corruption proceeds. A significant portion of the corruption proceeds were then moved through these entities to or through bank and investment accounts located in the United States.
U.S. authorities became involved when members of the plaintiff’s family attempted to open accounts in the United States. Through the use of Bank Secrecy Act (BSA) data, especially SARs, and investigative information provided by foreign authorities, investigators identified approximately 2 dozen accounts in the United States that contained the proceeds of the fraud and bribery schemes.
All of the plaintiff’s family and heirs involved the scheme were arrested, pleaded guilty, and were sentenced to prison. The financial advisor was arrested and has yet to be tried.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Former Hospital CEO Found Guilty for Bribery Scheme Linked to NY Legislature
Preet Bharara, the United States Attorney for the Southern District of New York, announced yesterday that David Rosen, the former CEO of MediSys Health Network, was found guilty in Manhattan federal court for participating in a scheme to bribe New York State Senator Carl Kruger, New York State Assemblyman William Boyland, Jr., and former New York State Assemblyman Anthony Seminerio with hundreds of thousands of dollars in exchange for their official acts. Rosen was convicted after a three-week bench trial before U.S. District Judge Jed S. Rakoff.
Rosen, 63, of Westchester County, was found guilty of two counts of honest services fraud in connection with his efforts to bribe Kruger, Boyland, and Seminerio. He was also convicted of three additional counts—one count of honest services fraud conspiracy, and two counts of conspiracy to commit bribery and to violate the Travel Act. Rosen faces a maximum of 70 years in prison. He also faces, on each count, three years of supervised release, and a fine of $250,000, or twice the gain or loss from the offense.
The “honest services fraud” statute, codified as 18 U.S.C. 1346, makes it a federal crime to engage in a scheme or artifice to deprive another of the “intangible right of honest services.” Historically, the statute was used by federal prosecutors as a broad avenue to pursue corruption cases in both the private and public sectors. Lower court struggled with the definition of “honest services” until the Supreme Court finally gave an answer.
In 2010, the Supreme Court decided the statute as written was unconstitutionally vague and limited the statute to only crimes involving bribery and kickbacks. After confronted with three similar cases, the Court discussed its reasoning in the case involving a former Enron official, Skilling v. United States, 130 S. Ct. 2896 (2010). In its decision, the Court rejected the Department of Justice’s argument that the statute should encompass “self-dealing” transactions, and strictly limited its application to only those cases involving bribery and kickbacks.
While limiting the statute was a small victory for Skilling and other cases similarly situated, the Court’s ruling has not limited the number of prosecutions of the honest services fraud statute particularly in instances involving public officials. Further, the government still has several options for prosecution available at its disposal, such as mail fraud, wire fraud, bank fraud and conspiracy.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
