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Former Investment Fund Manager from Los Angeles Charged with Defrauding Investors
John Farahi, of Bel Air Estates, California, was named in a 41-count indictment returned on December 7, 2011 by a federal grand jury. The former investment fund manager defrauded investors out of millions of dollars by falsely promising investors their money would be invested conservatively to purchase corporate bonds backed by the Troubled Asset Relief Program (TARP) and then collaborating with his corporate counsel to cover-up the fraud.
Farahi, a former Reno, Nevada City Council Member and Farsi-language radio investment advisor, instead used the investment funds for a variety of personal purposes, including to support his family’s lavish lifestyle, to make Ponzi payments to early clients of his investment fund, and to trade in high-risk and speculative future options trading. Farahi was able to attract many of his clients through his daily radio show in which he touted a conservative investment philosophy. Most of his clients were members of the Southern California Iranian-Jewish community.
In the face of huge trading losses at the end of 2008, Farahi allegedly tried to extend the scheme by drawing down extensively on lines of credits at banks while making false statements to those banks about his financial condition. The victim banks included TARP recipients Bank of America and U.S. Bank as well as Sun West Bank.
The indictment charges Farahi with 16 counts of mail fraud, one count of wire fraud, five counts of offering for sale unregistered securities, four counts of loan fraud, one count of aggravated identity theft, five counts of alteration of documents, one count of suborning perjury, one count of concealing a material fact, one count of witness tampering. If he is convicted of the 40 counts in which he is charged, Farahi would face a statutory maximum sentence of 717 years in federal prison.
It is alleged that Farahi’s scheme lasted from 2005 until 2010. The Securities Exchange Commission (SEC) had filed a federal complaint alleging violations of federal securities laws against Farahi and other in January 2010. Many of the charges Farahi now faces are derived from his attempts to mislead, conceal, and redirect the SEC’s investigation. Otherwise known as cover-up crimes, targets of federal investigations often get themselves into more trouble early on in an investigation by lying to investigators or acting unethically. Now that the SEC has referred the case to the DOJ for criminal prosecution, Farahi now faces a significant number of charges in addition to his initial fraud scheme.
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.
False Statements – Be Careful What You Say, Whenever You Say It
Before speaking to government agents think long and hard about the information you want to provide them. Even if you aren’t the target of their investigation, any statements you provide the government that turn out to be false can be grounds for charging you with a separate and distinct felony under 18 U.S.C. 1001. This offense carries a penalty of up to 5 years imprisonment and should not be taken lightly. Therefore, think through your statements before providing them to government agents, and if possible, retain counsel before making any such statements.
The False Statements statute makes it a felony to (1) conceal a material fact, (2) make a false statement or representation, or (3) make or use a false writing, in any matter within the jurisdiction of the United States Government. Thus the statute criminalizes the making of a wide range of both sworn and unsworn statements to the federal government.
False statements typically arise when prosecutors charge those who have lied to cover up some other illegal activity. Hence the common characterization of 18 U.S.C. 1001 as a “cover-up” crime.
What follows is a brief break down of the three primary offenses:
(1) Concealing a material fact – a person has to falsify, conceal or cover up any material fact that he had a duty to disclose. Such a duty exists if the government asks you to disclose the fact either in person or on an official form. Even answering “no” to an agent’s question of whether you committed the crime can be grounds of charging you under section 1001 if you did in fact commit the crime.
(2) Making a false or fraudulent statement – a person makes a “false” statement if the statement was untrue when it was made, and the person knew it was untrue at that time. A statement is “fraudulent” if it was untrue when it was made, and the person knew it was untrue at that time, and the person intended to deceive.
(3) Making or using a false writing – a person uses a false writing or document when that person knows it contains materially false, ficticious, or fraudulent statements or entries.
For each of the three offenses above, the following additional elements must be proven before someone can be convicted of 18 U.S.C. 1001:
(a) The subject of the false statement, the fact, must be material. To be material, a fact either has a natural tendency to influence or is capable of influencing a decision of any federal governmental entity.
(b) The person must have acted knowingly and willfully. A person acts knowingly or willfully if they have acted voluntarily and intentionally, and not because of mistake or some other innocent reason.
(c) And finally, that the fact actually pertained to a matter before some agency or branch of the U.S. Government regardless of whether the person knew it was actually a matter before the government. As such, making false statements to private contractors carrying out a federal project or filing papers with your employer that are subsequently sent to the federal government can make you liable under section 1001.
You must understand and respect the gravity of the situation when speaking to government agents either in person or in written responses. Make sure your statements are true and reflect the knowledge you actually possess about any matter you are being asked about. The risk of prosecution is real, and the government is not shy about charging section 1001. However, if you fear that speaking the truth will get you in trouble you can just decline to speak to the agents altogether until you are compelled to by court order or subpoena. At that time you can invoke your Fifth Amendment right to remain silent.
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.
Witness in Corruption Case Faces Up to 3 Years in Prison for Cover Up Crime
Tabitha Goodner has become the ninth defendant in the $12 million bid-rigging case against contractor Bobby Ferguson, a close friend of Detroit’s ex-Mayor Kwame Kilpatrick. Back in July of 2009, Ms. Goodner allegedly gave misleading and incomplete statements to federal investigators despite knowing that the targets of the investigation had committed mail fraud and conspiracy to commit mail fraud. Accordingly, her federal indictment charged her with misprision of felony. Misprision is when a person has knowledge of the actual commission of a felony but does not make such knowledge known to the authorities. The charge carries penalties that include fines and up to three years in prison.
Ms. Goodner’s indictment comes seven months after Ferguson and several other were indicted in a bid-rigging case in which they allegedly falsified documents, illegally laundered proceeds, and dumped demolition debris in connection with a federally funded public housing development. Ferguson’s indictment charged him with following crimes: fraud, monely laundering, obstruction of justice, and conspiracy to defraud.
According to the court record Ms. Goodner participated in the bid-rigging by preparing a false independent auditor’s report by fraudulently altering information on the document at Ferguson’s command. Between the court record and Ms. Goodner’s position as a manager of Ferguson’s company, probable cause apparently existed to indict her for the statements she made during the investigation in 2009.
It isn’t uncommon for witnesses in a white collar criminal case to become targets and be charged with “cover up” crimes like misprision of felony, obstruction of justice or false statements. Inherent to many white collar crimes is a plan to cover up such crimes. This can include lying to investigators, providing false affidavits, or misleading investigators. Individuals often start off as mere witnesses in an investigation only to end up being targets of an indictment for a cover-up crime.
Ms. Goodner merely provided what was alleged to be “misleading and incomplete” statements to investigators and is now facing up to three years in prison for those statements. It is therefore imperative that witnesses, and targets alike, understand the various cover-up crimes whenever they participate as a witness in 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.
