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Home Builder Indicted in $14.7 Million Construction Investment Scheme
On March 1, 2012 a federal grand jury indicted Patrick J. Belzner, a/k/a “Patrick McCloskey,” of Glen Arm, Maryland fo conspiring to commit wire fraud arising from an investment fraud scheme.
The indictment alleges that in order to gain their victims’ confidence, Belzner and his co-conspirators caused victim investors and borrowers to enter into escrow agreements which stated that no person other than the victims had the ability to remove the escrowed funds without the victims’ permission. Belzner told the victims that a co-conspirator had to be the attorney assigned as the escrow agent.
The indictment alleges that Belzner and his co-conspirator fraudulently withdrew approximately $14,730,780 from the escrow accounts and used these stolen funds to satisfy their business and personal debts. To conceal their scheme, Belzner and his co-conspirators allegedly: emailed fabricated bank statements to victims that misrepresented the escrow account balance and the date by when the investors’ money would be returned. Belzner and his co-conspirators also used funds fraudulently obtained from some victim investors to repay money owed to previous victim investors, or to other individuals to whom the conspirators owed debts.
Belzner faces a maximum sentence of 20 years in prison and fine of $250,000 or twice the value of the gain or loss. The indictment further seeks forfeiture of at least $14,730,780, the amount of money stolen from victim investors.
Belzner’s alleged co-conspirators are not named in the indictment. According to the indictment Bezner’s co-conspirators included a home builder from Baltimore, Maryland, an attorney licensed to practice in Maryland, a senior underwriter from Newport Beach, California, and an attorney licensed to practice in California. The government may still be building its case against the other co-conspirators, offering the defendant the opportunity to cooperate with investigators. However, since the indictment was recently unsealed, there is a good chance that the other co-conspirators were actually involved in the investigation into Belzner.
Co-conspirators make for interesting government witnesses. These “insider” witnesses provide the government with invaluable insight into the inner workings of the alleged crime. However, due to a co-conspirator’s own precarious position as a criminally liable person, defense counsel is afforded the opportunity to seriously call into question the reliability, veracity, and character of such witnesses.
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.
Nine Charged in Southern California for Alleged Multi-Million Dollar Mortgage Fraud Scheme
An indictment was unsealed Tuesday in the Southern District of California, charging a local real estate agent and eight others with multiple counts of conspiracy, wire fraud, money laundering and criminal forfeiture, for an alleged mortgage fraud scheme.
Eric Elegado, and eight other mortgage industry professionals, Charmagne Elegado, Theodore Cohen, Minh Nguyen, Regidor Pacal, Alexander V. Garcia, Roman Macabulos, Ramin Lotfi and Roderick Huerto, were allegedly involved in a scheme to defraud low-income immigrants in San Diego, California.
According to the indictment, Eric Elegado owned and operated real estate and mortgage brokerage businesses in San Deigo, and the other individuals were all employees. Allegedly, the individuals conspired together to obtain mortgage loans for unqualified buyers by falsifying and assisting others in falsifying the employment and salary information on the loan documents.
In this case, it is unclear whether the mortgage borrowers were aware of the allegedly falsified employment and income documents used to obtain these loans. As always, any person who willfully participates in a scheme to defraud has opened themselves up to a potential investigation and prosecution.
The documents would then be submitted to mortgage lenders. The mortgage lenders allegedly loaned more than $50 million dollars during the course of the scheme. According to the FBI press release, the mortgage companies, lending institutions, and financial institutions lost more than $15 million dollars.
Although the government’s focus has mostly been on large corporations involved in subprime mortgage lending, this does not mean that investigations of smaller companies and individuals has fallen to the wayside. Whether the case involves a financial institution or an individual, the U.S government has stepped up their investigative efforts to seek out those whom they believe are defrauding the system. One significant difference must be mentioned – corporations are punished by fines, such as the recent $26 billion dollar settlement between the big banks and the U.S. government for foreclosure abuses, whereas individuals must face potential prison time.
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.
Patient Recruiter Pleads Guilty in Louisiana Health Care Fraud Scheme
On July 15, 2010 a federal grand jury in the Middle District of Louisiana named Fred Belcher, among others, in a five-count indictment. The indictment specifically charged Mr. Belcher with (1) Conspiracy to Commit Health Care Fraud and (2) Conspiracy to Defraud the United States and to Receive and Pay Health Care Kickbacks. On January 31, 2012 Mr. Belcher pled guilty to one count of Conspiracy to Commit Health Care Fraud, effectively dropping one of the conspiracy charges against him in return for his plea.
Mr. Belcher’s plea admitted to the court that he worked as a recruiter for Healthcare 1 LLC, Medical 1 Patient Services LLC, and Lifeline Healthcare Services Inc., Louisiana-based companies that fraudulently billed durable medical equipment (DME) to the Medicare program from 2004 to 2009. He and other recruiters were hired to obtain prescriptions for DME such as leg braces, arm braces, power wheel chairs, and wheel chair accessories. Specifically, Belcher recruited Medicare beneficiaries to attend “health fairs” that he organized at churches and other locations in the beneficiaries’ communities. At these fairs, he obtained information from the beneficiaries and paid a doctor to prescribe medically unnecessary DME for the beneficiaries. Belcher then sold these prescriptions to the three Louisiana companies listed above to bill Medicare.
Unlike traditional criminal cases, defendants involved in criminal activity related to government health care programs (i.e. Medicare, Medicaid, etc.) must be conscious of potential enforcement actions by the Office of Inspector General (OIG) of the U.S. Department of Health & Human Services (HHS) in addition to any criminal consequences. OIG’s mission is to protect the integrity of HHS programs as well as health and welfare beneficiaries. The OIG accomplishes this primarily by conducting audits, investigations, and evaluations. Perhaps most importantly, OIG has the power to exclude persons from participating in or providing services for or on behalf of HHS programs such as Medicare and Medicaid. In essence, to be excluded by the OIG means being black-listed from the medical industry.
Exclusions are a serious and potentially devestating consequence of pleading guilty to criminal activity involving HHS programs. A quick search of OIG’s database on January 31, 2012 shows that Mr. Belcher has yet to be excluded from the Medicare program. This however, does not mean that he won’t eventually be excluded. OIG exclusions tend to happen subsequent to a guilty plea or criminal investigation and in addition to any imprisonment, forfeiture, or fines levied in the criminal case. In many ways, exclusion by the OIG can be worse for the defendant than many criminal consequences because it denies the defendant the ability to earn a livelihood in the only industry the defendant is familiar with.
Therefore, defense counsel should immediately engage in a dialogue with OIG on behalf of a client facing health care fraud charges to dicuss whether a potential exclusion is being considered. Exclusions are regularly for a term of years, thus there would seem to be room to negotiate more favorable terms for one’s client if an exclusion is inevitable. Moreover, defense counsel should be conscious of an individual client’s exposure to exclusion whenever a corporate entity in the medical field is being investigated or enters into a non-prosecution agreement. Even in instances where a particular client is not charged with criminal conduct, OIG may unilaterally move to have that person excluded from the Medicare program depending on the scope of the entity’s admissions about the client. Nonetheless, defendants in such cases must be made aware of the potential for exclusion so that they can make an informed decision about accepting a plea agreement or going to trial.
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. Attorney’s Office for the Southern District of New York Announces Extradition of Four Israeli Defendants Charged in Multi-Million Dollar Fraud Scheme
The US Attorney for the Southern District of New York recently announced that four defendants have been extradited from Israel on charges relating to their participation in multiple lottery telemarketing fraud schemes. Many of those charged in two indictments in 2008 and 2009 have already been arrested and have either plead guilty to conspiracy and/or fraud charges or been found guilty by bench trial.
The four recently extradited include Avi Ayache, Yaron Bar, and Ian Kaye, all of whom were arrested in Israel back in July of 2009 awaiting extradition to the United States. The fourth man, Shai Kadosh, who was indicted back in September 2008 was a fugitive until he was arrested in Israel in December of 2011.
The four men and their co-conspirators allegedly operated phony “lottery prize” schemes out of numerous boiler rooms in Israel. The schemes targeted hundreds of victims, mostly elderly, throughout the United States. To identify potential victims, the defendants purchased from list brokers the names and contact information of U.S. residents who subscribed to sweepstakes lotteries. They then contacted the victims and solicited information about their finances by falsely telling them they had won a substantial cash prize that they would receive as soon as they paid the necessary fees and taxes. In reality, there was no lottery prize. Collectively, the American victims in these lottery fraud schemes lost approximately $25 million.
Ayache, Bar, Kaye, and Kadosh are each charged with one count of conspiracy to commit wire fraud and mail fraud through telemarketing, which carries a maximum penalty of 30 years in prison. In addition, Ayache, Bar, and Kadosh are each charged with two substantive counts of wire fraud through telemarketing, each of which carry a maximum potential penalty of 30 years in prison. Ayache and Bar are also charged with conspiracy to commit money laundering, which carries a maximum potential penalty of 20 years in prison. The enhanced fraud penalties are a result of the telemarketing scheme employed by the defendants. According to 18 U.S.C. 2326 there is up to a 10 year penalty enhancement when the fraud is carried out by telemarketing and targets at least 10 elderly people over the age of 55.
The government will also seek forfeiture and mandatory restitution of up to $25 million in substitute assets to recover the defendants’ ill-gotten gains.
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 Individuals Indicted for Narcotics Trafficking and Conspiring to Provide Support to Hizballah; Extradited to the U.S.
The U.S. Attorney’s Office for the Southern District of New York recently announced the extraditions of Siavosh Henareh and Cetin Asku from Romania on charges of conspiring to provide narcotics and, in the case of Aksu, material support to Hizballah through an individual whom they believed to be an associate of Hizballah, but who was in fact, a Drug Enforcement Administration (“DEA”) confidential source. Aksu is further charged with conspiring to acquire, transfer, and possess anti-aircraft missiles.
The indictment alleges that Henareh and Aksu, the defendants, and others known and unknown, carried out a series of over acts for the purpose of brokering a heroin transaction with confidential sources working for the DEA. One of those confidential sources was posing as an associate of Hizballah, which has been designated by the United States Secretary of State as a foreign terrorist organization in 1997. From about December 2010 to about April 2011 Henareh and Aksu were part of a plan with the confidential sources to acquire hundreds of kilograms of high-quality heroin to import into and sell in the United States. Henareh and Aksu were informed by the confidential sources that the profits and proceeds from this proposed sale of heroin would be used to purchase weapons for Hizballah.
The indictment further alleges that Henareh received $23,000 from a confidential source and sent the money via hawala from one confidential source in Bucharest, Romania to another confidential source in Istanbul, Turkey for the purpose of acquiring a sample of the heroin to be used in the anticipated deal to sell the drug in the United States and benefit Hizballah. It is alleged that Aksu further indicated that he had an additional 200 kilograms of heroin available for sale in the anticipated deal.
With respect to Aksu, his alleged involvement in the anticipated deal also included providing material support to Hizballah and acquiring, transfering, and possessing anti-aircraft missiles. These charges stem from alleged conversations between Aksu and confidential sources indicating Aksu’s ability to acquire and sell handguns, automatic assault rifles, and anti-aircraft missiles. These alleged conversations indicated the types, quantities, and prices of various weapons. Aksu also allegedly provided the confidential sources with a list of weapons for sales with prices, including anti-aircraft missiles. Aksu also allegedly indicated that he already had Hizballah as a buyer for these products. Aksu and another uncharged individual allegedly entered into a contract worth $9.5 million with the confidential sources to purchase said weapons for Hizballah.
Henareh and Aksu were extradited to the United States from Romania on November 17, 2011 to face the abovementioned charges made in an indictment that was unsealed on July 26, 2011. The government is also seeking forfeiture of any and all assets and funds, wherever located, related to any of the abovementioned charges if convictions are obtained against the defendants.
It is apparent from this indictment and extraditions that the U.S. has confidential sources around the world who coordinate with various State Department and DEA offices in foreign nations. The U.S. has also fostered law enforcement relationships with nations around the world to coordinate enforcement actions and sting operations meant to ferret out those individuals who are willing to provide support to terrorists and undertake various narcotics trafficking activities.
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.
65 Count Indictment Against Texas Man for Bankruptcy Fraud and Structuring Financial Transactions
The U.S. Attorney’s Office for the Western District of Texas announced charges against Jack Texas Alves. The grand jury returned a 65 count indictment against Mr. Alves for one count of bankruptcy fraud in violation of 18 U.S.C. 152 and 64 counts of structuring domestic financial transactions in violation of 31 U.S.C. 5324(a)(3).
The indictment alleges that in a bankruptcy court filing on May 23, 2008, Mr. Alves falsely stated the amount of cash he had in his possession was $4,000 when in fact, Mr. Alves knew he possessed substantially more cash which he concealed from the bankruptcy court and creditors. The indictment further alleges that Mr. Alves engaged in a pattern of structuring bank deposits, totaling more than $100,000 in a 12 month period, for the purpose of evading reporting requirements. According to a detailed list in the indictment, from February 24, 2010 until May 12, 2011, Mr. Alves made a total of 64 bank deposits-each one between $5000 and $8100.
Not mentioned in the accouncement or the indictment is whether Mr. Alves’ bank notified FinCEN of these transactions by filing suspicious activity reports or SARs. The indictment dates all of the transactions and it isn’t suprising that the bank caught on to Mr. Alves activities. For example, Mr. Alves made a deposit almost every business day for nearly two months. Each deposit was shy of the standard trigger for reporting purposes, $10,000. Bank’s are instructed to report structured transactions when series of deposits in a short duration of time add up to an amount that would have otherwise been reported if deposited together. Furthermore, banks are prohibited from telling a person that they filed an SAR about them to FinCEN. Thus, Mr. Alves likely had no idea that the bank had sent the SAR to FinCEN where it was being processed by analysts who eventually coordinated with law enforcement officials about the transactions.
The indictment also indicates that the government is seeking forfeiture of two bank accounts currently seized. Pursuant to 18 U.S.C. 981(a)(1)(C), 28 U.S.C. 2461 and Federal Rules of Criminal Procedures Rule 32.2, the government is seeking to forfeit funds that Mr. Alves alledly concealed from the bankruptcy court and creditors. Pursuant to 31 U.S.C. 5317(c)(1)(A) and Rule 32.2 the government also seeks forfeiture of the funds involved in the structured transactions. The funds the government looks to forfeit amount to nearly $400,000.
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.
Twenty Individuals in Chicago, Some with Ties to the Zetas Cartel, Indicted on Federal Narcotics Charges
The U.S. Attorney’s Office for the Northern District of Illinois recently announced that 20 defendants are facing federal narcotics charges. Five of those indicted are alleged members of a Chicago-based cell of the Zetas Mexican drug cartel who were responsible for transporting millions of dollars in drug proceeds between Chicago and Mexico. The same day the defendants were arrested DEA and FBI agents seized $480,000 in cash and two kilograms of heroin. However, during the course of the investigation leading up to these arrests authorities seized $12.4 million in cash and approximately 250 kilograms of cocaine.
The 20 defendants were charged in five separate indictments returned by a federal grand jury on November 2 and unsealed following the arrests. Of the 20 defendants charged, five remain fugitives. All 20 were charged with various narcotics offenses, including conspiracy to possess and distribute quanities of cocaine and using a telephone to facilitate narcotics trafficking. The five with alleged ties to the Zetas drug cartel were part of an alleged “money transportation cell” and are being charged wtih conspiracy to transfer narcotics proceeds outside the United States. It is alleged that this money transportation cell would coordinate the transfer of money from places such as Chicago to Laredo, TX, and then from Laredo to Mexico. At the direction of the Zetas, one of the defendants would allegedly collect, process, and conceal the cash earned from narcotics sales. Other defendants would drive the cash south, while other defendants would allegedly identify and maintain the physical safe houses were the drug proceeds were secretly collected, packaged, and concealed.
Those charged in the 5 five indictments include Eduardo Trevino, Salvador Estrada, Miguel Arredondo, Juan Aguirre, Vicente Casares, Aureliana Montoya-Pena, Jesus Maria Carreno-Lechuga, Julio Morales-Soto, Antonio Quezada, Miguel Angel Hernandez, Alejandro Kader, Carlos Aaron Nevarez-Diaz, Evaristo Martinez Zamaniego, Manuel Estrada, Alvaro Torres-Estrada, Abel Galindo Herrarra, Noel Cano, David Aquirre, Adrian Herrera, and Margarito Lechuga.
Given the number of participants in the alleged conspiracies, litigation of the case will likely be complex. Of primary concern will be whether the drug distribution and money processing/transportation activities can be conceived of as a single operation known as a “chain conspiracy” linking several parties in one long criminal enterprise. If so, the prosectuion gains certain advantages such as charging all 20 defendants together (including those who were only minor participants with very little evidence against them), more venue options, an expanded scope of relevant evidence admissible at trial, and the use of hearsay statements at trial under the “co-conspirators exception” to the hearsay rule. Perhaps most damning to the individual defendants if they are all charged as part of the same conspiracy is that they can all be vicariously liable for the substantive criminal offenses committed by any other co-conspirators, even if the individual defendant doesn’t know the co-conspirator committing the offense.
In addition to these charges, federal authorities are seeking criminal forfeiture of approximately $13 million, including the $12.4 million already seized. With most of the funds already seized, the government only needs to commence its forfeiture action pursuant to Rule 32.2. If successful, the ownership of the money will be granted to the government as proceeds and instrumentalities of criminal conduct.
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.
FinCEN Proposes Reporting Requirement of International Transport of Prepaid Access Products at U.S. Borders
Furthering the U.S. Department of the Treasury’s efforts to address the potential misuse of prepaid access products, the Financial Crimes Enforcement Network (FinCEN) recently proposed adding certain tangible prepaid access devices to the list of monetary instruments to be reported when transported into or out of the United States. FinCEN’s proposal would add devices such as general use prepaid cards, certain gift cards, and potentially cell phones to the list of other monetary instruments that must be aggregated to determine if they exceed more than $10,000 and included on the Currency and Monetary Instrument Report (CMIR), the form used to report international transport of funds at U.S. borders. The proposal is intended to address certain devices that can be used as a substitute for currency, as they provide access to funds by any bearer of the device. This product attribute, as FinCEN’s cooperation and consultation with law enforcement has indicated, may enable the anonymous transfer or concealed transport of illicit funds across the U.S. border.
Excluded from the proposal are credit cards and debit cards, and codes and personal identification numbers or items like computers or web enabled cell phones, or other devices that are not dedicated to accessing specific prepaid funds.
“The proposal we’re releasing today is a further step in our staged approach, building upon our newly implemented regulations of prepaid access, in a coordinated effort with law enforcement to shine a light on the transfer of money obtained through illicit activity,” said FinCEN Director James H. Freis, Jr. “Reporting tangible prepaid access devices puts another tool at the disposal of law enforcement to interrupt the transfer of monetary value anonymously across international borders when that value was obtained illegally.”
Current regulations require that a CMIR be filed regarding the international transportation, mail, or shipment of currency or other monetary instruments – defined as coin or currency, traveler’s checks, checks, promissory notes, money orders in bearer form, and bearer bonds among others – in an aggregate amount that exceeds $10,000. FinCEN’s proposal will update U.S. reporting requirements, which have been in place since the 1970s, to reflect the emergence of new payment methods and monetary instruments that could be used to facilitate illicit financial activity.
While FinCEN was already developing regulatory proposals in this area, the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 required the issuance of regulations in final form implementing the BSA, regarding the sale, issuance, redemption, or international transport of stored value, including stored value cards. FinCEN defined prepaid access and included new regulatory requirements in July 2011, expanding beyond the previous framework for certain products known as “stored value.”
This proposal should serve as a warning to those who frequently travel with monetary instruments worth over $10,000. Travellers will need to accurately add up the total value of their monetary instruments and account for items such as gift cards, prepaid cards, and possibly even pre-loaded cell phones. If a traveller either fails to report or reports inaccurately their total value of monetary instruments, including these new items, such items can be seized by U.S. Customs and Border Protection and subsequently subject to forfeiture. Such seizures will make transporting money even more expensive by enabling the government to levy fines and penalties against travellers.
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. Citizen Indicted for Plotting to Attack Capitol, Pentagon, and U.S. Soldiers
On September 29, 2011, the U.S. Attorney’s Office for the District of Massachusetts indicted Rezwan Ferdaus, a 26 year old Northeastern University physics graduate. The indictment states that Mr. Ferdaus is accused of planning to commit acts of violence against the United States “with the goal of terrorizing the United States, decapitating its ‘military center,’ and killing as many [non-believers] as possible.”
Mr. Ferdaus has been specifically charged with 18 U.S.C. sections 844(f) for attempting to damage or destroy a Federal building, section 2155 for attempting to damage and destroy national-defense premises, section 844(d) for being in receipt and possesion of explosive materials, section 2339A for attempting to provide material support to terrorists, and section 2339B for attempting to provide material support to a designated Foreign Terrorist Organization (FTO). Mr.Ferdaus was also charged with 26 U.S.C. section 5861 for being in receipt of non-registered firearms.
Mr. Ferdaus thought he was meeting with members of al-Queda when in fact the individuals he was meeting with were undercover federal agents. Mr. Ferdaus revealed to federal agents that he extensively planned and took substantial steps to bomb the United States Pentagon and United States Capitol Building using remote controlled aircraft filled with explosives.
Mr. Ferdaus began designing and constructing detonation components for improvised explosive devices (IEDs) using mobile phones. These modified mobile phones were given to the undercover agents by Mr. Ferdaus who thought they were going to be used to kill U.S. soldiers overseas.
Mr. Ferdaus also requested firearms, ammunition, and explosives from the undercover agents whom he thought were al-Queda operatives. They provided him with C-4 explosives, AK-47 assault rifles and grenades. These items were needed for him to carry out a detailed plan to attack the Capitol and Pentagon with remote control aircraft that he shared with the undercover agents on two USB storage devices. The plans were highly detailed and contained “recon” photos of the proposed attack sites. As soon as Mr. Ferdaus was in receipt of these items he was arrested by federal law enforcement in Massachusetts.
If convicted on all counts, Mr. Ferdaus would face up to 80 years in prison and have any property linked to his criminal conduct subject to forfeiture. Had his conduct caused anyone to actually died, Mr. Ferdaus’ would be facing life in prison or even the death penalty.
What is apparent from this indictment is that the federal government is well prepared to deal with threats against the national security of the United States. With undercover agents and a series of effective criminal statutes, would-be terrorists often face many years in prison before their conduct actually harms anyone. However, investigators must conduct their sting operations carefully to ensure the target cannot utilize an entrapment defense.
Entrapment is a complete defense to a criminal charge on the theory that “government agents may not originate a criminal design, implant in an innocent person’s mind the disposition to commit a criminal act, and then induce commission of the crime so that the Government may prosecute.” Thus there are two elements to the defense: (1) inducment by the government; and (2) the defendant’s lack of predisposition to engage in the criminal conduct. From the facts alleged in Mr. Ferdaus’ indictment, it seems that an entrapment defense would be unsuccessful because he possessed the disposition to engage in criminal conduct. He authored the plans to attack U.S. buildings and soldiers while the government merely “facilitated” his plans by providing the hardware necessary.
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.
