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Four Indicted in Puerto Rico on Bank Fraud Charges
Last week, a federal grand jury indicted Raúl A. Morales-Guanill; Rafael Antonio Pina-Nieves, aka “Raphy Pina”; Orlando Javier Sierra-Mercado, aka “Chiquitín,” “Chiqui”; and Wilson Álvarez-Luna as a result of an investigation led by the Internal Revenue Service (IRS), in conjunction with the Federal Bureau of Investigation (FBI).
The individuals are charged in a 19-count indictment with conspiracy to commit bank fraud, conspiracy and aiding and abetting to submit false statements to a financial institution, and money laundering. The government is seeking a criminal forfeiture amount of $4,071,652.19 U.S. dollars.
According to the indictment, the individuals conspired and aided and abetted each other and others to submit false statements to a financial institution with the purpose of illegally obtaining money and funds from Doral Mortgage, a wholly owned subsidiary of Doral Bank of Puerto Rico. The events were initiated when Sierra-Mercado applied for a mortgage loan for residential property in Palmas del Mar, Humacao.
The IRS has devoted a significant amount of resources in the past several years towards investigating fraud involving financial institutions. The property is currently being foreclosed because Sierra-Mercado defaulted on his mortgage payments. The default may have actually prompted the scrutiny of the IRS in this case, since the alleged transactions relating to the fraud occurred in late 2007 and early 2008.
Through a series of transactions, each individual listed above has been connected to the allegations of fraud through a document and/or bank transaction related to the loan for the property Sierra-Mercado purchased. In total, three Puerto Rican banks were involved in addition to Doral Bank, including Western Bank, Banco Popular de Puerto Rico, and Banco Santander de Puerto Rico. Allegedly, the fraud resulted in a loss of over $4 million dollars.
Although the press release goes into detail regarding the transactions that serve as the basis for these allegations, the motivation of these individuals still seems unclear. Their motivation for the alleged scheme will play a significant role at trial because the government must prove that the individuals intended to enter the conspiracy to commit fraud.
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 SOUTHERN CALIFORNIA LOAN OFFICERS CHARGED IN MORTGAGE FRAUD SCHEME
On February 2, 2012, the U.S. Attorney’s Office for the Southern District of California indicted Simon Saed Alizadeh and Kian Ashkanizadeh for allegedly engaging in a mortgage fraud scheme involving four homes in Carlsbad, California. The indictment charges Alizadeh and Ashkanizadeh with conspiracy, wire fraud, mail fraud, and money laundering.
In a press release issued on February 14, 2012, U.S. Attorney Laura E. Duffy alleges that Alizadeh and Ashkanizadeh, working for the mortgage company Southern California Finance, asked family members to provide their name and signatures on mortgage applications, leading to the qualification of approximately $1 million in mortgage funding for each of the four properties.
According to the indictment, Alizadeh and Ashkanizadeh arranged for $200,000 in “consulting fees” and $45,000 in “construction fees,” but no consulting or construction was ever performed. It is alleged that the funds would first be channeled into the bank accounts of relatives and friends and then cause the funds to be transferred or withdrawn to their own accounts.
Alizadeh and Ashkanizadeh will appear before United States District Judge Irma E. Gonzalez for a motion hearing on April 3, 2012. Count 1 of the indictment charges Alizadeh and Ashkanizadeh with Conspiracy. The maximum penalty is up to five years imprisonment, and the greater of a $250,000 fine or twice the gross pecuniary gain or twice the gross pecuniary loss. Count two is for Mail Fraud, which carries a maximum sentence of twenty years imprisonment, and the greater of a $250,000 fine or twice the gross pecuniary gain or twice the gross pecuniary loss. Count three and four are for Money Laundering, which carries a maximum twenty years imprisonment, and the greater of a $250,000 fine or twice the gross pecuniary gain or twice the gross pecuniary loss. Counts five through eight are for Money Laundering, which carries a maximum penalty of twenty years imprisonment, and a fine for the greater of $500,000 or twice the value of the property involved in the transaction.
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.
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.
Former Portfolio Manager Charged with Fraudulently Overvaluing Hedge Fund Assets
The U.S. Attorney’s Office for the Southern District of New York announced that hedge fund portfolio manager Michael Balboa was arrested on December 1, 2011 on charges related to his alleged scheme to overvalue by more than $80 million the assets of Millennnium Global Emerging Credit Fund (the “Hedge Fund”), the hedge fund at which he was employed. Balboa, a resident of the United Kingdom, was arrested in New York City and was presented before U.S. Magistrate Judge Gabriel Gorenstein the same day. Mr. Balboa was also subject to an SEC complaint alleging many of the same facts. The case was referred to Justice for criminal prosecution.
As alleged, Balboa, along with co-conspirators, manipulated the valuation process at his former hedge fund to make it appear financially stronger than it really was and for his own personal gain. U.S. Attorney Preet Bhara stated that those actions of Balboa harmed the fund and deceived its investors.
The Indictment alleges that Balboa served as the portfolio manager for the Hedge Fund from December 2006 to October 2008, when it ceased operation. The Hedge Fund’s strategy was to invest in a portfolio of corporate and soveriegn debt instruments in emerging countries. The Hedge Fund utilized an independent valuation agent (the “IVA”) to determine its “net asset value” (“NAV”), which is the value of the Hedge Fund’s assets, less liabilities and estimated costs of sale/liquidation. The Hedge Fund referenced the role of the IVA in a variety of documents that were sent to its investors and prospective investors, including an offering memorandum, monthly newsletters, and responses to due diligence questionnaires (“DDQs”). In one DDQ, the Hedge Fund noted that “[t]here are no assets valued in house,” and that the IVA “calculates the NAV of [the Hedge Fund] independently of Millennium Global.” The Hedge Fund relied on the IVA’s determinations in advising its investors of the Hedge Fund’s month-end NAV and NAV per share.
From January 2008 through October 2008, Blaboa allegedly instructed two co-conspirators (“CC-1” and “CC-2”) to provide the IVA with substantially inflated prices for one of the Hedge Fund’s securities – payment-adjusted warrants from the Government of Nigeria (the “Nigerian Warrants”). CC-1 and/or CC-2 provided these overvalued prices to the IVA. Although the Nigerian Warrants traded between $145 and $258 from January 2007 to October 2008, CC-1 and/or CC-2 provided the IVA with price valuations or “marks” ranging from $531.25 to $3,500.00, at various times throughout this period. The IVA then used these falsely inflated marks in computing the monthly NAV for the Hedge Fund. This caused the IVA to overstate the NAV by tens of millions of dollars. These overstatements were communicated to investors through, among other things, monthly newsletters that outlined the NAV and NAV per share of the Hedge Fund.
Balboa is charged with one count of conspiracy to commit securities fraud and wire fraud, one count of securities fraud and one count of wire fraud. The conspiracy count carries a maximum sentence of five years in prison, and the substantive counts each carry a maximum sentence of 20 years in prison.
The investigation leading up to the charges Balboa now faces were brought in coordination with President Obama’s Financial Fraud Enforcement Task Force, an interagency task force designed to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. Individuals involved in the financial industry should strive to follow protocol at all stages of their dealings to avoid being caught up in an investigation by this formidable body.
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.
Massive Healthcare Fraud Takedown: 91 Defendants, $295 Million Scheme
Attorney General Eric Holder and Health and Human Services (HHS) Secretary Kathleen Sebelius announced that a nationwide takedown by Medicare Fraud Strike Force operations in eight cities has resulted in charges against 91 defendants, including doctors, nurses, and other medical professionals, for their alleged participation in Medicare fraud schemes involving approximately $295 million in false billing.
In recent years the government has ramped up enforcement to bring an end to Medicare fraud. The joint DOJ-HHS Fraud Strike Force is comprised of a multi-agency team of federal, state and local investigators. Accordingly, this massive takedown involved the work of approximately 400 law enforcement agents from the FBI, HHS-Office of Insepctor General, and other federal, state and local agencies. In addition to the 91 arrests, the Strike Force also executed 18 search warrants in connection with ongoing investigations. As if this massive takedown wasn’t already enough, the Strike Force arrested an additional 45 defendants the same day in Miami and in the past couple of months has charged 10 defendants in Baton Rouge, 6 defendants in Los Angeles, 18 defendants in Detroit, and 2 defendants in Houston.
This level of coordination is unmatched in other white collar/fraud related crimes. Thus, the government’s stubborn focus on preventing fraud should not be taken lightly by anyone in the healthcare industry. As Assistant Attorney General Breuer said at the press release, “as charged in these indictments, the defendants cover nearly the entire spectrum of healthcare providers, and perpetrated a variety of fraudulent schemes.” Since its inception in 2007, the Strike Force has operations in nine major cities across the nation and has charged more than 1,140 defendants who account for nearly $2.9 billion in false billings.
The best way to avoid being ensnared by a federal investigation is for healthcare providers to maintain aggressive Medicare fraud and abuse compliance programs. These internal corporate policies should, at the very least, be written and cover a wide range of corporate functions susceptible to fraud and abuse. Other critical elements to a successful compliance program include the designation of a compliance officer, conducting effective training and education, developing effective lines of communication, establishing internal enforcement procedures, auditing and monitoring, and maintaining a whistleblower/non-retaliation policy. Preventing all violations may be impossible, but that shouldn’t stop healthcare providers from establishing and faithfully administering an anti-fraud compliance program. With such a program in place, the government will tend to look the other way when technical violations of the law occur. This is a much better, and cheaper, outcome than being charged in a federal indictment.
Since Medicare is a federally funded program most defendants are charged with federal crimes and required to make appearances before a U.S. District Court judge. Indictments in these cases usually include “white collar” charges such as health care fraud, conspiracy to commit health care fraud, receipt of health care kickbacks, and money laundering. In addition, practically all of the defendants are subject to criminal forfeiture proceedings and required to pay restitution if convicted. These charges are very complex, time consuming, and expensive to defend against. Therefore for both compliance and defense purposes, healthcare providers should employ the services of an attorney that has an intimate understanding of the intersection between federal regulatory compliance and federal criminal defense.
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.
“Operation Stolen Dreams” & The Financial Fraud Enforcement Task Force Continues to Target Large Numbers of Mortgage Lenders
The Justice Department announced on July 6, 2011 the unsealing of a criminal information, charging four defendants – Louis Gendason, 42, of Delray Beach, Fla.; Kimberly Mackey, 46, of Pittsburgh; John Incandela, 24, and Marcos Echevarria, 29, both of Palm Beach, Fla. – with conspiracy to commit wire fraud involving a nation-wide reverse mortgage scam that defrauded elderly borrowers, financial institutions and the Department of Housing and Urban Development (HUD). A reverse mortgage allows borrowers, who are at least 62 years of age, to convert the equity in their homes into a monthly stream of income, or a line of credit. Three of the defendants made their initial appearances at the federal courthouse in Fort Lauderdale, Fla., earlier today. If convicted, the defendants each face a statutory maximum term of up to 30 years in prison and a fine of up to $1 million. These charges coincide with the one-year anniversary of “Operation Stolen Dreams,” the department’s anti-mortgage fraud enforcement initiative announced by Attorney General Eric Holder last June.
These latest charges demonstrate the department’s continued commitment to the identification and eradication of mortgage fraud. The scheme charged today contains many of the characteristics common to mortgage fraud around the country. The information charges Louis Gendason, John Incandela and Marcos Echevarria with using a Florida-based loan modification business known as Lower My Debts.com LLC as a front to identify elderly borrowers who were financially-vulnerable. They are alleged to have in their capacity as loan officers at 1st Continental Mortgage LLC solicited borrowers to refinance their existing mortgages with a reverse mortgage loan financed by Genworth Financial Home Equity Access Inc. To induce Genworth and HUD to fund and insure the reverse mortgage loans, the defendants allegedly changed the unwitting borrowers’ real estate appraisal reports to fraudulently represent equity in the properties. The information alleges that Gendason, Incandela and Echevarria originated fraudulent loans on properties located in seven different states between May 2009 and November 2010 exceeding $2.5 million.
As a further part of the charged conspiracy, a fourth defendant, Kimberly Mackey, a licensed title agent and proprietor of the Pittsburgh title agency Real Estate One Land Services Inc., fraudulently closed the Genworth loans by failing to pay off the seniors’ existing liens. Instead, Mackey wired nearly $1 million in Genworth loan proceeds to the business checking account for Lower My Debts.com. She conspired to conceal the fraudulent loan closings from financial institutions by preparing written settlement documents which falsely represented that the borrowers’ existing mortgages had, in fact, been paid off. In some instances, after Mackey wired the loan proceeds to bank accounts in Florida controlled by her co-conspirators, she is alleged to have assisted them with defrauding the banks holding the borrowers’ first mortgages by negotiating fake short sales. This was designed to induce these banks to release their valid liens on the seniors’ properties at a fraction of their existing loan balance. All of the defendants are accused of pocketing the illegally-obtained loan proceeds.
Initiated in June 2010, Operation Stolen Dreams targeted mortgage fraudsters throughout the country and was the largest collective enforcement effort ever brought to bear in confronting mortgage fraud. The operation was organized by the Mortgage Fraud Working Group of President Obama’s interagency Financial Fraud Enforcement Task Force, which was established to lead an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The President’s Financial Fraud Enforcement Task Force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. Operation Stolen Dreams targeted 1,517 criminal defendants nationwide, included 525 arrests, and involved an estimated loss of more than $3 billion. The operation has also resulted in 191 civil enforcement actions and the recovery of more than $196 million.
Needless to say, the federal government’s various enforcement agencies continue to work together to investigate fraud and find reasons to explain the economic collapse still plaguing the nation. A network of agencies as broad and well financed as the Fincancial Fraud Enforcement Task Force means that too many individuals will have their economic activities scrutinized. Thus, early intervention by an experienced federal defense attorney can mean the difference between an indictment and a dropped charge.
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.
Disadvantaged Defendants: Federal Conspiracy and U.S. Economic Sanctions
Conspiracy is frequently charged in federal criminal cases. In the simplest terms possible, a conspiracy exists whenever two or more people agree to commit a criminal offense. Since most white collar crimes involve multiple actors, U.S. Attorney’s commonly utilize conspiracy charges when indicting white collar defendants. For example, the federal government has recently indicted individuals and firms in the United Arab Emirates, France, U.S., and Iran for violating and conspiring to violate the Iran embargo and various U.S. export laws and fraud laws. Because the federal conspiracy law does not merge with the underlying offense being conspired, these defendants can serve sentences for both the underlying offenses and the overarching conspiracy charge. This is unlike other inchoates crime like attempt or solicitation, which merge into the underlying offense if the offense is actually completed. However, for many of the defendants in this case the possibility of serving time for a separate conspiracy charge is probably not the worst consequence of being charged with conspiracy.
The defendants in this case are most disadvantaged by the conspiracy charge because the government can now bring together at a single trial all defendants who were allegedly part of the conspiracy, including minor participants and those with little direct evidence against them. In a case as complex and far reaching as this one, a co-conspirator who served as a shipping clerk with little knowledge as to the scope of the conspiracy he was involved in can be tried alongside the sophisticated corporate officer who designed the entire scheme.
Another key disadvantage to defendants implicated in a large conspiracy is the expanded scope of evidence that can be used against them. First, the nature of a conspiracy charge expands the scope of relevant evidence that can be used against the defendants. For example, evidence as to any co-conspirators’ acts in furtherance of the conspiracy may be admissible in the trial that includes all the defendants. Second, co-conspirator statements made during and in furtherance of a conspiracy are admissible under the “co-conspirators exception” to the hearsay rule.
Additionally, a defendant charged with a conspiracy such as this one faces significantly expanded liability. This is because co-conspirators are often vicariously liable for the substantive offenses committed by other co-conspirators. In this case, the shipping clerk who signed forms with the understanding that the parts sent to France would end up in Iran would not only be liable for his own actions, but will also be liable for the actions of every other participant in the conspiracy, including any unlicensed money transfers, other willful evasions of the sanctions, frauds, etc.
The conspiracy also allows the government to bring the case in any district where the conspiratorial agreement was entered into or where any co-conspirator committed any act in furtherance of the conspiracy. This means that the government can choose to bring the case where it is most advantageous to the prosecutors or where it is least convenient for the defendants. In a global case such as this one, the government’s ability to choose from a long list of eligible sites for venue can be powerful.
Lastly, conspiracy also extends the the statute of limitations because the time does not begin to run until all the goals of the conspiracy have been accomplished or abandoned. For example, the statute of limitations for violations of IEEPA or the Iranian Transactions Regulations is five years, but as long as any one co-conspirator commits a single overt act every five years the conspiracy is considered ongoing and every co-conspirator remains indefinitely liable.
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.
DC Councilmember Harry Thomas Jr. Target of an Ongoing Criminal Investigation
On Monday June 6, 2011 the U.S. Attorneys Office for the District of Columbia confirmed for the first time that Councilmember Thomas, of Ward 5, is the focus of an ongoing criminal investigation. The potential allegations from this criminal investigation will likely mimic the alleged conduct in the $1 million civil lawsuit recently filed against Thomas by the District Attorney General on behalf of the Council.
After conducting a five-month investigation the Attorney General stated that more than $300,000 intended for youth baseball programs and other charitable purposes as part of the 2008 budget went to Thomas for his personal use. In 2000 Thomas co-founded a nonprofit called Team Thomas which purportedly ran children’s sports programs until it was dissolved last December. DC funds granted to the Langston 21st Century Foundation were allegedly distributed to Thomas through his nonprofit and for-profit organizations. Further, Thomas is also accused of soliciting more than $80,000 from private donors on behalf of nonprofit Team Thomas even though the organization was not registered in the city to do so.
Thomas used Team Thomas’ debit card to spend more than $20,000 on personal travel and entertainment, including trips to Pebble Beach and Las Vegas. Thomas also wrote thousands of dollars worth of checks drawn from his nonprofit to himself, his for-profit company, HLT Development, or to “cash.” He also used $58,000 worth of funds to buy an Audi SUV which is registered in his own name.
So what potential crimes could Thomas be charged with by the US Attorneys Office? First, the USAO will likely have the discretion to charge Thomas under either the federal or District criminal code because under 5 U.S.C. 4101, District employees are classified as federal employees. And since Thomas’ conduct pertains to his position as a member of the DC council the USAO will probably charge him with federal offenses.
A variety of federal embezzlement charges may be utilized against Thomas. For example 18 U.S.C. 643 criminalizes instances in which officers or employees of the U.S. don’t account for any public funds they were not authorized to retain. Additionally, Section 641 subjects anyone who knowingly converts something of value of the United States. Since DC funds can be qualified as federal funds, Thomas can also potentially open himself up to liability under this embezzlement statute. Both embezzlement statutes carry 10 year maximum sentences.
A charge that commonly accompanies embezzlement is tax evasion, and if Thomas failed to report these embezzled funds in his annual tax returns he will likely face criminal tax evasion charges. Tax evasion carries maximum penalties of $100,000 and 5 years imprisonment. In addition to tax evasion, Thomas’ conduct could possibly have included false statements with regards to the tax-exempt status of his nonprofit organization. The false statements in this instance would be criminalized under either 18 U.S.C. 1001 or 26 U.S.C. 72061. False statements carry a maximum sentence of 5 years for each violation. Accordingly, Thomas could face a false statement charge for each document or tax return he filed related to this conduct.
Thomas can also be charged with wire or mail fraud if he utilized the mails or wires to carry out his scheme or artifice. It is already apparent that he used his nonprofit organization’s debit card to carry out some of this misappropriation of funds. Mail and wire fraud are codified under Sections 1341 and 1343, respectively. Fraud carries a maximum a sentence of 20 years imprisonment.
It is going to be interesting to see what, if any, charges the USAO will bring against Thomas. But what is readily apparent is that if he is charged, he will face significant charges and potential jail time. Another interesting note will be to see if the USAO will learn more about its own criminal investigation by observing the civil trial filed by the Attorney General.
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.
