Showing posts with label EXECUTIVE CRIMES. Show all posts
Showing posts with label EXECUTIVE CRIMES. Show all posts

Thursday, December 4, 2014

FORMER EXECUTIVE PLEADS GUILTY IN KICKBACK SCHEME INVOLVING POWER CONTRACTS IN EGYPT

FROM:  U.S. JUSTICE DEPARTMENT
Thursday, December 4, 2014
Former Bechtel Executive Pleads Guilty in Connection with a $5.2 Million Kickback Scheme

The former Principal Vice President of Bechtel Corporation and General Manager of the Power Generation Engineering and Services Company (PGESCo) pleaded guilty today in connection with a $5.2 million kickback scheme intended to manipulate the competitive bidding process for state-run power contracts in Egypt.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Rod J. Rosenstein of the District of Maryland, Special Agent in Charge Stephen E. Vogt of the FBI’s Baltimore Division and Special Agent in Charge Thomas J. Kelly of the Internal Revenue Service-Criminal Investigation (IRS-CI) Washington D.C. Field Office made the announcement.

“Asem Elgawhary took more than $5 million in kickbacks from companies trying to manipulate a competitive bidding process in their favor,” said Assistant Attorney General Caldwell.  “Foreign corruption is an international scourge, and we will pursue those who take bribes, whether they are government officials or high-ranking corporate executives, like Elgawhary.  Every corruption conviction is a step towards rooting out and deterring this global problem.”

“Our economy is so global in this day and age that if we allowed corrupt practices overseas such as taking bribes in exchange for special consideration when comparing bids, it would seriously impact our international trade.  What Mr. Elgawhary admitted to doing has a dramatic affect on U.S. companies being able to expand and grow their work forces overseas in a fair market place, which in the long run hurts our economy,” said Special Agent in Charge Vogt of the FBI in Maryland and Delaware.  “He displayed his blatant disregard for our rule of law when he used a portion of the bribe payment to purchase a house for $1.6 million in cash.  This should send a message to others like Mr. Elgawhary, that hiding behind a foreign government won’t protect you from prosecution.”

“Mr. Elgawhary allowed greed to compromise his business practices by taking kickbacks to provide unfair advantages to companies willing pay for power contracts,” stated Special Agent in Charge Kelly of IRS-CI’s Washington D.C. Field Office.  “He compounded his criminal activities by failing to report any of the kickback payments as income on his tax returns.  It is imperative that honest companies know IRS Criminal Investigation will investigate and bring to prosecution those willing to line their pockets through unethical business practices.”

Asem Elgawhary, 73, of Potomac, Maryland, pleaded guilty today before U.S. District Judge Deborah K. Chasanow of the District of Maryland to mail fraud, conspiracy to commit money laundering, and obstruction and interference with the administration of the tax laws.  Sentencing is scheduled for Mar. 23, 2015.

In his plea agreement, Elgawhary admitted that, from 1996 to 2011, he was assigned by Bechtel – a U.S. corporation engaged in engineering, construction and project management – to be the general manager at PGESCo, a joint venture between Bechtel and Egypt’s state-owned and state-controlled electricity company (EEHC).  PGESCo assisted EEHC in identifying possible subcontractors, soliciting bids and awarding contracts to perform power projects for EEHC.  Elgawhary admitted to accepting a total of $5.2 million from three power companies, which they paid to secure a competitive and unfair advantage in the bidding process.  According to court documents, the power companies and their consultants paid more than $5.2 million in kickback payments into various off-shore bank accounts under the control of Elgawhary, including various Swiss bank accounts.

As Elgawhary admitted in his plea agreement, he attempted to conceal the kickback scheme by routing the payments through various off-shore bank accounts, including Swiss bank accounts, under his control.  Elgawhary also sent various documents and “Representation Letters” to Bechtel executives and members of the PGESCo Board of Directors in Maryland, falsely certifying that he had no knowledge of any fraud or suspected fraud at PGESCo, and that there were no violations or possible violations of law or regulations that should have been considered for disclosure in PGESCo’s financial statements.  Elgawhary also admitted that, in further attempt to conceal the scheme, he made misrepresentations to counsel for Bechtel when he was interviewed in April 2011.

Elgawhary also admitted to conspiring to launder the proceeds of the scheme and to obstructing and impeding the administration of U.S. tax laws by falsely claiming that he maintained only one foreign bank account, denying that he received any income from a foreign bank account, and failing to report any of the kickback payments as income for the tax years 2008 through 2011.

Elgawhary, a dual U.S. and Egyptian citizen, was arrested on a complaint when he flew into the United States on Nov. 26, 2013, and was indicted on Feb. 10, 2014.  

The case is being investigated by the FBI’s Baltimore Division and IRS-CI’s Washington D.C. Field Office.  Significant assistance was provided by the Criminal Division’s Office of International Affairs, and law enforcement counterparts in Switzerland, Germany, Italy, Saudi Arabia and Cyprus.  The case is being prosecuted by Assistant Chief Daniel S. Kahn of the Criminal Division’s Fraud Section and Assistant U.S. Attorney David I. Salem of the District of Maryland.  

Tuesday, September 2, 2014

FORMER EXEC SENTENCED TO PRISON FOR INVOLVEMENT IN $750 MILLION SECURITIES FRAUD SCHEME

FROM:  U.S. JUSTICE DEPARTMENT 
Friday, August 29, 2014
Former Arthrocare Executives Sentenced for Orchestrating $750 Million Securities Fraud Scheme
Former CEO and CFO Sentenced to 20 Years in Prison and 10 Years in Prison, Respectively

The former chief executive officer (CEO) of ArthroCare Corporation was sentenced to serve 20 years in prison, and the former chief financial officer (CFO) was sentenced to serve 10 years in prison today for their leading roles in a $750 million securities fraud scheme.   Two other former senior vice presidents of ArthroCare were also sentenced to prison terms for their roles in the scheme.  

Principal Deputy Assistant Attorney General Marshall L. Miller of the Department of Justice’s Criminal Division and Special Agent in Charge Christopher H. Combs of the FBI’s San Antonio Field Office made the announcement.   U.S. District Judge Sam Sparks in the Western District of Texas imposed the sentences.

“Earlier today, in federal court in Austin, Texas, we witnessed the culmination of an epic tale of greed,” said Principal Deputy Assistant Attorney General Miller.  “The CEO, CFO and two vice presidents of ArthroCare sentenced today ran a successful business, but they wanted more.  Their greed led to fraud, and their fraud caused investors to lose hundreds of millions of dollars.   At the Criminal Division of the Department of Justice, we are committed to prosecuting individuals who commit crimes to make money, whether they do so on street corners or in corner offices.  The aggressive pursuit of corporate executives  who commit fraud is at the core of our mission to  pursue justice and protect the American public.”

“This scheme of betrayal and deceit was carried out by the defendants without regard to the deep-reaching and irreparable harm their actions caused to thousands of victims, here in Texas, and throughout the United States,” said FBI Special Agent in Charge Combs.   “While it is important to recognize the financial losses sustained by all victims, which includes individual investors and institutional investment firms, many of the victims will never recover from the financial ruin caused by the defendants’ greed.  Many of the victims worked hard their entire lives, saving money for retirement or their children’s’ college funds.  Some were already living on fixed incomes and are now struggling to make ends meet.  The FBI will continue to aggressively work to uncover these fraud schemes in an effort to prevent future victimization and to protect the integrity of the securities and commodities market.”

On June 2, 2014, former ArthroCare’s CEO Michael Baker, 55, and former CFO Michael Gluk, 56, were convicted by a jury of wire fraud, securities fraud, and conspiracy to commit wire and securities fraud; Baker was also convicted of making false statements.   On June 24, 2013, John Raffle, 46, the former Vice President of Strategic Business Units, pleaded guilty to conspiracy to commit securities, mail and wire fraud, and two false statements charges.  On May 9, 2013, David Applegate, 55, the former Senior Vice President of the Spine Division, pleaded guilty to conspiracy to commit securities, mail and wire fraud, and a false statements charge.   At sentencing, the court found that investors lost approximately $756 million as a result of the defendants’ scheme to artificially inflate the share price of ArthroCare stock through sham transactions.

According to court documents, between 2005 and 2009, Baker, Gluk, Raffle and Applegate executed a scheme to artificially inflate sales and revenue through a series of end-of-quarter transactions involving several of ArthroCare’s distributors.  Products were shipped to distributors at quarter end based on ArthroCare’s need to meet Wall Street analyst forecasts, rather than distributors’ actual orders.  ArthroCare then fraudulently reported these shipments as sales in its quarterly and annual filings at the time of the shipment, enabling the company to appear to meet or exceed internal and external earnings forecasts.  ArthroCare’s distributors agreed to accept these shipments of millions of dollars of excess inventory in exchange for lucrative concessions from ArthroCare, such as upfront cash commissions, extended payment terms, and the ability to return products.  In some cases, like that of ArthroCare’s largest distributor, DiscoCare, the defendants agreed ArthroCare would acquire the distributor and the inventory so that the distributor would not have to pay ArthroCare for the products at all.  

Between December 2005 and February 2009, ArthroCare’s shareholders held more than 25 million shares of ArthroCare stock.   On July 21, 2008, after ArthroCare announced publicly that it would be restating its previously reported financial results to reflect the results of an internal investigation and account for the defendants’ fraud, the price of ArthroCare shares dropped from $40.03 to $23.21 per share.   On Dec.19, 2008, ArthroCare again announced publicly that it had identified more accounting errors and possible irregularities related to the defendants’ fraud.   That day, the price of ArthroCare shares dropped from approximately $16.23 to approximately $5.92 per share.

In addition to the underlying conduct, Baker was convicted of lying to the U.S. Securities and Exchange Commission during its investigation of the conduct.   The court further found, as part of sentencing, that Baker and Gluk each lied under oath during their trial testimony, in which they attempted to escape responsibility for their actions.

In addition to their prison terms, Baker and Gluk were sentenced to serve five years of supervised release.   In addition, the court ordered Gluk and Baker to forfeit $22,165,030, the amount of their profits from the scheme.

John Raffle was sentenced to serve 80 months in prison followed by three years of supervised release.   David Applegate was sentenced to serve 60 months in prison followed by three years of supervised release.

The case was investigated by the FBI’s San Antonio Field Office.  The case was prosecuted by Deputy Chief Benjamin D. Singer and Trial Attorneys Henry P. Van Dyck and William S.W. Chang of the Criminal Division’s Fraud Section.   The Department recognizes the substantial assistance of the Criminal Division’s Asset Forfeiture and Money Laundering Section and the U.S. Securities and Exchange Commission, as well as the critical role of the U.S. Attorney’s Office for the Western District of Texas, which provided invaluable support to the prosecution team during all phases of the litigation.

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