FORMER CONGRESSIONAL CAMPAIGN MANAGER SENTENCED FOR COORDINATED CAMPAIGN CONTRIBUTIONS AND MAKING FALSE STATEMENTS

FROM:  U.S. JUSTICE DEPARTMENT
Friday, June 12, 2015
Campaign Manager Sentenced to 24 Months for Coordinated Campaign Contributions and False Statements

A former campaign finance manager and political consultant was sentenced today in the Eastern District of Virginia to 24 months for coordinating $325,000 in federal election campaign contributions by a political action committee (PAC) to a congressional campaign committee.  This is the first U.S. prosecution based on the coordination of campaign contributions between political committees.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Dana J. Boente of the Eastern District of Virginia and Acting Special Agent in Charge Jennifer Leonard of the FBI Washington, D.C., Field Office’s Criminal Division made the announcement.

“The significant prison sentence imposed on Tyler Harber should cause other political operatives to think twice about circumventing laws that promote transparency in federal elections,” said Assistant Attorney General Caldwell.  “As the first conviction for illegal campaign coordination, this case stands as an important step forward in the criminal enforcement of federal campaign finance laws.  Illegal campaign coordination can be difficult to detect, which is why we strongly encourage party or campaign insiders to come forward and blow the whistle.”

“Campaign finance laws exist to guard against illegal activity such as coordinated campaign contributions,” said U.S. Attorney Boente.  “The citizens of the commonwealth of Virginia can rely on this office enforce federal campaign finance law.”

“As the 2016 election gears up, there may be others, similar to Mr. Harber, who may view campaigns as a venue to misappropriate funds,” said Acting Special Agent in Charge Leonard.  “With millions of dollars in play, donors should be aware of how their money will be spent prior to making a donation to a super Pac to ensure that their contributions are being legally expended.”

Tyler Eugene Harber, 34, of Alexandria, Virginia, previously pleaded guilty before U.S. District Judge Liam O’Grady to one count of coordinated federal election contributions and one count of making false statements to the FBI.

Harber was the campaign manager and general political consultant for a candidate for Congress in the November 2012 general election.  At the same time, Harber participated in the creation and operation of a PAC, which, unlike the campaign of an individual candidate, may raise and spend money in unlimited amounts from otherwise prohibited sources to influence federal elections so long as it does not coordinate expenditures with a federal campaign.

In connection with his guilty plea, Harber admitted, among other things, that he caused $325,000 in coordinated contributions by directing the PAC to purchase political advertising opposing a rival candidate.  Harber admitted that he knew this coordination of expenditures was unlawful.

Harber admitted that he used an alias and other means to deflect inquiries by a political party official.  He also admitted that he told multiple lies when interviewed by the FBI concerning his activities.

This case was investigated by the FBI’s Washington, D.C., Field Office’s Northern Virginia Resident Agency.  The case is being prosecuted by Director Richard C. Pilger of the Criminal Division’s Public Integrity Section Election Crimes Branch and Chief Mark D. Lytle of the U.S. Attorney’s Office of the Eastern District of Virginia’s Financial Crimes and Public Corruption Unit.    

LOUISIANA RESIDENT PLEADS GUILTY TO PIPELINE SAFETY VIOLATIONS AND FALSE STATEMENTS

FROM:  U.S. JUSTICE DEPARTMENT 
Wednesday, January 7, 2015
Pipeline Corrosion Monitor Pleads Guilty to Pipeline Safety Violations and False Statements

Randy Jones, 44, a former corrosion coordinator for Shell Pipeline Company L.P. (Shell), pleaded guilty in Milwaukee today to failing to conduct bi-monthly voltage readings and an annual survey of a pipeline used to transport jet fuel in violation of the Pipeline Safety Act (PSA) and making a false statement to the Pipeline and Hazardous Material Safety Administration (PHMSA).

Jones, a resident of Louisiana, pleaded guilty to knowingly failing to conduct required safety test between January and December 2011 and submitting false data to PHMSA. The violations were in connection with a pipeline owned by Shell that delivered commercial aviation jet fuel to General Mitchell International Airport in Milwaukee, Wisconsin.  In January 2012 a hole was discovered in the pipeline at Mitchell Airport after jet fuel began showing up in soil surrounding the airport and in nearby Wilson Creek.  Fuel eventually reached and melted asphalt on airport property.  Shell reported that approximately 9,000 gallons of jet fuel was released.  The response and cleanup cost for the spill was approximately $19.3 million.    

Jones was employed by Shell from 1992 through 2012. From 2010 until 2012, Jones was employed as a corrosion coordinator and was responsible for Shell pipelines servicing Mitchell and Chicago O’Hare airports. Jones failed to conduct the required testing for 2011 and when advised of an audit by PHMSA scheduled for December 2011, he submitted false data indicating the required test had been conducted.    

Consistent with requirements of the PSA, which establishes standards for the safe operation of the hazardous materials in pipelines, buried or submerged metal pipelines must be protected to prevent corrosion.  This involves the use of a device called a rectifier which applies a negative current to soil near the pipeline to keep corrosion away from the pipe.  The operator of the pipeline is required to conduct bi-monthly readings of the voltage generated from a rectifier and conduct an annual survey of the pipeline to insure that the pipeline is adequately protected from corrosion.  PHMSA is the primary agency responsible for regulating and enforcing the PSA.

An information charging Jones with two counts of violating the PSA and one false statement violation was filed on Nov. 14, 2014.  Under the terms of the plea agreement, each offense charged carries a maximum prison sentence of five years. The sentencing is set for April 30, 2015.

The case was investigated by the U.S. Environmental Protection Agency Criminal Investigation Division, U.S. Coast Guard Investigative Service, U.S. Department of Transportation Office of Inspector General, and FBI, with assistance from PHMSA.  The case was prosecuted by Jennifer A. Whitfield of the Environmental Crimes Section of the Department of Justice and Tracy M. Johnson of the U.S. Attorney’s Office for the Eastern District of Wisconsin.

SEC CHARGES ALLEN PARK, MICHIGAN WITH FRAUD INVOLVING MUNICIPAL BOND OFFERING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
November 6, 2014

The Securities and Exchange Commission announced fraud charges against the City of Allen Park, Mich., and two former city leaders in connection with a municipal bond offering to support a movie studio project within the city.

An SEC investigation found that offering documents provided to investors during the Detroit suburb’s sale of $31 million in general obligation bonds contained false and misleading statements about the scope and viability of the movie studio project as well as Allen Park’s overall financial condition and its ability to service the bond debt.

The city and the two officials – former mayor Gary Burtka and former city administrator Eric Waidelich – have agreed to settle the SEC’s charges.

“Municipal bond disclosures must provide investors with an accurate portrayal of a project’s prospects and the municipality’s ability to repay those who invest,” said Andrew J. Ceresney, Director of the SEC Enforcement Division.  “Allen Park solicited investors with an unrealistic and untruthful pitch, and used outdated budget information in offering documents to avoid revealing its budget deficit.”

The SEC alleges that Burtka was an active champion of the project and in a position to control the actions of the city and Waidelich with respect to the fraudulent bond issuances.  Based on this control, the SEC charged Burtka with liability for violations committed by the city and Waidelich.  This is the first time the SEC has charged a municipal official under a federal statute that provides for “control person” liability.  Burtka has agreed to pay a $10,000 penalty.

“When a municipal official like Burtka controls the activities of others who engage in fraud, we won’t hesitate to use every legal avenue available to us in order to hold those officials accountable,” said LeeAnn Ghazil Gaunt, Chief of the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit.

According to the SEC’s administrative order against Allen Park and its complaints against Burtka and Waidelich filed in federal court in Detroit, the city began planning the studio project in late 2008 with the belief it would bring much-needed economic development.  The state of Michigan had just enacted legislation that provided significant tax credits to film studios conducting business in Michigan.  The original plan detailed a $146 million facility with eight sound stages led by a Hollywood executive director, and the city initially planned to repay investors with $1.6 million in revenue from leases at the site.  Allen Park issued bonds on Nov. 12, 2009, and June 16, 2010, to raise funds to help develop the site.

The SEC’s order finds, however, that by the time the bonds were issued, Allen Park’s plans to implement and pay for the studio project had deteriorated into merely building and operating a vocational school on the site.  Yet none of these plan changes were reflected in the bond offering documents or other public statements, which continued to repeat the original plans for the movie studio project.  Investors were left uninformed not only about the deterioration of the project itself, but also the substantial impact it would have on the city’s ability to service the bond debt.  Without the planned revenues from the studio project, the expected annual debt payments on the bonds represented approximately 10 percent of the city’s total budget.  Furthermore, Allen Park used outdated budget information in the bond offering documents that did not reflect the city’s budget deficit of at least $2 million for fiscal year 2010.  The studio project completely collapsed within months after the second set of bonds were issued, and Michigan appointed an emergency manager for Allen Park in October 2010 while citing the failed project as a primary factor in the city’s deteriorating economic condition.

The SEC’s complaints allege that Waidelich as city administrator reviewed and approved the offering documents for the bonds.  Waidelich’s actions violated Section 17(a)(2) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(b).  Without admitting or denying the allegations, Waidelich has consented to a final judgment barring him from participating in any municipal bond offerings and enjoining him from future violations.  The SEC alleges that Burtka is liable as a control person under Section 20(a) of the Exchange Act, based on his control of Waidelich and the city.  Without admitting or denying the allegations, Burtka consented to a final judgment requiring him to pay the $10,000 penalty, barring him from participating in any municipal bond offerings, and enjoining him from future violations.

The SEC’s order against Allen Park finds it violated Section 17(a)(2) of the Securities Act and Section 10 (b) of the Securities Exchange Act and Rule 10b-5(b).  The city agreed to cease and desist from future violations of those provisions.  The SEC considered certain remedial measures taken by the city, which settled the enforcement action without admitting or denying the findings.

The SEC’s investigation was conducted by Sally J. Hewitt of the Municipal Securities and Public Pensions Unit with assistance from John E. Birkenheier, John E. Kustusch, and Jean M. Javorski in the SEC’s Chicago Regional Office and Mark R. Zehner, Deputy Chief of the Municipal Securities and Public Pensions Unit.

EMPLOYEE OF DEA AND HUSBAND PLEAD GUILTY IN FAKE KIDNAPPING CASE INVOLVING U.S. EMBASSY IN BOGOTA, COLUMBIA

FROM:  U.S. JUSTICE DEPARTMENT

Friday, May 30, 2014

DEA Employee and Contractor Husband Plead Guilty to False Statements in Kidnapping Hoax

Nydia L. Perez and John A. Soto, both 44, of Haymarket, Virginia, pleaded guilty to one count of making false statements to law enforcement officials in federal court on Friday, announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and Assistant Director for International Operations John Boles of the FBI.

According to the plea agreement, in December 2013, Perez, an employee of the Drug Enforcement Administration, and her husband Soto, a private contractor in the United States Embassy in Bogotá, Colombia, designed and executed a hoax with the intention of defrauding the United States Embassy in Bogotá.   As part of the hoax, Perez and Soto fabricated a plot to kidnap minors who are United States citizens.

According to court filings, Perez and Soto sent, through electronic mail and courier services, information about a purported threat to the safety of minor United States citizens in Bogotá.   Perez and Soto added detailed descriptions of the targeted United States citizens, including information about their whereabouts and daily routines.   Perez and Soto included photographs of the citizens in order to enhance the seriousness of the threat, and attempted to implicate innocent individuals in the kidnapping plot.   Perez and Soto made numerous false representations to law enforcement and security officials in furtherance of the fabricated kidnapping plot.

Sentencing before U.S. District Judge Amy Berman-Jackson is scheduled for Aug. 21, 2014.

The investigation was conducted by the FBI Legal Attaché in Bogotá and the Extra-Territorial Squad of the FBI Miami Field Office.   Also participating in the investigation were the DEA, the U.S. Embassy Bogota Regional Security Office, and the U.S. Embassy Bogota Force Protection Detail.   The Department is grateful for the assistance of the Colombia National Police Directorate of Anti-Kidnapping and Anti-Extortion.

THREE INDICTED IN $190 MILLION MEDICARE FRAUD CASE

FROM:  JUSTICE DEPARTMENT 
Thursday, January 30, 2014
Three Miami Residents Indicted for Alleged Roles in $190 Million Medicare Fraud Scheme
Three Miami residents have been indicted for their alleged participation in a $190 million Medicare fraud scheme.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division; U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida; Special Agent in Charge Michael B. Steinbach of the FBI’s Miami Field Office; and Special Agent in Charge Christopher B. Dennis of the U.S. Health and Human Services Office of Inspector General (HHS-OIG) Office of Investigations Miami Office made the announcement after the indictment was unsealed.

On Jan. 28, 2014, a federal grand jury in Miami returned a 10-count indictment charging Nelson Rojas, 43, Roger Bergman, 64, and Rodolfo Santaya, 54, for allegedly participating in a scheme to defraud Medicare by submitting false and fraudulent claims, from approximately December 2002 to October 2010.

Rojas was charged with conspiracy to pay and receive bribes and kickbacks in connection with a federal health care program, conspiracy to commit money laundering, two counts of money laundering and one count of aggravated identity theft.  Bergman and Santaya were each charged with conspiracy to commit health care fraud and wire fraud.  In addition, Bergman was charged with conspiracy to make false statements relating to health care matters.  Santaya was also charged with conspiracy to pay and receive bribes and kickbacks in connection with a federal health care program, as well as two counts of receiving bribes and kickbacks in connection with a federal health care benefit program.

According to the indictment, Rojas, Bergman and Santaya allegedly participated in a scheme orchestrated by the owners and operators of American Therapeutic Corporation (ATC) and its management company, Medlink Professional Management Group Inc.  ATC and Medlink were Florida corporations headquartered in Miami.  ATC operated purported partial hospitalization programs (PHPs), a form of intensive treatment for severe mental illness, in seven different locations throughout South Florida.  Both corporations have been defunct since October 2010.

The indictment alleges that Bergman was a licensed physician’s assistant who participated in the scheme by, among other things, admitting Medicare beneficiaries to ATC facilities for PHP treatment even though they did not quality for such treatment and falsifying patient records to make it appear as though patients needed, qualified for and actually received legitimate PHP treatment when they did not.  The indictment alleges that Santaya served as a patient recruiter who provided ineligible patients to ATC in exchange for kickbacks.  The indictment alleges that Rojas was the co-owner of a check cashing business and that he facilitated the payments of bribes and kickbacks from ATC to various patient recruiters.

ATC, Medlink and various owners, managers, doctors, therapists, patient brokers and marketers of ATC and Medlink have pleaded guilty or have been convicted at trial.  In September 2011, ATC owner Lawrence Duran was sentenced to 50 years in prison for his role in orchestrating and executing the scheme to defraud Medicare.

The charges and allegations contained in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

The case is being investigated by the FBI and HHS-OIG and was brought as part of the Medicare Fraud Strike Force, under the supervision of the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Southern District of Florida.  The case is being prosecuted by Assistant Chief Robert A. Zink and Trial Attorney Nicholas E. Surmacz.

Since their inception in March 2007, Medicare Fraud Strike Force operations in nine locations have charged more than 1,700 defendants who collectively have falsely billed the Medicare program for more than $5.5 billion.  In addition, the HHS Centers for Medicare and Medicaid Services, working in conjunction with the HHS-OIG, are taking steps to increase accountability and decrease the presence of fraudulent providers.

AN AMERICAN AND AN AUSTRAILIAN CHARGED IN BIOFUELS FRAUD SCHEME

FROM:  JUSTICE DEPARTMENT 
Thursday, January 16, 2014
Two Men Charged in Las Vegas with Biofuels Fraud Scheme

Two men have been indicted by a federal grand jury in Las Vegas for offenses involving the federal renewable fuel program that allegedly netted them more than $37 million, announced the Justice Department’s Environment and Natural Resources Division, Criminal Division, and the U.S. Attorney’s Office for the District of Nevada.   The 57-count indictment against James Jariv, 63, of Las Vegas, and Nathan Stoliar, 64, of Australia, includes allegations of conspiracy, wire fraud, false statements under the Clean Air Act, obstruction of justice and conspiracy to engage in money laundering.

The indictment was unsealed late Wednesday following Jariv’s initial appearance in federal court in Las Vegas, which followed his arrest on Tuesday.   Stoliar resides in Australia.

The Energy Independence and Security Act of 2007 created a number of federally-funded programs that provided monetary incentives for the production of biodiesel and to encourage biodiesel use in the United States.   Biodiesel producers and importers could generate and attach credits known as “renewable identification numbers” or RINs to biodiesel they produced or imported.   Because certain companies need RINs to comply with regulatory obligations, RINs have significant market value.   In addition, in order to create an incentive for biodiesel in the United States to be used in the United States, anyone who exports biodiesel is required to obtain these valuable RINs and provide them to EPA.   The market price charged for exported biodiesel therefore includes the value an exporter is required to later spend to acquire these RINs.

The indictment alleges that beginning around June of 2009, the two defendants, James Jariv and Nathan Stoliar, operated and controlled a company -- City Farm Biofuel in Vancouver, British Columbia, Canada -- that held itself out as a producer of biodiesel from “feedstocks” such as animal fat and vegetable oils.   Jariv also operated and controlled a company based in Las Vegas, Nevada, called Global E Marketing.   The government alleges that these defendants claimed to produce biodiesel at the City Farm facility, claimed to import and sell biodiesel to Global E Marketing, and then generated and sold RINs based upon this claimed production, sale and importation.   In reality, little to no biodiesel produced at City Farm was ever imported and sold to Global E Marketing as claimed.   The indictment alleges that the defendants’ scheme allowed them to generate approximately $7 million in RINs that were fraudulent, which were then sold to companies that needed to obtain them.

The indictment also alleges that, beginning around the same time period and continuing through Dec. 31, 2013, the defendants, using their company MJ Biodfuels, bought over 23 million gallons of RIN-less biodiesel that had been blended with small amounts of petroleum diesel, known as B99, from companies in the United States.   The defendants sold some of this biodiesel to purchasers in the United States, claiming it was pure biodiesel, known as B100, produced at the City Farm facility and imported into the United States.   By claiming this biodiesel was B100 and not RIN-less B99, the defendants were able to claim the fuel was eligible to be used to generate credits and incentives, and were able to sell the fuel for significantly more than they otherwise would have been able.   The defendants also exported the RIN-less B99 they bought in the United States to Canada.   The defendants then sold the biodiesel in Canada, and conspired not to acquire and provide RINs for these exports to the United States as they were required to do, but instead to keep the money they received from the sales for themselves.   The indictment alleges that, in doing so, the defendants failed to give to the United States RINs worth in excess of $30 million, keeping this money for themselves instead.

The indictment alleges that the defendants created false records and made false statements to conceal their fraudulent claims of biodiesel production, importation, sale and fraudulent RIN generation.   Finally, the indictment alleges that the defendants engaged in a conspiracy to launder the proceeds of their crimes, utilizing foreign banking institutions and complex financial transactions to conceal the illegal nature of the funds they received, and to attempt to protect these funds from government enforcement.   Today the United States also seized and restrained the assets contained in a number bank accounts utilized by the defendants, as well as several pieces of real and personal property in Las Vegas, Nevada.

An indictment is only a charge and is not evidence of guilt.   All defendants are presumed innocent and are entitled to a fair trial at which the government must prove guilt beyond a reasonable doubt.

The collaborative investigation that led to today’s arrest and seizures was the result of work by the EPA’s Criminal Investigation Division and the FBI, with assistance from the United States Secret Service and the Department of Homeland Security.

The case is being prosecuted by Senior Trial Attorney Wayne D. Hettenbach of the Environmental Crimes Section of the Justice Department’s Environment and Natural Resources Division , Assistant U.S. Attorneys Crane M. Pomerantz and Daniel D. Hollingsworth of the U.S. Attorney’s Office in Nevada, and Trial Attorney Darrin L. McCullough of the Justice Department’s Criminal Division, Asset Forfeiture and Money Laundering Section, with the assistance of the Justice Department’s Office of International Affairs.

CDOs AND MISREPRESENTATION

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Dec. 17, 2012 — The Securities and Exchange Commission today charged a Connecticut-based investment adviser with falsely stating to clients that it was co-investing alongside them in two collateralized debt obligations (CDO).

The SEC’s investigation found that Aladdin Capital Management’s co-investment representation was a key feature and selling point for its Multiple Asset Securitized Tranche (MAST) advisory program involving CDOs and collateralized loan obligations (CLOs). For example, Aladdin Capital Management asked in one marketing piece, "Why is an investor better off just investing in Aladdin sponsored CLOs and CDOs?" It then emphasized that the "most powerful response I can give to your question is that Aladdin co-invests alongside MAST investors in every program. Putting meaningful ‘skin in the game’ as we do means our financial interests are aligned with those of our MAST investors." Aladdin Capital Management in fact made no such investments in either CDO, and its affiliated broker-dealer Aladdin Capital collected placement fees from the CDO underwriters.

Aladdin Capital Management and Aladdin Capital agreed to pay more than $1.6 million combined to settle the SEC’s charges. One of the firms’ former executives Joseph Schlim agreed to pay a $50,000 penalty to settle charges against him for his role in the misrepresentations.

"If you sell an investment with the pitch that you are co-investing and have ‘skin in the game,’ then you better actually have ‘skin in the game,’" said Robert Khuzami, Director of the SEC’s Enforcement Division. "Such a representation by an investment adviser or broker-dealer is an important consideration to investors in complex products."

Kenneth Lench, Chief of the SEC Enforcement Division’s Structured and New Products Unit, added, "Aladdin marketed these CDOs via the co-investment representation, but then did not take steps to ensure that the representation was accurate. This action demonstrates our continuing commitment to holding market participants, including individuals, responsible for their misconduct leading up to the financial crisis."

According to the SEC’s orders instituting settled administrative proceedings, Aladdin Capital Management’s clients committed to investing in upcoming CDO deals that would be managed by the firm. Aladdin Capital Management inaccurately informed a municipal retirement plan, a pension plan, and an individual entrepreneur that it would co-invest alongside them. After those three clients invested in the two CDOs, Aladdin Management erroneously continued to inform clients from 2007 to 2010 that the firm had skin in the game.

According to the SEC’s order against Schlim, he was significantly involved in the MAST program on a day-to-day basis. He made sales calls to potential clients and negotiated with CDO and CLO underwriters about the amount of equity in those securities that Aladdin Capital could place with customers or purchase for itself. Schlim also negotiated the placement fees to be received by Aladdin Capital for securing MAST investments in equity tranches of each CDO or CLO.

The SEC found that Schlim knew that Aladdin used the co-investment representation as a significant marketing feature in its pitches to clients, but he failed to take any action to ensure that such representations were accurate when they were made. As the CFO of Aladdin, Schlim was responsible for reserving funds for Aladdin to co-invest alongside its MAST clients, yet he failed to ensure that funds were reserved or allocated for any co-investments alongside clients in either CDO.

Aladdin Capital Management and Schlim agreed to cease-and-desist orders without admitting or denying the SEC’s allegations. The Aladdin entities agreed to jointly pay $900,000 in disgorgement, $268,831 in prejudgment interest, and a $450,000 penalty. Schlim agreed to pay a $50,000 penalty.

The SEC’s investigation was conducted by James Goldman, Neil Smith, Kathleen Shields, and Kenneth Leung in the SEC’s Boston Regional Office. Mr. Goldman is a member of the Structured and New Products Unit. Mr. Leung participated in a related SEC examination of Aladdin Capital Management.