May 2011 Archives

Nashville Man Sentenced to Federal Prison for Involvement in Ponzi Scheme

Nashville, Tennessee area resident, Barron A. Mathis, 30, who was the former Vice-President of J.C. Reed & Co., Inc., was sentenced on May 20, 2011, by United States District Court Judge Aleta Trauger to 72 months in prison, and ordered to pay $2,823,091.06 in restitution, according to a press release from Jerry E. Martin, United States Attorney for the Middle District of Tennessee. U.S. Attorney Martin said, "Mathis stole the hard-earned money of individuals without any consideration for the destruction caused to the lives of his victims. Mathis repeatedly encouraged people to invest by falsely promising security, growth and returns on their money, but instead the investors lost their savings as part of an elaborate Ponzi scheme."

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The press release alleges that Mathis served at various times as a director, vice president, president, and portfolio manager of J.C. Reed, a financial services company located in Franklin, Tennessee. The company, J.C. Reed, operated a residential mortgage originating business and brokered a variety of marketable securities, including certificates of deposit, private placements, partnerships, and mutual funds. John C. Reed, who is now-deceased, was the founder of J.C. Reed. Prior to his death in 2008, Reed and Mathis conspired to devise a scheme to defraud investors who deposited funds with J .C. Reed by soliciting and obtaining money from clients, friends, and acquaintances and falsely promising to invest and manage the money in growth-oriented, traditional instruments, such as investments with fixed annual returns, or in established marketable securities.

The press release further states that customers were solicited by Mathis to purchase J.C. Reed stock. Mathis represented that the stock was a safe investment; however, Mathis was aware that the purchase of J.C. Reed stock was a high-risk investment and that J.C. Reed clients, who were mostly elderly and unsophisticated growth-oriented investors, would not have invested in the stock but for his false assurances. Mathis falsely assured customers that J.C. Reed was profitable and "making money." However, as Mathis well knew, J.C. Reed was not profitable, and virtually all of its operating capital was received from shareholder investments. Mathis also falsely represented to investors that a market existed for J.C. Reed stock and that their investment in J.C. Reed stock would increase in value and be readily redeemable. However, Mathis knew that no market existed for J .C. Reed stock and that no realistic possibility existed for the redemption of J.C. Reed stock other than redemption by family or friends of Reed.

Mathis was paid a commission for identifying and soliciting new clients for investment. Whenever he successfully solicited a new investor, Mathis would deposit the investor's funds into a "discretionary account" with J .C. Reed, thus enabling him to control purchases and sales within the account with few limitations. Mathis frequently used his discretionary authority to liquidate traditional investments from various client portfolios and used the funds to purchase shares of J.C. Reed stock, all without the knowledge or authorization of J.C. Reed clients. At various times, he also withdrew or liquidated assets from individual client accounts and used the funds to make investment purchases for the accounts of other clients or to open new client accounts. In order to disguise his unauthorized purchases and sales of client securities, Mathis created fraudulent invoices, forged client signatures on trading documents, and prepared fictitious account statements that falsely reported client investment holdings.

East Tennessee Residents Charged with Copyright Infringement and Social Security Fraud

Last week, a federal grand jury in Greeneville, Tennessee, returned a five-count indictment against Tennessee residents Richard and Melissa Arnold of Hampton, Tennessee, Kristen Bailey of Erwin, Tennessee, and Reginald Garner of Johnson City, Tennessee, for conspiracy to infringe copyrights and conspiracy to traffic in counterfeit labels. Richard Arnold was also indicted for defrauding the Social Security Administration.

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Criminal copyright infringement is primarily governed by 17 U.S.C. § 506, and counterfeit labels are addressed at 18 U.S.C. § 2318. Social Security Fraud is generally governed by 42 U.S.C. § 1383a and false statements related thereto are covered at 18 U.S.C. §1001(a).

The Indictment against these 4 defendants alleges that from in or about late 2004 or early 2005 to on or about May 24, 2010, two of the defendants made copies of copyrighted motion pictures and of the labels for said copyrighted motion pictures. These same two defendants would sell copies of copyrighted motion pictures and labels to various purchasers. Additionally, these two defendants would "front" copies of copyrighted motion pictures to the other two defendants,who would further distribute the movies to purchasers in exchange for money. The Indictment alleges that the copyrighted movies were obtained from a variety of sources, including rentals and internet downloads. Once obtained, the movies were burned on to DVD's and distributed to willing purchasers.

To make matters worse, one of the defendants, Richard Arnold, was charged with Social Security Fraud for allegedly defrauding the government out of nearly $60,000 in Social Security Disability Insurance ("SSDI") benefits, and making false statements related to same. Specifically, Mr. Arnold is accused of willfully making a false statement and
representation of material fact for use by the Social Security Administration in determining rights to SSDI payments. The Indictment alleges that via a letter in response to a request from SSA for completion of a Work Activity Report (SSA Form 820-F4), received by SSA on April 21, 2010, Mr. Arnold falsely stated "Have not worked since 2000," when in truth and in fact, the prosecution now claims that he had worked since at least late 2004 or early 2005 in the reproduction and distribution of copies of copyrighted material.

Federal Criminal Tax Prosecutions: Georgia Style

As I mentioned in an earlier blog post, federal tax evasion and tax fraud charges typically increase near the tax filing deadline each year. The Dept. of Justice and the IRS have made it clear that they believe that creating public awareness of tax fraud and tax crimes is an important part of their mission. Or to hear it directly from the horse's mouth, IRS Criminal Investigation Special Agent Reginael McDaniel said, "One of the primary missions at IRS Criminal Investigation is to deter tax fraud through education and publicity. I believe that public awareness is a critical element in deterring potential tax fraud, and by educating the public about tax scams and publicizing that offenders are caught and punished, we hope to prevent individuals from taking that fateful step. With the April 18th tax deadline looming, it is important for taxpayers to have confidence that when they pay their taxes, everyone else will do the same."

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Along these lines, the U.S. District Attorney's Office for the Northern District of Georgia released a press release highlighting recent criminal tax cases that they were handling. Let's take a look at a few of them:

* Jeff Guinn, 45, of Monroe, Georgia, was convicted by a jury on March 25, 2011, of willfully failing to file income tax returns. GUINN, a plumber who owned his own business, and was a member of the "American Rights Litigators" tax protest group, refused to file federal income tax returns for 2003 through 2006. GUINN asserted that he did not file the returns because he believed the Internal Revenue Code did not apply to him, and that he felt under the Constitution that he was entitled to keep one hundred percent of his income. The jury deliberated for less than two hours before finding him guilty on all 4 counts of willfully failing to file federal income tax returns.

* Lashanze Sharief, 37, of Snellville, Georgia, was charged on April 14, 2011, in a Criminal Information with three felony counts, including filing false tax returns, wire fraud, and aggravated identity theft in connection with a scheme to file fraudulent federal and state tax returns using the names and identifying information of deceased individuals. The Information charged that SHARIEF filed fraudulent returns claiming federal and state tax refunds amounting to $ $466,640.00.

* Deidra McClendon, 37, of Atlanta, Georgia, pleaded guilty on April 4, 2011, before United States District Judge Marvin S. Shoob to charges of filing false tax claims, identity theft and use of a social security number to commit a crime. She admitted using fraudulent 1099 earnings statements and submitting them in support of tax returns of various individuals who were unaware that their personal information was being used to file and obtain tax returns. In 2007, McCLENDON used a fraudulent 1099 form and filed a tax return for the 2006 tax year on behalf of her own mother who died in 2005.

* Dalawni Hollomon, 42, of Snellville, Georgia, pleaded guilty on February 28, 2011, to a three-count Criminal Information charging her with filing false tax returns, wire fraud, and aggravated identity theft in connection with a scheme to file fraudulent federal and state tax returns using the names and identifying information of deceased individuals. HOLLOMON admitted filing returns requesting federal and state tax refunds amounting to $488,872.00.

Former Air Force Soldier Sentenced to 15 Years for Paying to Watch 4-year-old Engage in Sexual Activity

In Federal District Court in Atlanta, Georgia, former Air Force Sergeant Charles Caley was sentenced to federal prison by United States Senior District Court Judge J. Owen Forrester for enticing several minors to engage in sexually explicit acts that he viewed via webcam while he was posted to a U.S. Air Force base in Italy. The Defendant has already been court martialed by the Air Force for related child pornography charges and is already serving a 13-month term for those crimes. Following his release from federal prison, the Defendant will be subject to lifetime supervised release and be required to register as a sex offender.

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According to a press release from the U.S. Attorney's Office in the Northern District of Georgia, the Defendant began chatting online with the mother of one of the victims, a woman who lived in Bremen, Georgia. At that time, the Defendant was a master sergeant in the United States Air Force, assigned to the U.S. air base in Aviano, Italy. As the Defendant and the victim's mother became more intimate through online communications, they began to express shared interests in underage and incestual sexual acts. Eventually, in exchange for money, the mother was making her four-year old daughter "available" to the Defendant online, where he would observe the victim as she engaged in a variety of sexually explicit acts.

This pay-per-view scheme expanded at one point to include two other older juvenile females who would frequent the victim's household. The Defendant, again through the webcam, observed these two girls in sexually suggestive poses as well.

The younger victim's mother has already pleaded guilty to distributing child pornography and is currently in federal prison.

United States Attorney Sally Quillian Yates said, "This case sadly and starkly illustrates the global reach the Internet has given to pedophiles. The defendant, while being paid by American taxpayers to live and work in Italy, used government resources to gain access to a very young child living here in Georgia to engage in sexually explicit acts -- acts he observed in real-time while he was online. I commend the hard work by the Air Force, the FBI, and the prosecutors of this office in bringing this man to justice."

Federal Prosecutors Indict 9 Defendants in East Tennessee Prostitution Organization

Prostitution charges are typically the domain of State and local law enforcement, but yesterday prosecutors in Greeneville, Tennessee, unveiled an indictment charging 9 defendants with several federal prostitution-related charges, including conspiracy to transport prostitutes in interstate commerce (18 U.S.C. § 2421), conspiracy to induce interstate travel for prostitution (18 U.S.C. § 2422(a)), and conspiracy to operate brothels with illegal aliens (18 U.S.C. § 2424), among others.

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According to the allegations in the Indictment, here are some of the highlights of the operation:
1. The Defendants recruited Spanish-speaking women who illegally entered the United States and engaged them to become prostitutes.
2. The defendants handled the prostitutes, keeping a prostitute in one location for a week at a time. The prostitutes worked Monday through Saturday and traveled between cities on Sundays. Most of the defendants' prostitutes began working at 1:00 p.m. and worked through midnight, six days per week. The defendants' prostitutes were generally expected to engage in sexual intercourse with 30 customers per day
3. Alleged customers paid the defendants $30 for fifteen minutes of sexual intercourse with a prostitute.
4. The defendants advertised their brothels and prostitution delivery services via word of mouth in the Spanish-speaking communities in the foregoing cities and via business cards printed in Spanish. The business cards used code words for prostitution services including but not limited to, haircuts, flowers, and appetistas.
5. The brothels were located in various locations in Alabama, Georgia, Tennessee, Kentucky, and South Carolina.

Knoxville News Sentinel writer Natalie Alund reports that the indictment was the result of a 5-month investigation. In the article, Hamblen County Sheriff Esco Jarnagin claims that "The women were enticed to come here and paid to enter on the pretense they had an upstanding job or at least a law-abiding job. Once they got here, they'd realized they'd been tricked. They're here, they're hungry, they don't have any friends and have been threatened to cooperate."

If convicted, each defendant could face up to 20 years in prison and a fine up to $250,000.

Florida Doctor Convicted for Healthcare Fraud After 3-Week Jury Trial

A Miami-area doctor was convicted in federal court after a jury determined that he was guilty of five felony counts for his role in a $23 million dollar HIV injection and infusion Medicare fraud scheme, according to a press release from the Department of Justice. The federal court jury convicted Rene De Los Rios of one count of conspiracy to commit health care fraud and four counts of submission of false claims to the Medicare program. The conspiracy charge carries a maximum penalty of 10 years in prison and a $250,000 fine, while each false claims count carries a maximum penalty of five years in prison.

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Evidence presented at trial showed that the Dr. De Los Rios was hired by the medical clinic owner, Damaris Oliva, to "order unnecessary tests, sign medical analysis and diagnosis forms, and authorize treatments to make it appear that legitimate medical services, including injection and infusion therapies, were being provided to patients who were Medicare beneficiaries." De Los Rios was also accused of signing patient charts, often without seeing the patient, indicating that injection and infusion treatments were medically necessary, when, in fact, he knew they were not. Further, De Los Rios allegedly diagnosed almost all of his patients with the same rare blood disorders, which the patients did not in fact have, in order to ensure maximum reimbursement from Medicare, and that he prescribed expensive (and medically unnecessary) medications to patients for the sole purpose of receiving reimbursement from the Medicare program.

This case represents another victory for the Medicare Fraud Strike Force, which has now charged more than 1,000 defendants and organizations that collectively have billed the Medicare program for more than $2.3 billion. In this particular case, from approximately April 2003 through October 2005, the medical clinic where De Los Rios worked submitted approximately $23 million in claims to the Medicare program for injection and infusion treatments for Medicare beneficiaries that were not medically necessary, and were not provided. The Medicare program paid approximately $11.7 million in claims.

A Review of Recent Federal Sexual Exploitation and Child Pornography Sentences

Federal sex crimes encompass a wide variety of criminal action, and as a result, the sentences handed down by federal district court can vary greatly. Here's a quick summary of a few recent sentences involving federal sex crimes around the nation:

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1. A Florida man received a 72-month sentence last week for receipt of child pornography. The defendant was reportedly in possession of approximately 17,500 images of child pornography, including sadistic and masochistic images and depictions of sex acts with children
under twelve.

2. Last month, a North Dakota man was sentenced to 30 years in federal custody on child pornography charges. A federal jury found the defendant guilty of using the internet to download visual depictions of minors engaging in sexually explicit conduct. The sentencing judge ordered the defendant to serve 20 years for receipt of materials involving the sexual exploitation of minors, to be followed by 10 years on a charge of possession of those materials.

3. A 66-year-old California man was sentenced last week to almost 22 years in federal prison after he admitted to persuading a minor to participate in sexually explicit acts for the purpose of filming it. Reportedly, the defendant Baldwin came under investigation by the Federal Bureau of Investigation's Modesto Office and the local Sheriff's Office after a minor victim reported being molested by him from 2005 through early 2010.

4. Last month, a Texas man was sentenced to 20 years after he pled guilty in November 2010 to one count of receiving child pornography. After executing a search warrant at the defendant's residence, a forensic examination of his computer and officers discovered more than 100 images of child pornography. Further, according to the affidavit filed with a criminal complaint, a 16-year-old victim described details of sexual encounters with the defendant that occurred at the defendant's home. The victim stated that they had sexual intercourse and that during one of the sexual encounters, the defendant recorded it and stored it on his computer.

As these cases indicate, child pornography and sexual exploitation of minor cases can carry severe penalties. If you are suspected of being involved with a federal sex crime, act immediately to consult with an experienced federal criminal defense attorney.

Sixth Circuit Overturns Sentence of Tennessee Defendant Due to Trial Court's Abuse of Discretion

In a rare move, the United States Sixth Circuit Court of Appeals overturned a sentence handed down in the Eastern District of Tennessee and remanded the case to the trial court for resentencing. In U.S. v. Evelyn Worex, the Sixth Circuit concluded that the sentence was substantively unreasonable.

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The defendant, Evelyn Worex, entered a guilty plea to an indictment charging her with one count of unlawful possession of firearms and ammunition by a convicted felon, in violation of
18 U.S.C. § 922(g)(1). Ms. Worex was sentenced to 48 months confinement, but her advisory United
States Sentencing Guidelines range was 18-24 months. The trial court sentenced Ms. Worex to a 24-month upward variance based upon her alleged involvement in uncharged criminal activity that had not been established by a preponderance of the evidence. The information concerning Ms. Worex' involvement in the uncharged criminal activity was derived from the Presentence Investigation Report.

Ms. Worex' appeal is essentially that the sentencing court abused its discretion by imposing an above-Guidelines sentence based upon the factual circumstances of her case when her potential involvement in the uncharged shootings had not been proven by a preponderance of the evidence. Accordingly, Ms. Worex claims that the 24-month upward variance from the 18-24 month Guidelines range, which resulted in a 48-month sentence, was premised upon improper judicial fact-finding.

The Sixth Circuit agreed with Ms. Worex' appeal because the uncharged criminal conduct was not proven by the "preponderance of the evidence" standard. The Appeals Court wrote:

...the district court may consider uncharged conduct for sentencing purposes, but in order to do so, it "must make findings by a preponderance of the evidence." Here, it is undisputed that, at the time of her sentencing, Worex had not yet been charged for her role in the Piatt and Burrell shootings. Moreover, the district court conceded that the evidence regarding this uncharged conduct, albeit incriminatory, was insufficient to establish her involvement by a preponderance of the evidence. (citations omitted)

Defendants and attorneys alike should be very careful of which "facts" provide the basis for a defendant's sentence. Presentence reports can be a potential back door for unproven information to be presented to a sentencing judge. Timely objections to both the Presentence Report and to a sentencing judge may be necessary for any unproven information used to sentence a defendant.